Australia's heavy industries seen as lead clean hydrogen offtakers by 2030

Australia's heavy industries are seen as the first buyers of clean hydrogen in the country around 2030, prompted by a lack of alternative routes to decarbonization, participants said at the First Annual Asia-Pacific Hydrogen Summit organized by Sustainable Energy Council in Sydney Oct. 26-27.

Industries such as steel, fertilizers and cement -- users of unabated fossils energy -- are already in hydrogen offtake deal talks, with producers warning of higher premiums while supply volumes grow.

"It will only be the hard to abate sectors that would use clean hydrogen because they don't have alternatives," Rupert Maloney, Executive Director at Alternate Fuels at Clean Energy Finance Corporation (CEFC) told S&P Global Commodity Insights.

"They will use blue or green [hydrogen and ammonia] and that will be at a premium to the grey hydrogen they use today," Maloney said.

Three developers at the conference told S&P Global they expected renewable hydrogen prices to be between $3/kg and $6/kg in 2030, compared to current conventional hydrogen costs of around $1-$1.5/kg.

Australia's A$2 billion ($1.27 billion) Hydrogen Headstart subsidy plan is designed to cover that cost gap.

"Industry is exposed to future regulation like CBAM [the EU's carbon border adjustment mechanism] so there is a very strong imperative to decarbonize," said Andrew Dickson, Development Director at CWP Global.

CWP Global is participating in the 26-GW Australian Renewable Energy Hub (AREH) and the 50-GW Western Green Energy Hub projects, the country's two largest hydrogen projects.

AREH is strategically located in the Pilbara in Western Australia where iron ore, LNG, lithium, gold and crude oil are processed.

It is targeting these potential offtakers in addition to making plans for export, Dickson said.

Australia has 133 clean hydrogen projects with a combined capacity of 10 million mt, according to the S&P Global Commodity Insights' Hydrogen Production Assets database. Most of them are located in industrial belts close to ports.

Premiums

Developers of renewable hydrogen projects said they targeted profit margins of 5%-15% over cost by 2030.

"While we know the cost of power and electrolysis are on the decline, there are other moving components that could determine the renewable hydrogen price by 2030," said one developer, not wishing to be named.

"Infrastructure, demand-side incentives and the carbon price are some of the factors that are being watched for cues on hydrogen's market price," the developer said.

Under Hydrogen Headstart, applicants must divulge price details in offtake deals. Expressions of interest in the scheme are open until Nov. 10, with shortlisted projects to be invited to develop full applications in the next stage.

"Unless the price goes down to $1-$1.5/kg or below the conventional hydrogen price, buyers will not find it viable," a conventional hydrogen buyer said.

Trialing generation

Other use case segments are expected to be relatively small users of clean hydrogen, the conference heard.

Transport had niche applications but was moving largely to battery EVs while the power sector was investing heavily in renewables with low carbon fuels offering flexible backup, CEFC's Maloney said.

The one large scale generation project is South Australia's 200-MW Whyalla power plant and storage scheme under the state's Hydrogen Jobs Plan. The project includes a 250 MW electrolyzer, in part providing hydrogen for the power plant.

"This will act as a template for future projects," said Colin Sadlier, General Manager – Clean Fuels at ATCO, which won the contract to develop the Whyalla project with industrial gas group BOC.

Trial for power generation apart, this project like AREH is banking on a high demand coming from local industry seeking to decarbonize.

"The project is located next to an existing steel mill and we certainly see... (the prospect of) of using hydrogen to create green steel," Sadlier said.

The company envisages "embedding hydrogen into other products such as fertilizers, plastics, glass," he said.

The project also aims to export clean ammonia from the nearby Port Bonython.

Platts, a part of S&P Global Commodity Insights assessed Queensland hydrogen produced via alkaline electrolysis (with capex) at $2.07/kg Oct. 27, up 6.70% month-on-month.

It assessed Western Australia hydrogen produced via alkaline electrolysis (with capex) at $3.13/kg Oct. 27, up 5.74% from a month ago.