National Hydrogen Strategy Issues Papers

Note that Origin's interest is in green or renewable hydrogen production, and references to hydrogen production throughout its responses are references to renewable hydrogen production unless otherwise stated.

In order to achieve a timely scale up, the next wave of projects needs to be in the 50-150MW scale. This will encourage suppliers of electrolysers to increase their manufacturing capacity and firm up the associated supply chain. Reliability at this scale is needed before the scale efficiencies can be achieved. Ultimately, it is likely to only be once large scale production lines are in place (when there are multiple orders for multiple projects) that costs will come down to enable justification of gigawatt scale electrolysis.

Government grants and support could have as a pre-requisite (or give priority to) projects which collaborate along the value chain and which use or repurpose existing infrastructure where possible. Some update to use definitions and regulatory or approval requirements such as identifying special development areas may also be required to facilitate this. Origin supports the statements in the International Energy Agency report regarding potentially creating and leveraging existing industrial clusters.

In particular, enabling existing port and export / storage facilities to be made available for Hydrogen or Ammonia export.

The encouragement of collaborative investment should reduce the boom and bust cycle previously experienced in industrial growth by smoothing the numbers and timings of projects coming online.

Origin, through its shareholding in and role as Upstream Operator of the Australia Pacific LNG joint venture, is well positioned to have learned from the experiences of scaling up the CSG to LNG industry in Queensland. Origin notes that the existence of an export market was required to provide the scale needed to justify the investment in all the associated infrastructure necessary to monetise coal seam gas. Major pipelines, gas processing facilities, and water treatment facilities would not have been economic to build on the strength of the domestic demand alone at the time of project sanction. Early establishment of customers and sizeable markets will similarly be required to support investment decisions in hydrogen and its associated infrastructure.

With regard to community engagement around an emerging industry, the earlier this starts, the better. Origin comments more on this issue in the Community Issues Paper.

The CSG industry in Queensland has a highly collaborative approach to health and safety which should be learned from in this emerging industry.

Most importantly, Origin believes that this collaborative approach should be the basis for hydrogen projects and investment in Australia. Competition for export markets is global, not amongst Australian players, and a better outcome will be achieved by developers and suppliers and others along the value chain working together.

This could in turn support a North Sea approach to projects and contractor/resource scarcities – one where projects are planned consecutively not just concurrently, leading to far better management of the impact on local markets for labour, equipment and services.

Investment in commercial scale projects needs to start occurring in the early 2020s in order to capture early market demand in Japan and Korea. Origin would caution against continued investment in demonstration projects and instead encourage looking globally to gain the knowledge these demonstrations may have provided.

Regulatory reform regarding use of existing infrastructure and ensuring timely approval pathways will be required in order to meet demand.

Setting a single national Australian standard as soon as possible which defines the different types of hydrogen production (renewable, low carbon, fossil fuel etc) will help customers understand and trust the source of their hydrogen. A more fulsome accreditation scheme can be developed over the next 1 – 3 years.

Origin agrees that there is a long road to building the hydrogen industry in Australia to its full potential, however due to the value associated with capturing early opportunities, we must take the first steps as soon as possible.

Federal, State and Territory governments can help by providing a level of certainty and stability to those early investments, through supportive and stable regulation (including market regulation), to setting clear long term targets, to providing incentives to companies to help Australia meet those targets. Regulatory certainty must be well underway by the early 2020s.

There is also a significant role for states in building community awareness and understanding of hydrogen, which should be a matter of priority.

While ARENA has been successful in supporting the establishment of solar, wind and other renewable generation, hydrogen is at a much earlier stage of maturity. Extending ARENA’s current funding window and budget beyond 2022 out to 2025 would support a significant step change in hydrogen production in Australia as it moves from demonstration projects to commercial scale.

Projects seeking government support should be able to demonstrate how they are in the interest of the domestic market.

Investors in an emerging industry are looking for ways to best reduce their risk. Government can help reduce risk through providing certainty with regard to regulation, committing to royalty-free periods, and potentially underwriting demand for hydrogen into the domestic market.

Co-investment or provision of low-cost financing is desirable, and would be very effective in the short term to secure scale projects, and to secure Australia’s position as preferred exporter of hydrogen.

There are significant benefits on offer for all Australians associated with the growth of a hydrogen industry, including, but not limited to:
- job creation and growth in regional areas
- grid firming benefits for centralised and decentralised networks
- economic growth
- access to low carbon energy for industry
- increasing longevity and relevance of existing infrastructure (and associated jobs) including gas pipelines and existing generation facilities which can be decarbonised through blending and co-combustion of hydrogen with natural gas and even coal.

