INTERVIEW: Australia's hydrogen subsidy program seeks to catalyze offtake deals

Australia's Hydrogen Headstart subsidy program aims to bridge the gap between production cost and market price, accelerating the transition to commercial viability, a senior official from the Australian Renewable Energy Agency (ARENA) said Oct. 17.

ARENA launched a tender for the A$2 billion ($1.3 billion) Hydrogen Headstart program Oct. 10, inviting expressions of interest, or EOI, from large-scale renewable hydrogen developers to start a shortlisting process to culminate in 2026-27.

"The program aims to kick-start the Australian hydrogen industry and help bridge the commercial gap for first mover projects," Alexandra McIntosh, Director of ARENA's Business Development & Transactions Team told S&P Global Commodity Insights.

"Ultimately the number of projects funded under the program will depend on the applications received as well as the commercial gap and the scale of those projects," she added.

The cost of producing renewable hydrogen is currently two to three times the cost of hydrogen derived from fossil fuels, McIntosh said.

The production cost of grey hydrogen in Australia ranges between A$1.70/kg and A$2.20/kg, according to an Australian Hydrogen Market Study done in 2021 by the government.

Platts Hydrogen Price Wall shows that even with CCS, conventional steam methane reforming costs in Western Australia are about half the comparable PEM electrolysis cost assessment.

Platts, part of S&P Global, assessed Western Australia hydrogen produced via PEM electrolysis at $2.91/kg Oct. 16, down 4.28% on the month.

Under the subsidy program developed by ARENA in collaboration with the Department of Climate Change, Energy, Environment and Water, projects seeking to produce renewable hydrogen or its derivatives at scale can apply for a production credit delivered over 10 years.

ARENA is expecting many EOIs in response to the tender.

"Through the consultation phase we received over 110 written submissions and held forums in Sydney, Perth and a virtual webinar which collectively had around 400 attendees," McIntosh said. "Given the response through the consultation phase, we expect there will be a positive response to the EOI stage of the program."

Market prices revelation

ARENA has been funding Australian hydrogen projects since 2017, disbursing over A$300 million across 46 renewable hydrogen projects, but Hydrogen Headstart is still seen as an important test case because applicants must submit offtake agreements or MOUs, throwing light on the market price required to make projects viable.

ARENA's support for renewable hydrogen has spanned early-stage research and development projects through to first-of-kind deployments, including hydrogen transport and refueling infrastructure, alumina refining, ammonia manufacturing and remote power.

"At this stage, we are focused on delivering Hydrogen Headstart and ultimately the lessons, and price discovery from the program will be used to inform the government on future funding requirements for the industry," McIntosh said.

At the EOI stage, applicants have been asked to provide MOUs or term sheets for offtake, then expected to be firmed up through the Full Application stage to detailed long-form countersigned term sheets, she added.

Eligibility to bid is based on single-site, 50-MW-plus electrolysis plants that are 100% powered by renewable energy.

Currently, hydrogen is used in various processes like ammonia manufacturing, however, to date, it is produced from fossil fuels.

"We have seen increasing interest from various parts of industry seeking to decarbonize the existing use of hydrogen as well as interest in alumina refining to decarbonize the calcination process, hydrogen for heavy transport as well as e-fuels such as methanol for shipping," McIntosh said.

McIntosh said the Headstart program would introduce change, as "this is the Australian government's largest investment in renewable hydrogen to date and a critical step in unlocking Australia's renewable energy superpower."