Energy giant Origin withdraws from flagship green hydrogen project in hopes of ending the fuel’s demise

One of Australia’s largest energy companies has withdrawn its plans to build the country’s largest power plant producing ecological hydrogen, claiming that the fuel is too expensive to produce.

In a blow to the Federal Government’s ambitions to develop a green hydrogen industry in Australia, Origin Energy today said it was withdrawing from a planned project near Newcastle, New South Wales.

The project, known as the Hunter Valley Hydrogen Hub, involves explosives giant Orica and was expected to produce 5,500 tonnes of hydrogen per year produced using renewable energy.

But in a statement to the Australian Securities Exchange this morning, Origin chief executive Frank Calabria said the company was “exiting” the project because it was unable to add up the math.

Moreover, Origin told investors it “intends to discontinue work on all hydrogen development opportunities.”

The announcement is another blow to Canberra’s fledgling hydrogen industry and its supporters after billionaire Andrew Forrest’s Fortescue shed jobs and cut investment in the technology.

“We continue to believe that hydrogen can play a role in the future energy mix,” Calabria said.

“However, it has become clear that the hydrogen market is developing slower than anticipated and therefore there are still risks to overcome, as well as input costs and technological progress.

“The combination of these factors means we currently see no path forward to making a final investment decision on the project.”

“Disappointment” decision

Federal Minister for Climate Change and Energy Chris Bowen, who spearheaded the federal government’s hydrogen sales initiative, criticized Origin’s decision.

Bowen said it was a disappointment that quickly sold Australia’s potential to be a leader in any green hydrogen industry that emerges in the world.

He said government incentives – led by the $8 billion hydrogen jump start program – could “unlock” billions of dollars in private investment.

He also praised Orica for remaining committed to the Hunter Valley project, saying the company “remains committed to… the region and manufacturing solutions for a low carbon economy.”

“Origin’s decision is disappointing for workers and businesses developing a hydrogen hub in the Hunter,” the minister said.

“Green hydrogen leverages Australia’s unique strengths and remains important to the future of manufacturing and industry both in the Hunter region and beyond, as well as globally.

“Hydrogen incentives offered by the Albanian government are estimated to unlock approximately $50 billion in private investment.

“Australia’s announced hydrogen pipeline is already worth over $200 billion and includes over 100 projects, a quarter of which are already operational or under construction.”

Rather than press ahead with its hydrogen plans, Origin said it would focus on investing money in renewable energy assets such as wind and solar farms and battery storage projects.

Calabria, whose company is one of Australia’s largest energy producers and sellers with more than four million customers, said the company was not giving up on its decarbonization plans.

Costs and doubts are rising

He said when Origin originally announced its plans for the Hunter Valley, it wanted to use clean energy to produce hydrogen that could replace natural gas at its Orica ammonia plant on Kooragang Island.

However, it said uncertainty over the cost of producing green hydrogen and doubts whether there would be a market willing to buy the related ammonia at a profitable price prompted the decision.

“The exit decision reflects a prioritization of capital expenditure towards opportunities closely aligned with Origin’s strategy,” Calabria said.

“Ultimately, we believe that investments focused on renewables and storage can best support the decarbonization of the energy supply and enhance energy security in the near term.”

Analysts were not surprised by Origin’s decision.

Dale Koenders, head of energy and utilities research at investment bank Barrenjoey, said high costs remain the hydrogen industry’s biggest handbrake.

Koenders said there is no doubt that demand for hydrogen will grow in the future as more industries try to transition away from fossil fuels.

But he questioned the extent to which this would happen, saying there seemed to be no justification for using expensive hydrogen in applications where cheaper renewable energy could do the job.

“Hydrogen is obviously in its infancy in Australia.

“There is great hope that this could be the solution to decarbonization and the energy transition and it absolutely could play a role in the future.

It’s a customer, stupid

Most importantly, Koenders said the markets most likely to underpin the growth of the green hydrogen industry – Japan and South Korea – are moving away from the fuel.

He said both North Asian markets appear to show greater interest in green ammonia – a derivative of green hydrogen – because it is easier to transport and potentially use.

Either way, he said there are few buyers in the green hydrogen and ammonia market, and even fewer are willing to pay the premium to secure its development.

“Right now there is simply no customer demand for hydrogen, either domestically or internationally, to scale up and then drive down costs,” he said.

“It largely depends on having cheap and affordable electricity.

“The Australian electricity market faces its own issues and challenges related to decarbonization and the transition to renewable energy sources.

“In this uncertain environment, I believe it makes sense for shareholders for a company like Origin not to invest excessive amounts of capital in projects that are high risk and likely uneconomic.”