Investors cautious about Australia’s green hydrogen ambitions

A particularly ambitious energy venture is currently being planned in northwest Australia as part of a pipeline of billion-dollar hydrogen projects across the country. The Asian Renewable Energy Hub is expected to cover approximately 6,500 km² in the Pilbara mining region, with solar panels and wind turbines that will be able to generate 26 GW of power, equivalent to one-third of the current national capacity.

The $30bn project, which is part of a series of renewables ventures estimated to cost $188bn according to PwC, will power electrolysers to convert water into “green” hydrogen using only renewable energy and then export it as “green” ammonia (a mixture of green hydrogen and nitrogen extracted from the air). It aims to support Australia in becoming a clean energy superpower globally, given its beneficial climate and extensive flatlands available, and reducing its coal and gas exports.

However, the concerning issue about these projects is that so far the vast billion-dollar investments needed to finance them have not materialized and not a single molecule of hydrogen has been sold since investors are cautiously waiting for new policy to be adopted by the fossil-fuel friendly government.

Paul Burke, an energy economist at the Australian National University, says: “Australia has a huge supply-side opportunity in producing and exporting green energy. A key thing we will need is large capital inflows into this sector.” Burke claimed that the federal government “could be doing much more to realize its potential in green energy and clean exports”, such as introducing carbon pricing, tax breaks and a clear renewables strategy.

Australia made public its intentions to invest around US$741mn in developing hydrogen projects, including both “blue” -made from natural gas with carbon capture and storage- and “green” hydrogen. However, unlike the UK, Canada, and some European countries, Australia’s federal government currently has not implemented any market-based policies to encourage investment in the renewables and low carbon industry, such as an emissions trading scheme or a carbon tax.

Consequently, many of Australia’s major institutional investors are hesitant to invest in renewables and hydrogen projects based in the country. For instance, IFM Investors, a A$180bn infrastructure specialist managing Australian pension money, has only recently launched a A$4bn clean energy fund for investing in renewable energy. “Hydrogen is still quite early stage,” said Kyle Mangini, global head of infrastructure at IFM Investors. “We’re taking a relatively small position in this, so we’re across the technology as it develops.”

Additionally, two of the three biggest pension funds in Australia, AustralianSuper and Aware Super, with a collective A$400bn under management, said that so far, they had invested only a few billion dollars in renewable energy projects, due to uncertainty regarding their success probability

According to David Leitch, Sydney-based energy analyst and principal at ITK Services, despite the recent boom of the Australian fossil fuel economy over this financial year because of strong demand from the East Asian markets, the shift to renewables is expected to accelerate due to its Asian trading partners’ net-zero commitment by the middle of the century.

Experts concur that Australia has considerable potential as a clean energy exporter, with a recent study by the Australian National University estimating that 2% of its landmass could be covered with wind and solar farms and produce 26 times the country’s current total electricity generation capacity. In the same study, the researchers developed a model according to which 20% of that electricity would be exported directly to Asia by undersea cable, thanks to the A$20bn Sun Cable project, and 80% would be exported as green hydrogen.

However, the fuels are still in their preliminary developmental stage, with Australia’s pension sector, a traditional player in infrastructure projects, being hesitant to make any significant investments in renewables. It is therefore vital that the Australian government provides more incentives for investors to pour funds into these innovative projects.

Source:

https://www.ft.com/content/6bdfba87-2ea2-4e47-abdf-ed853a22c15d