The future is green: NSW Government joins race to become a global hydrogen superpower

The NSW Government recently announced the launch of the NSW Hydrogen Strategy, which is intended to make the state one of the most attractive regions to produce renewable hydrogen in the world. The Strategy, a key pillar of the NSW Government's plan to transform the State into a "global hydrogen superpower", includes ambitious targets, intended to motivate companies to establish themselves in NSW and to build a competitive export industry.

In this article we provide a brief review of the Strategy and some comment on other States' hydrogen strategies, in what has become a highly competitive Australian market for investment attraction.

Australia's major trading partners, including Singapore, Japan and South Korea, see hydrogen as a key part of their energy futures, especially to help reduce their carbon footprints. NSW hopes to capitalise on its existing skills, infrastructure and renewable energy resources, to compete globally in this rapidly growing industry. The NSW Government also expects to attract at least $80 billion of private investment, grow the NSW economy by more than $600 million by 2030 and creating up to 10,000 jobs.

Overview of the Strategy

The Strategy pursues twin aims of reducing greenhouse gas (GHG) emissions and driving economic growth. It focuses on integrating green hydrogen into existing industry, developing hydrogen hubs at major ports (the first being Newcastle and Port Kembla) and building a hydrogen refuelling network for heavy vehicles along major highways.

The policies set out in the Strategy support the development and commercialisation of hydrogen supply chains and hydrogen infrastructure projects with the aim to:

• reduce the cost of green hydrogen by $5.80 per kilogram (to $2.80 per kilogram) within the next decade;
• provide up to $3 billion of incentives to reduce production costs and support industry development;
• deliver on the NSW Government's stretch target of 110,000 tonnes of annual green hydrogen production by 2030; and
• drive decarbonisation in the transport, industrial and energy sectors to help NSW reach net zero emissions by 2050.

The Strategy is built on three strategic "pillars", designed to support development of the full hydrogen value chain. These are:

1. Enable industry development, by building the critical ecosystems, skills and "hydrogen-ready" regulatory frameworks needed to establish and grow the green hydrogen industry (including developing a State-wide strategic hydrogen infrastructure masterplan).
2. Lay industry foundations, through industry partnerships designed to financially support the development of foundational infrastructure, supply chains and technology demonstration projects. This will involve developing the State's hydrogen hubs (ie. regions where various users of hydrogen across industrial, transport and energy markets are co-located) and rolling out hydrogen refuelling stations for heavy transport along key strategic freight routes while also integrating hydrogen into existing gas plants.
3. Drive rapid scale, primarily through market measures, delivering economies of scale and cost reductions across the hydrogen supply chain.

The Strategy makes it clear the NSW Government is backing green hydrogen over other forms of hydrogen creation, such as blue hydrogen (which is produced using fossil fuels and carbon capture and storage (CCS technology). Its arguments for this approach are both environmental (lower GHG) and economic (it believes green hydrogen will become more cost competitive than other forms of hydrogen, especially when the cost of GHG offsets is factored in).

Key aspects of the Strategy

Boosting business

The Strategy indicates that the primary barrier to the uptake of hydrogen is its cost, in comparison to incumbent fuels. To combat this, the NSW Government proposes to:

• waive government charges for green hydrogen production;
• provide hydrogen producers who connect to parts of the network with spare capacity a 90% exemption from electricity network charges (a move that, by itself, will reduce production costs by $1.33 per kilogram);
• invest in hydrogen hubs in Illawarra and Hunter;
• incentivise green hydrogen production; and
• establish a network of 100 hydrogen refuelling stations across NSW to support at least 10,000 hydrogen vehicles.

This support, coupled with establishing "hydrogen-ready" regulation, is what the NSW Government hopes will create a favourable ecosystem which will entice businesses to establish themselves in NSW (over other Australian States).

Creating domestic demand

As part of a plan to boost domestic demand, the Strategy proposes to extend the timeframe from 2030 to 2040, for providing financial support and risk sharing for transformative hydrogen projects under the NSW Government's Net Zero Industry and Innovation Program. The NSW Government hopes this will enable the transformation or creation of new industries in NSW, such as green steel, ammonia or cement.

$2.80 by 2030

It currently costs approximately $8.75 per kilogram to produce hydrogen using natural gas (currently the most common fuel source). As part of the Strategy, the NSW Government aims to reduce the cost of green hydrogen by more than half by 2030, producing 110,000 tonnes of green hydrogen annually for less than $2.80 per kilogram.

This is not as ambitious as the Commonwealth Government's stated aim of achieving a price per kilogram of $2, at which point green hydrogen fuel would compete with existing fuels in broad parts of the economy.

Decarbonising and supporting coal regions

The Strategy is intended to assist to diversify the carbon-intensive economies of regional NSW, which are currently heavily reliant on the fossil fuel industry. It also proposes opportunities for regions like Parkes, the Illawarra and the Upper Hunter, referring to their existing supply lines, access to transport links and skilled workforces.

The government expects NSW to attract between $80 billion and $270 billion of private investment in the hydrogen industry, which will largely flow to coal-dependent communities, eclipsing the Government's initial $3 billion investment. The Strategy forecasts that green hydrogen jobs in NSW will outstrip those in the coal industry by 2050.

What other States are doing

There is now a host of hydrogen-related policies, projects and agreements around Australia, with almost every Australian State and Territory having some kind of strategy on hydrogen fuel.

Policies in relation to hydrogen, in particular for hydrogen vehicles and injection into the natural gas distribution network, are being developed in the Australian Capital Territory as part of the ACT Government's Sustainable Energy Policy 2020-2025. Generally, the other State and Territory hydrogen policies or strategies have shorter horizons than the NSW Strategy and provide less fulsome and concrete commitments. For example, none of the other strategies seems to offer the level of incentives (eg. fee exemptions) as the NSW Strategy does.

Takeaways for the growth of hydrogen in Australia

The Strategy is the biggest commitment we have seen in Australia, and one of the biggest globally, to create scale and significant support for business investment to move the hydrogen economy forward. Achieving the stretch targets set out in the Strategy would transform NSW into Australia's largest consumer of green hydrogen and position the State to become a leading hydrogen exporter.

Australia, and the rest of the world, is placing a heavy focus on hydrogen because it has the potential to decarbonise sectors which will be difficult to fully electrify, such as heavy industries and transport. As a growing industry, there is also the opportunity for early movers to take advantage of government incentives and establish themselves in the market.

Interested businesses should submit an expression of interest to participate in the hydrogen hubs by the end of October.

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