The Next 12 Months: Generating demand for green hydrogen and ammonia

Presented on August 25, 2022 during the Ammonia Energy Conference 2022 – Australia

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Abstract

Critical to the development of the green ammonia industry within Australia will be the development of the green hydrogen (GH2) industry. The two come hand-in-hand. The more end uses for GH2 – covering multiple applications and capable of downstream conversion to other energy carriers (such as ammonia) and products – the more the demand side of the GH2 market will grow, providing flexibility as to the ways to achieve decarbonisation. This will also help generate larger economies of scale and faster deployment, leading to a virtuous cycle of increasing demand encouraging increased supply, improving efficiencies and economies of scale which reduce production costs, lower prices, and further encourage demand. Lower prices also open additional markets where green hydrogen can replace existing inputs, e.g. replacing coal in steel production,
So the key to kick starting demand, and this is where governments can and should lead the way – are governments making policy choices that look beyond the immediate economic outcome. Such policies can either:

1. Incentivising GH2 production: by bridging the price gap between green and non-green hydrogen; and
2. Disincentivising substitutes for GH2: either by taxing or regulating their use or price.

Both incentivising GH2 production and disincentivising substitutes supports demand for GH2. The enormous success of policies designed to encourage renewable energy and therefore reduce its cost of production (such that those subsidies are no longer required) provides a clear example of how substantial short term government intervention can enable an industry to evolve from collage, to mainstream, to dominate a market in a very short period.

Given the enormous global push for GH2 arising from macro themes such as ESG, economic recovery post pandemic, and a renewed global will to address climate change post COP26, the market is convinced of the case for GH2. Therefore, behaviour and attitudes do not need to shift – and hence disincentives are not required. Incentives will be much more effective on a dollar-for-dollar basis. This is primarily because of the ‘green halo effect’ – people will pay more because it is green. Price parity is not required, merely price comparability/compatibility.

Government intervention – supply vs demand:

As with the growth of any new industry, the government will have a major say in whether demand for GH2 keeps pace with supply in Australia. Through the National Hydrogen Strategy, Australia aims to grow its domestic hydrogen industry and position itself as a major player in the global economy by 2030. However, to do this, a targeted policy is required to incentivize both demand and supply for GH2 and, therefore, green ammonia. While all States and Territories have some form of funding schemes in place to incentivize the supply side of the GH2 market, NSW is the only state or territory that has provided a clear plan to generate both supply and demand for GH2. Government support of the demand side of the GH2 market is integral to driving large scale investment which will drive the costs of production down below $2.80 per kilo and beyond. The NSW Government has already committed $380 million of funding in the Net Zero Industry and Innovation Program to support existing, high-emitting facilities to significantly reduce their emissions. For many of these hard to abate facilities, GH2 is the likely decarbonisation pathway, and the $380 million will be used to support these facilities overcome the technical and commercial barriers to adopting GH2.

Another welcome initiative to drive the demand side for GH2 is the commitment by the NSW Government to have 20% of their heavy vehicle fleet fuelled by GH2 by 2030. The Strategy provides that by 2030 this initiative alone will create demand for 10,000 tonnes of GH2 per annum or around 70MW of electrolyser capacity. This is coupled with a commitment to support refuelling operators invest in GH2 refuelling stations which will support not only the NSW Government’s heavy vehicle fleet but also encourage fleet operators to convert to GH2 fuel. The Strategy estimates that by 2050, the heavy-duty truck sector in NSW will grow to around 500,000 tonnes of GH2 per annum or 2.6 GW of electrolyser capacity. Primed to capitalise on the growth of the GH2 vehicle sector are companies like H2X, Australia’s first hydrogen vehicle manufacturer who can supply to, and expand with, the growing sector.

Don’t forget demand:

One issue that has become clear in the frenzy to fund GH2 throughout Australia’s States and Territories is the general lack of a coherent plan to ensure there is demand for GH2 as well as supply. The NSW hydrogen Strategy is a step in the right direction and provides the foundations of a plan to stimulate GH2 demand. However, the credentials of this Strategy can only be adequately assessed once the modelling the DPIE relied upon to prepare the Strategy is released. This will not only increase consumer and business confidence in the Strategy, but it will provide other States and Territories with useful information as they develop further GH2 government programs. In the meantime, other States and Territories should follow NSW’s lead and adopt GH2 strategies that prioritise developing the demand side of GH2 as well as the supply side.
As we have seen previously with the RET, its successful deployment has resulted in the addition of 33,000GWh of new renewable generation. Similar schemes focusing on the generation of GH2 can have a real impact on a fledgling hydrogen sector in Australia.

A new industry in hydrogen and ammonia will not only contribute to a cleaner environment but will strengthen industrial competitiveness globally and create jobs and economic growth at home. It should also stabilize Australia’s electricity grid which in turn could lower electricity costs for consumers.

Topics Ammonia Demand Infrastructure Policy

Authors Matt.Baumgurtel

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