Capturing the hydrogen opportunity for Japan and Australia

Australia's hydrogen industry is expected to contribute at least $11 billion to the national economy and generate around 7,600 job by 2050[1]. In the current state of play, hydrogen could greatly support Australia's economic growth in the recovery from COVID-19 – not only through upskilling and increasing the workforce, but through strong trade ties and securing a large export market.
Now is the time to look for future global opportunities. Japan and Australia have begun initial collaborations, but we see significant potential in building this relationship and fostering a new wave of growth for both the Australian and Japanese markets[2].

Australia's hydrogen industry is expected to contribute

$11bn

to its economy by 2050

Is the Japanese market ready to support and finance the hydrogen society?

Japan has set the target to have a complete hydrogen society by 2050. This includes aiming to decrease the price of hydrogen by 90% - making it cheaper than natural gas[3]. This ambitious target has spurred on the industry and kicked off a wave of global interest. The Japanese Government is helping to fund projects and move the country forward, but this isn't without its challenges.

Raising commercial project finance and other corporate finance is a pivotal part of the funding process. However, at this early stage in the development of emerging and innovative technologies (ie before they are economically proven), it may be challenging for developers to raise finance, depending on their planned developments.

In Japan, funding and financing support are available from key government organisations. Funding for hydrogen related research, feasibility studies and pilot projects is provided by the New Energy and Industrial Technology Development Organization (NEDO) and Japan Oil, Gas and Metals National Corporation (JOGMEC). NEDO has supported various energy-related pilot projects in Australia including the pilot project being undertaken by the Hydrogen Energy Supply-chain Technology Research Association in the Latrobe Valley in Victoria.

It is anticipated that financing support from Japan Bank for International Cooperation (JBIC), Nippon Export and Investment Insurance (NEXI), as well as JOGMEC will be available to commercial-scale hydrogen projects. These projects, developed here in Australia or internationally, need to ensure that Japanese companies have a significant role such as being a sponsor, contractor and off-taker.

Japan's Government has taken considerable actions at the legislative and policy levels to facilitate this. JBIC’s statutory law was amended in January 2020 to specifically include hydrogen as an eligible sector for JBIC’s export credits and overseas investment loans to projects in developed countries including Australia[4]. NEXI also launched 'Loan Insurance for Green Innovation' in July 2019, which may apply to projects using hydrogen-related technologies and provides an increased commercial risk coverage rate of up to 97.5%.[5]

Japanese companies need to consider these alternative sources of financing and position themselves to take advantage of the opportunities.

Australia's hydrogen industry is expected to contribute at least $11 billion to the national economy and generate around 7,600 job by 2050.

Is Australia gearing up to help the industry thrive?

In order to boost the economy and drive hydrogen forward in Australia, significant investments need to be made. At this stage, taking advantage of government support is decisive as to whether many projects are viable.

In Australia, development finance facilities such as the Australian Renewable Energy Agency (ARENA), Clean Energy Finance Corporation (CEFC), the Commonwealth Scientific and Industrial Research Organisation (CSIRO) and the Northern Australia Infrastructure Fund can provide support for hydrogen-related investments and are available to both Australian and non-Australian developers.

In pursuit of its key objective to drive the cost of producing one kilogram of green hydrogen below $2, as of April 2020, ARENA has provided more than $55 million in funding to pre-commercial renewable hydrogen projects and has announced its $70 million funding round for electrolyser projects, with the aim of awarding funds before the end of 2020[6] . In addition, CEFC's Advancing Hydrogen Fund was launched on 4 May 2020, making available up to $300 million in concessional finance to promote the Australian Hydrogen Industry. The Federal Government is making a concerted effort to restimulate the domestic economy and encourage private investment in a number of sectors – including in new hydrogen technologies. State-based governments in Australia also have a number of different funds available for hydrogen-based projects to support aggressive expansion policies, in addition to the debt financing set above. Investors can proceed with more certainty as Australia pushes towards the development of an innovative and competitive hydrogen industry.

ARENA has provided more than $55 million in funding to pre-commercial renewable hydrogen projects and has announced its $70 million funding round for electrolyser projects, with the aim of awarding funds before the end of 2020.