Australia will be competing globally to export hydrogen into overseas markets. It is vital not to stifle this opportunity into such a price competitive market with the early imposition of revenue arrangements such as export tariffs.

Origin agrees that it will be important to build a domestic market for hydrogen in parallel with preparing for export, but does not believe that a domestic reservation strategy for hydrogen would be effective. Projects receiving state funding or support could be instead required to demonstrate how they are beneficial to the domestic market. The lessons learned from building hydrogen facilities at scale for export will be the key lever in reducing costs for hydrogen to be supplied to the domestic market as that demand grows.

As hydrogen is the most abundant element in the universe, and can be produced using renewable power, it does not have the same characteristics as other incumbent energy carriers such as coal. The level of revenue expected to be provided by hydrogen should be balanced with the overall benefits experienced by the nation as a result of the growing use of hydrogen.

Australia has the advantage of already being an established energy provider to importing nations such as Japan and Korea. However, uncertainty in energy regulation and policy can raise questions of risk for counterpart countries.

Proving that there is government support for this emerging industry by way of co-funding projects with counterpart governments, as well as securing bilateral strategic agreements would reduce this risk, as would early regulatory certainty as outlined in responses to other relevant issues papers.

Government support for collaborative partnerships would aid a “Team Australia” approach, particularly enabling early entry into export markets. Australia is competing globally not locally, and it is important for Australian projects to be among the first projects which secure offtake and establish trusted shipping routes.

Government provision of access to grants, low cost financing, or underwriting offtake could all help support early scale projects at a cost which is competitive globally.

In addition, while hydrogen’s potential is massive, the industry is still in its infancy, and it is important not to stifle Australia’s competitiveness by imposing royalty or excise arrangements too soon or too onerously.

The securing of commercial offtake arrangements for export should be the realm of the private sector and kept as a business to business transaction.

Policy across the energy and commercial eco-system which ensures that other countries can rely on commercial arrangements with Australia will be necessary.

In addition, incentives for demand growth both domestically and in export markets will greatly increase both the pool of customers and their ability to cover the cost of hydrogen production as the industry scales up.

As mentioned in previous responses, Origin believes there are myriad benefits to Australian society through the establishment of an effective, scaled hydrogen industry. That industry needs a chance to be established in an already extremely cost competitive global market, before alternative revenue arrangements would be appropriate. In addition, any direct revenue by way of royalty or excise should be balanced by the greater contribution made by hydrogen to the economy (job growth and retention, decarbonisation, extending life of existing infrastructure, establishment of new capabilities and capacities, etc).

Hydrogen produced in Australia will flow to where the demand is. Initially, that demand exists in export markets. By developing initial export projects, Australian producers (and others along the value chain) will start to realise economies of scale, reducing the cost of green hydrogen, thereby making it more attractive and more able to fit into Australian domestic market needs. Australian producers and governments and councils should continue with activities aimed at increasing domestic demand, ready to offtake scale quantities once economics of scale have been realised.

Australia should be well positioned to supply the volume associated with the target of fulfilling 50% of Japan and Korea’s hydrogen imports by 2030 (50% of 300ktpa in Japan for example). In order to be able to secure offtake for this volume, however, significant inroads must be made on reducing the cost of hydrogen production, particularly green hydrogen production. Government support by way of early grant funding and sponsorship of early scale export projects would be beneficial.

The aim should be to have a guarantee of origin / accreditation scheme in place by the time the need exists. It is suggested that this could be rolled out in three phases:
1) Definitions as to what constitutes the different categories of hydrogen, and a common language should be included within the National Hydrogen Strategy by the end of 2019. Australian companies are already in discussions with potential export customers, and a common set of terms around what constitutes “green” or “blue” or renewable or low carbon would greatly facilitate this, and ensure a fair playing field from the start.
2) A minimum viable accreditation scheme should be up and running within twelve months (by end 2020). This minimum viable scheme would include the principles, standards and basics, have a very low barrier to entry, and be suitable to build on over the coming years. This timing reflects the number of projects and commercial discussions that are already starting. Customers will be committing to offtake over the next two years, and it is important that they trust the hydrogen they purchase right from the beginning.
3) A full scheme should be in place by 2023. At this point, the first commercial scale projects will be exporting and will need to be able to track, trace and audit the source of their hydrogen. In addition, discussions and planning will be underway for the next scaled up projects, as well as there being increased domestic demand. It is important for the social acceptance of hydrogen that its source is trusted.

