AEMO slashes renewable hydrogen development outlook amid commercial uncertainty

Australian Energy Market Operator has substantially scaled back its renewable hydrogen development outlook, citing mounting commercial uncertainties and reduced investor confidence, the AEMO report showed July 31.

The AEMO's 2025 Inputs, Assumptions and Scenarios Report outlined varying trajectories for renewable hydrogen development across three transition scenarios, with domestic hydrogen consumption reaching just 9 TWh in the "slower-growth" scenario pathway by 2040.

"Compared to the 2023 Green Energy Exports scenario, the role for hydrogen production is significantly lower, reflecting current uncertainties affecting commercial investment and supportive policy," the report said, without giving any production estimates.

Under AEMO's most conservative "slower-growth" scenario, domestic hydrogen consumption would reach just 9 TWh by 2040, while the "step change" scenario - reflecting current government policy commitments - projects 15 TWh. Under the "accelerated transition," the most aggressive decarbonization pathway, consumption could potentially reach 33 TWh by 2040, according to AEMO.

AEMO uses a scenario planning approach to assess system adequacy with existing and expected investments, to determine economically efficient ways to provide energy to consumers through the energy transition.

"The scenarios provide a mechanism to explore the investment needs of the energy system with consideration of various pathways to achieve the policies that Australia's governments have committed to, including transitioning to net zero emissions by 2050," it said.

"As such, the scenarios continue to provide a broad range of environments on which to plan the energy system, supporting decision makers in identifying overall investment needs and applying them to AEMO's statutory functions to assess electricity system reliability and security, and gas system adequacy."

Green goods

The accelerated transition scenario, designed to limit global temperature rise to 1.5 degrees Celsius above pre-industrial levels, envisions the highest hydrogen uptake of 33 TWh for domestic use plus an additional 19 TWh for green commodities production, including green steel by 2040, it said.

Despite domestic challenges, AEMO highlighted potential export opportunities, particularly for green commodities production.

"Australia's international trading partners, particularly in Asia, provide great opportunities for Australia's potential to develop and deliver green commodities to support their decarbonisation actions," AEMO said. "For example, as the world's largest iron ore exporter and with high renewable energy opportunities, in this scenario Australia is well placed to service the growing global need for green energy commodities."

AEMO's report follows several large Australian renewable hydrogen project setbacks, as developers grapple with the high cost of producing renewable hydrogen and a lack of interest from buyers and investors.

BP intends to walk out of the 26-GW Australian Renewable Energy Hub, a prominent renewable hydrogen project in Western Australia, it said on July 24.

Meanwhile, Woodside Energy has exited its proposed low-carbon hydrogen project in Oklahoma, US, citing cost escalation and weaker-than-expected demand, while advancing its low-carbon ammonia project in Beaumont in the same country, the Australian firm said July 23.

Platts, part of S&P Global Commodity Insights, assessed Western Australia hydrogen produced via alkaline electrolysis (including capital expenditures) at $4.60/kg on July 30, up 7.48% month over month.

Platts assessed Japan hydrogen produced via alkaline electrolysis (including capex) at $5.61/kg July 31, up 5.45% from a month ago.