It’ll Take Effort, Not Hype, to Finally Achieve the Hydrogen Future

For example, the Northern Territory government has fast-tracked tracking a proposed H2 green-hydrogen hub at Darwin’s Middle Arm Sustainable Development Precinct. Major hydrogen projects in Tenant Creek, the Tiwi islands are also being explored. Federal and state funding is also backing development of hydrogen hubs in Townsville and the Pilbarra.

However, industry remains wary of over-extending into hydrogen. In October, utility Origin Energy announced its withdrawal from a major hydrogen project in NSW’s Hunter Valley that had been shortlisted for Hydrogen Headstart funding.

Widespread use of hydrogen is possible, but there is no guarantee that the potential will be realised soon. Electrolysis technology faces significant scaling difficulties, and just 4 percent of proposed hydrogen projects globally reach the stage of a final investment decision. Australia has the largest pipeline of hydrogen projects in the world, with an estimated value of more than $225 billion. But as of July 2024, only three of the 76 projects were under construction.

Concerningly, hydrogen has unaddressed demand issues, according to the International Energy Agency. The government is optimistic about massive growth in hydrogen demand by 2050. But projections to 2050 often rely on growth in new applications for hydrogen—such as in heavy industry, long distance transport and energy storage—accounting for up to one third of consumption. Yet these new applications currently account for just 1 percent of total demand. Governments and investors must be wary of the discrepancy.

Valuations of the global clean hydrogen sectors are in decline. In early 2021, S&P’s Hydrogen Economy Index, which measures the value of clean hydrogen companies across the supply chain, peaked at US$293. After steady decline it is now at US$116.

Still, Australia should not necessarily give up its hydrogen bet. But we must remain aware that plenty of work is needed for it to pay off.

Further policy measures are needed. Foreign investment will be needed to grow and sustain the industry. International partners such as the United Arab Emirates—with its capital, investments in hydrogen, national hydrogen strategy, long experience in energy, and free trade agreement with Australia—will be important to realizing Australia’s hydrogen potential.

The government and industry will have to communicate more to reduce costs, increase hydrogen competitiveness and understand why major companies are withdrawing from projects.

Governments must prioritize research and development into clean hydrogen production and new hydrogen applications. Australia needs innovation to get a competitive advantage.

Finally, the federal government must deliver on the National Hydrogen Strategy and be ready to adjust it to reflect market situations. The strategy is promising, but it must coordinate the federal government, state and territory governments, and industry to deliver an Australian hydrogen economy.

Henry Campbell is the strategic engagement and program manager of ASPI’s Northern Australian Strategic Policy Centre (NASPC), Strategic Policing and Law Enforcement Program and Counterterrorism Program. This article is published courtesy of the Australian Strategic Policy Institute (ASPI).