Is Andrew Forrest’s energy dream in danger? The future of green hydrogen in Australia explained | Hydrogen energy

What is green hydrogen?

Hydrogen, as fans of the periodic table remind us, is the simplest and most common element in the universe. It makes up about 73% of the mass of the sun and one tenth of yours.

Refineries use hydrogen to crack heavy crude oil into gasoline and diesel and to produce ammonia for fertilizer. It is also a vital energy store that could one day replace gas or other fossil fuels used for everything from power generation to metal production and heavy transportation.

But hydrogen usually has to be separated from other elements, and that requires energy. According to the International Energy Agency, hydrogen production and use were linked to 900 million tons of CO2 emissions in 2022, about twice Australia’s total emissions.

The energy source used to split hydrogen can be divided into several colors.

CSIRO highlights several examples where green hydrogen is produced without greenhouse gas emissions, typically using electrolysers powered by wind, solar or hydropower.

Blue hydrogen uses steam to separate hydrogen from natural gas, and the resulting emissions are sequestered. If this is not the case, it is grey hydrogen. If coal is used (as the Japanese in Victoria), it is brown or black, depending on the type of coal. There is also “pink hydrogen” if the energy source is nuclear.

Is Fortescue leaving the green hydrogen scene?

Fortescue said it “remains committed to remaining a world-leading green technology, energy and metals company, with a focus on achieving True Zero (through a 90% emissions reduction) by 2030.”

The cost cuts are the result of combining the metals and energy divisions into one “to simplify its structure, eliminate duplication and ensure cost efficiency.”

“We are not, by any means, backing away from our commitment to green hydrogen,” Forrest said in a statement to Guardian Australia. “In fact, we are doing everything we can to support green hydrogen in Australia by investing in renewable energy and hydrogen technology every day.

“The price of electricity in Australia remains a challenge, and fossil fuels and their subsidies are the cause of this.”

Fortescue’s proposed green ammonia plant on Queensland’s Gibson Island requires electricity to cost $20 to $30 per megawatt-hour to be profitable, according to investment bank UBS. But recent long-term contracts for large wind and solar farms offer costs of $70 to $90 per megawatt-hour.

These price differences need to be bridged if hopes for “green steel” and other green metals using hydrogen are to be realised.

Meanwhile, AGL Energy confirmed on Friday that Fortescue was finalising plans to produce hydrogen at the site of its closed Liddell coal-fired power station. “AGL remains committed to exploring options to produce green hydrogen and future fuels in the Hunter (Valley) in the future, if economically feasible,” the spokesman said.

UBS has a “sell” call on Fortescue shares, predicting they will fall at least another 10% (based on a more than 25% decline in 2024 so far). The main reason for the drop is falling iron ore prices as demand in China falls – unrelated to Fortescue’s hydrogen hopes.

What are governments doing?

The government will offer a tax break to subsidise green hydrogen under its Future Made in Australia program. Producers will receive an “incentive” of $2/kg for up to 10 years – from mid-2027 to mid-2040 – for projects that achieve final investment approval by 2030.

States are also doing their bit. South Australia, for example, has a $500 million hydrogen jobs plan, which includes $100 million in state and federal support for the Port Bonython Hydrogen Hub, which aims to produce green hydrogen as an export from 2030.

New South Wales, meanwhile, will offer up to $3 billion to attract similar ventures to the state, with a “side-effect” of 111,000 tonnes per year of green hydrogen production and 700 megawatts of electrolyser capacity by 2030.

But other countries are spending much more. The US Inflation Reduction Act could eventually exceed $US1 trillion (A$1.5 trillion) on decarbonisation programmes, including hydrogen and electric vehicles.

One of the sources added that the cuts at Fortescue were likely related to the company not being shortlisted for the first $2 billion of the $4 billion federal “hydrogen headstart” program for the company.

What does the hydrogen industry think about this?

Climate action relies largely on “cost-effective” renewable energy, not just the green hydrogen industry, experts say.

So-called blue hydrogen may prove to be a short-term solution that makes the product cheap enough to generate greater demand, but “it would be better for the planet if we switched to green energy right away,” one of the sources said.

Fiona Simon, chief executive of the Australian Hydrogen Council, said Fortescue’s decision was “less about hydrogen than it was about one company and its attempts to reassess its priorities”.

That said, “we all know that hydrogen has been difficult, and in the last two or three years (as experience has shown) it’s been more difficult than we thought,” Simon said. “This certainly doesn’t mean the end of hydrogen.”

Increasing production of electrolyzers, which use electricity to split water into hydrogen and oxygen, will help cut costs, she added.

By some estimates, hydrogen costs would need to fall to about $US2/kg ($3/kg) to be competitive. One recent U.S. government study puts current costs at $US12–$16/kg, when shipping costs are included.

What’s next?

The International Energy Agency estimates global hydrogen demand will reach 95 million tonnes in 2022, growing by about 3% this year. Low-carbon fuel sources accounted for just 0.7% of demand.

Minh Le, global head of hydrogen at analyst firm Rystad Energy, said that “as things stand, achieving a price of US$2 for green hydrogen will be very difficult, if not impossible.”

Still, “hydrogen momentum remains strong,” and “there will be a number of major auctions this year in key regions” in Europe, Japan and elsewhere, he added.

Falling battery costs are increasing competitive pressure in areas such as transportation. Hydrogen, 14 times lighter than air, is leaky – with safety concerns – and not yet suitable for grilling.

Rystad Energy’s Nigel Rambhujun said there was “significantly more work to be done on demand-side policy to encourage potential end-users and reduce the green premium associated with clean hydrogen”, with the next six to 12 months being “critical” for the sector in Australia.

“Without significant government support, green hydrogen will continue to be the most expensive hydrogen dye.”