Origin is using the term accreditation scheme rather than Guarantee of Origin here, due to the potential for the scheme to be greater than origin alone. Along the value chain from production to end use, hydrogen is likely to be blended, converted, cracked, compressed, transported and stored, potentially multiple times. It has not yet been settled how far reaching a scheme should ultimately be.

An initial scope is recommended to include:
- Both carbon emission intensity and the renewability of the energy used to create the hydrogen
- Renewable energy should be defined broadly enough to use power purchase agreements linked to renewable development rather than requiring the construction of dedicated renewable plants. This is to ensure sufficient grid connection of hydrogen production in order to provide grid firming benefits in an established hydrogen economy.
- Scope 1 and Scope 2 emissions
- All Australian hydrogen producers
- Accepted hydrogen carriers/midstream operators such as ammonia producers, liquid hydrogen, and MCH/Tolulene
- The ability to measure hydrogen production proportionally (eg if 10% of the hydrogen flowing into an ammonia plant is produced from renewable sources, then 10% of the ammonia produced from that plant would be classified renewable)
- An incentive/pressure to increase the proportion of hydrogen produced using renewable, low carbon means

In addition, the initial and final scheme must be federal and not different by state, with broad endorsement across the full range of stakeholders and industry (government, regulators, states, community groups, energy purchasers).

For simplicity, it would be best to have one scheme for both domestic and export markets, though it is recognised that these customers and markets have different needs to be met.

Time must be taken to ensure that any scheme is easily understood particularly by the domestic retail market. Any unit used in communication must be easily compared to alternative products (such as diesel).

Origin would recommend a proportional approach rather than a threshold of eligibility. This will be needed initially as projects use existing infrastructure to bring costs down prior to realising economies of scale.

In order to deliver the ultimate purpose of a decarbonised supply chain for hydrogen, such a proportional approach could be reinforced through incentives to increase the proportion produced through renewable, low carbon means.

An eligibility threshold could lead to unintended consequences. For example, if grid connection meant not meeting the threshold due to the carbon intensity of the NEM, then hydrogen production may occur largely off grid, which would negate some of the potential future benefits of an Australian hydrogen economy.

Origin is agnostic as to the body used to administer certification, as long as it is trusted, transparent and auditable.

Origin recommends continued liaison between the National Hydrogen Working group and industry bodies such as HMA to ensure broad acceptance of the criteria developed for an accreditation scheme. Origin would be more than willing to continue work with the National Hydrogen Working group and colleagues across industry to ensure a scheme can be set up in a timely manner as recommended in the response to question 1 above.

Production of hydrogen and the regulation of any associated carbon emissions should be aligned with any other industrial process. An accreditation scheme which recognises the renewability and carbon intensity of hydrogen production on a proportional basis, and which incentivises producers to reduce the carbon emissions (ie move from fossil fuel produced hydrogen to renewable hydrogen) would support a continued decarbonisation of the Australian economy.

The safe operation of desalination, water treatment and water recycling facilities is understood by the relevant industries and operators. The use of such existing facilities wherever possible to produce water for electrolysis should be seen as the preferred source, having as it does the least impact on potable water supplies for communities and other industry.

Origin supports a strongly consultative and collaborative approach in engaging with communities that may be directly affected by the development of a large scale hydrogen industry. Origin notes that early projects are likely to be co-located with existing facilities in industrial or brownfields areas and may therefore have a low impact on communities, the environment and agriculture.

Origin would support an industry code of conduct modelled on the principles of respect, transparency and inclusiveness. Origin also believes that community engagement and education around hydrogen should be a matter of priority for states and territories who wish to develop hydrogen industries. Engagement and consultation with the affected and broader communities needs to take place well in advance of development and should not be left to individual producers alone. It is important to build trust right from the start of this emerging industry, and helping all Australians understand the mutual benefits of this industry will aid in that.

Origin recommends extending the coverage of activities in this table to gas transmission as well as gas distribution networks, and notes that there may be some gas transmission pipelines which will be ready for hydrogen blending prior to 2022.

There are significant benefits to the general public associated with connecting hydrogen production (electrolysis) to the grid (seasonal storage, flexible loads, demand response).
Origin agrees that using grid connected electricity should result in the lowest levelised cost of hydrogen because the electrolysis capacity factor will be high, but this may not be possible in all instances, for example in remote locations or where co-located with other off-grid industry. In addition, it will be important to engage with AEMO and network operators to identify the mutual benefits of grid connection as one of the potential key barriers to grid connection is likely to be the network charges (both connection and ongoing).