Australia's FIRB regime

Investments by Japanese entities may be required to comply with Australia's foreign investment approval (FIRB) regime. For all foreign investors, understanding the impact of this will be critical – especially throughout the next few months as temporary measures to account for COVID-19 have been applied. When considering FIRB approval, a growing hydrogen industry is likely to be especially politically attractive as Australia recovers from COVID-19, and priority will be given to processing applications for investments that protect and support Australian businesses and jobs.

How can we strategically position Australia to be a major developer and exporter of hydrogen?

The strategy is now set for Australia to be a major player in the hydrogen industry by 2030. It opens up doors for new market entrants, empowers companies to diversify their offerings and fosters growth in the industry overall. However, there remain a number of challenges to the development of hydrogen infrastructure and projects in Australia:

1. Regulatory changes

Different policies and priorities currently apply depending on the state in which a project is intended to be developed. As the main application of hydrogen in Australia shifts from use in the gas pipeline network, use as peaking energy storage and use in industrial process to support hydrogen fuel cells in vehicles, a number of regulatory changes will need to be implemented. Identifying and addressing these challenges will be critical to ensure that projects are successful.

2. Developing a nationally consistent approach

Each of the Australian governments has committed to develop (as far as practicable) a nationally consistent approach to regulatory models supporting the hydrogen industry. Several state and territory governments have also established cross-government working groups to develop competency in, and awareness of, hydrogen across government, including identifying and addressing regulatory gaps and providing advice on compliance with existing requirements. Despite the challenges, Australian governments have set universally ambitious targets. Currently, the WA Government has targeted a renewable hydrogen export project by 2022, and the New South Wales Government has set an aspirational target of up to 10% hydrogen in the gas network by 2030[7]

3. Creating global advantage

An important part of Australia's strategy in ensuring international competition is the development of a universal approach to guarantees of origin, leveraging our natural advantage in the production of renewable energy. Although global jurisdictions currently use a wide variety of certification schemes, if a global standard emerges, the competitiveness of commercial facilities exporting hydrogen will depend on meeting the criteria of guarantees of origin to ensure that revenue for such hydrogen can be maximised. In addition to guarantees of origin, suitable export infrastructure will be important for the viability of such projects. In March 2019, Queensland delivered to Japan its first export of green hydrogen. This was extracted from water and produced at the solar-cell facility as a result of a collaboration between the Queensland University of Technology and the University of Tokyo, although more developed infrastructure will be required for commercial export. Australia is putting a significant amount of investment into ensuring we are ready to scale up our hydrogen production. The best way forward is to have a unified approach, consistent across the states, so that we can move from a conceptual hydrogen industry to a thriving one.

There is clear and considerable will, both commercially and politically, for hydrogen to play a key role in both Australia's future and Australian-Japanese relations. Those in touch with the emerging commercial and legal hydrogen landscape will be at forefront in capturing the opportunities available. Positioning for that future starts now.

References

1. COAG Energy Council, 'Australia's National Hydrogen Strategy' (November 2019 <https://www.industry.gov.au/sites/default/files/2019-11/australias-national-hydrogen-strategy.pdf>.
2. COAG Energy Council, 'Australia's National Hydrogen Strategy' (November 2019 <https://www.industry.gov.au/sites/default/files/2019-11/australias-national-hydrogen-strategy.pdf>.

3. Hydrogen and Fuel Cell Strategy Council, 'The Strategic Road Map for Hydrogen and Fuel Cells' (March 2019) <https://www.meti.go.jp/english/press/2019/pdf/0312_002b.pdf>.

4. Japan Bank for International Cooperation, 'Announcement and Enforcement of the “Cabinet Order for Partial Revision to the Enforcement Order of the Japan Bank for International Cooperation Act”' (January 2020) <https://www.jbic.go.jp/en/information/news/news-2019/0129-013048.html>.

5. NEXI, 'NEXI launches Loan Insurance for Green Innovation' (July 2019) <https://www.nexi.go.jp/en/topics/newsrelease/2019072901.html>.

6. ARENA, 'Projects' (July 2020) <https://arena.gov.au/blog/70-million-hydrogen-funding-round/>.
7. Australian Government, 'Western Australian Renewable Hydrogen Strategy' (July 2020) <http://www.drd.wa.gov.au/Publications/Documents/wa_renewable_hydrogen_strategy.pdf>.
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