Australian clean hydrogen supply advances but demand needs attention: report

Australia's supply-side hydrogen investment, project scale and cost-competitiveness are advancing at pace but a lack of industrial demand building is a concern, according to a new government-commissioned report published Dec. 10.

The Department of Industry, Science, Energy and Resources commissioned KPMG to assess Australia's progress versus international comparisons across 13 industry benchmarks.

"This assessment shows that Australia is progressing well on activities that will support efficient scale-up of the industry by 2030 and the supply-side factors that will let Australia meet increasing demand for hydrogen," the report said.

Demand-side progress had been sluggish, however, in the context of the higher cost of zero or low-carbon hydrogen versus conventional fuels, it said.

S&P Global Platts assessed New South Wales hydrogen produced via alkaline electrolysis, including capex at A$4.88/kg Dec. 10.

New South Wales hydrogen produced via coal gasification with CCS, including capex was assessed at A$3.67/kg Dec. 10.

Vision vs reality

Investment was seen "advancing quickly" to 2025 with private sector commitments exceeding A$1.6 billion, while public sector investment reached A$1.27 billion in June 2021.

Australia had the world's largest hydrogen project pipeline with the potential to produce large quantities of exportable hydrogen by 2030 at competitive prices, the report said.

Project announcements indicate the sector could reach over 100 MW by 2025 with gigawatt-scale projects expected to start operating in the second half of the decade.

Platts hydrogen database includes two of the largest projects anywhere in the world -- Intercontinental Energy's 50-GW Western Green Energy Hub and its 26 GW Asian Renewable Energy Hub, both in Western Australia.

These are distant prospects, however, with potentially lengthy planning and renewable feedstock build-out challenges.

For now, Australia's largest operating electrolyzer is the 1.25 MW project at Hydrogen Park in South Australia. Blending of the hydrogen into residential gas networks has already begun.

The government has funded three other electrolyzer projects of 10 MW each, all expected to be operational in the near future.

Cost outlook

Clean hydrogen costs are expected to decline to between A$2/kg and A$4/kg by 2030, the report said. The cost of hydrogen produced from electrolysis is currently close to A$7/kg in New South Wales.

"The main cost drivers are capital costs and electricity costs," the report said. "Renewable hydrogen production costs could fall below $2/kg after 2030 if electrolyzers and renewable energy become cheap enough."

Electrolyzer size is expected to keep increasing, which is likely to unlock a 50-fold increase in total renewable hydrogen production in the next five years and could reduce costs by up to 75%.

Slow demand growth

Transport demand for clean hydrogen was advancing slowly despite Australia's Future Fuels Fund and Freight Productivity Program, the report said.

In an early move, Hyzon Motors and Fortescue Metals were collaborating on hydrogen-powered buses for mining applications.

There was limited deployment in light transport with only four refueling stations and approximately 30 vehicles in operation in Australia, it said.

Steelmaking and electricity grids were also seeing limited activity and trials.

Australia produced 55 mt of clean hydrogen in 2020.

Global production of clean hydrogen is at around 390,000 mt a year, but clean hydrogen project pipelines suggest that global supply could grow to about 17 million mt by 2030, the report said.