IEEFA – Australia needs to get smarter with green hydrogen
Australia needs smarter subsidies and ultra-low-cost renewables if it wants to realise its growing green iron ambition.
Green iron is made by processing iron ore with green hydrogen, which in turn is made using renewable energy. However, in little more than a week since Prime Minister Anthony Albanese’s trip to China – during which green iron was very much on the agenda – two more green hydrogen projects have been cancelled in Australia.
Both BP and Fortescue abandoned proposed green hydrogen projects in late July, although Fortescue has made clear that its green iron pilot plant remains under construction and on track.
Australia is not alone in seeing planned green hydrogen projects failing; it’s a global phenomenon driven in part by a slower-than-forecast decline in the cost of production. Clearly, there was far too much hype.
This hype also led to some very unlikely uses of green hydrogen being proposed, including household heating and cars (where hydrogen has clearly lost the race to electric vehicles). Such improbable uses have distracted politicians and policy for years.
In addition, there is still too much focus on plans to export green hydrogen. The laws of physics make it look like this will always be too expensive.
Australia needs to refocus its green hydrogen strategy on domestic use in fewer sectors. In short, the sectors where green hydrogen use will make sense are those that already use hydrogen made from gas (grey hydrogen), such as fertilisers and explosives.
A rare example of a green hydrogen project moving into construction reached financial close in late July. The Good Earth Green Hydrogen and Ammonia (GEGHA) project will use the hydrogen in Australia for fertiliser production.
Direct reduced iron already uses hydrogen
Another sector that already uses hydrogen is direct reduced iron making (DRI) – the technology that will be the foundation of Australia’s future green iron exports.
DRI is a mature technology used at commercial scale to process iron ore into iron before further processing into steel. In the Middle East, where DRI is well established, it is based on methane gas, which is reformed into carbon monoxide and hydrogen, which enter the DRI shaft furnaces to reduce iron ore.
If Australia wants to lead the world in establishing a green iron trade it needs to start prioritising projects that will produce green hydrogen for ironmaking or risk losing out to other countries.
Oman has numerous green hydrogen projects under development. Although much of the focus is still on exports, in at least one case the project developers have refocused plans to supply Oman’s growing DRI capacity for iron and steel production. Brazil and Canada are also poised to challenge Australia in the emerging green iron sector by processing their high-grade iron ore with green hydrogen.
If Australia wants to lead in green iron it will need to get smarter with its hydrogen subsidies.
Subsidising the right targets
As Alison Reeve of the Grattan Institute noted recently,
At present, the federal government’s Hydrogen Headstart program and the hydrogen tax credit are agnostic as to how the hydrogen is used, which does little to help demand emerge in the right places.
The consultation paper for round 2 of the Hydrogen Headstart program notes
All end uses of hydrogen or hydrogen derivative products are eligible, including where the product is exported.
Government subsidies for green hydrogen need to take the proposed use of that hydrogen into account. The export of green hydrogen should not be supported. Instead, subsidies should be targeted towards projects where green hydrogen will be used domestically in sectors that already use grey hydrogen.
One such project has already had support from Hydrogen Headstart. In early July, the second and final grant from round 1 of the program went to Orica’s Hunter Valley Hydrogen Hub, which will use green hydrogen domestically to produce ammonia.
And unless we want to subsidise green hydrogen for ever, we’ll need cheaper renewable power. July also saw the Australian Renewable Energy Agency announce AU$60m of new research & development (R&D) support in a quest to deliver ultra-low-cost solar power. A lot more support than this will be needed to ensure Australia’s green iron opportunity becomes reality.
If Australia can’t competitively provide green hydrogen for iron ore processing, then there is the real risk the gas sector will seek the opportunity to secure a significant new source of demand and lock future Australian DRI plants onto gas permanently. That would leave Australia only able to produce emissions-intensive “grey iron”.
Next year’s COP31 climate summit looks likely to be in South Australia, a state that has world-class green iron potential thanks to its high-grade iron ore reserves and renewables-dominated power grid. Yet the state is now being dragged towards supporting gas-enabling infrastructure for iron and steel making. South Australia can’t fulfill its Green Iron and Steel Strategy without green hydrogen.
If Australia wants to be able to demonstrate its green iron potential to potential off-takers around Asia at COP31, it needs to work smarter on green hydrogen.
READ the latest news shaping the hydrogen market at Hydrogen Central
IEEFA – Australia needs to get smarter with green hydrogen, source
