 Hydrogen Insight AnalysisOPINION | Hold the line: the hydrogen fundamentals have not changed, despite the market slowdownAustralian Hydrogen Council CEO Fiona Simon explains why the clean H2 industry has come up against some harsh realities, and why a few cancelled projects will have little impact in the long runA computer rendering of the CQ-H2 project in Queensland, whose future is now up in the air after a new state government took office in the Australian state.A computer rendering of the CQ-H2 project in Queensland, whose future is now up in the air after a new state government took office in the Australian state.Photo: CQ-H2Fiona SimonPublished 10 March 2025, 06:50Recent media reports about delayed or cancelled hydrogen projects have led to some speculation - and in some cases, outright claims - that the hydrogen industry is collapsing before it even came into being.To be clear: the industry is not collapsing. Hydrogen projects are still progressing, with many still in multi-year engineering processes, as expected for first-of-a-kind, complex projects.The negative reports have been discouraging, but it is important to note that building the hydrogen industry was always a long-term effort, and it being difficult does not mean it is not worth doing.Fortescue chairman and founder Andrew Forrest speaking at the World Economic Forum Annual Meeting in Davos, Switzerland, in January.RelatedFortescue to slow investment in green hydrogen projects amid market uncertainties in US, Europe and AustraliaThe reasons for the current delays and cancellations are also not entirely about hydrogen.Global challenges for the emerging hydrogen industryLet's unpack the challenges the emerging hydrogen industry has been facing.First, the hydrogen industry of the future is about producing hydrogen in a clean or green way that is, low to zero emissions - to decarbonise key elements of our economy. We need it for when we need molecules over electrons for energy (such as industrial heat uses) and when we need hydrogen as a chemical (such as producing green iron to make steel).Fiona Simon, CEO of the Australian Hydrogen Council, giving the opening speech at the Asia-Pacific Hydrogen Summit in Brisbane last year.Fiona Simon, CEO of the Australian Hydrogen Council, giving the opening speech at the Asia-Pacific Hydrogen Summit in Brisbane last year.Photo: Photo: SECBut producing clean or green hydrogen is not yet commercial. Although we need it to decarbonise society, we have not built the ecosystem to produce it, and there is not yet a market to sell it into.Hydrogen cannot compete with fossil fuels on price in the current environment. This is why it is in the public interest for governments to invest in the industry - particularly in the absence of a carbon price - to then draw through private investment. And while we have seen major funding announcements from governments, this is not the same as payment made; much of the money to close the commercial gap is earmarked for future years.Second, the commercial gap to fill has been widening rather than closing. Equipment costs have not fallen as hoped, and other costs have skyrocketed. This includes the cost of electricity, which for green hydrogen is the core ingredient.The first wind turbines being delivered to Neom's 2.2GW green hydrogen project in Saudi Arabia.RelatedANALYSIS | Will any more gigawatt-scale green hydrogen projects be built before 2030?It did not help that the aftermath of Covid, as well as Russia's invasion of Ukraine, created new supply-chain blockages and price increases for key project construction and fuel inputs, including natural gas and its knock-on cost effects for electricity.Third, and disappointingly, we are seeing a global slowdown in the pace of the energy transition, with many governments and corporations stepping back from climate undertakings. The energy transition is not costless, and perhaps some people had assumed that someone other than them or their stakeholders would want to pay more for change.In an environment of increasing costs to do business, and resulting high costs of living, this has been a particularly problematic assumption. (Obviously this needs to change - we need stronger government leadership to understand and plan for the transition across the world - but it is what we have now.)An aerial view of the Teesworks site, where HyGreen was set to be builtRelatedBP cancels 'one of the biggest' green hydrogen projects in the UKThese factors have affected sentiment here in Australia and overseas, chilling political and corporate enthusiasm to innovate or take on risk.How difficulties have manifested in AustraliaOver the past eight months or so we have seen Australian media reporting on major project slowdowns, shutdowns, and other changed ambitions, sometimes paired with downbeat quotes from previously evangelical hydrogen enthusiasts. Most of the reports have been in the past few months, during a reignition of the Australian climate wars ahead of an April or May federal election.Before continuing, I want to note that delivering major projects takes time, and patient capital, which is challenging given the short-termism of corporate financial reporting and political election cycles.Plug Power CEO Andy MarshRelatedPlug Power to cut more jobs as losses nearly double to $2.1bn and DOE loan hangs in the balanceMajor projects need long-term planning for what is ideally a tightly managed and swift implementation, and they need the range of cost inputs to remain stable. This is so that when it comes time to execute there is a less time for black swans to crash through the window of opportunity and break things (and budgets), as Bent Flyvbjergtalks about in his excellent book How big things get done.And what is a black swan, or rather, a black swan event? As described by Nassim Nicholas Taleb, where he most recently popularised the term, it lies outside the realm of regular expectations, and it carries an extreme impact. And, despite it not being expected, people create explanations for its occurrence after the fact, where it becomes predictable and comprehensible.We have seen black swans fly into the nascent hydrogen industry: outcomes that were not impossible, but they were not predicted, and only in hindsight are not surprising given that we have been living with rising hydrogen input and project construction costs over long project evaluation and implementation timeframes and this - at the least - makes projects more vulnerable to shocks.Hydrogen projects in AustraliaRelatedMore than a third of all green hydrogen capacity planned for Australia by 2040 is 'high risk': analystRecent hydrogen defunding announcements from previously leading state governments were due to particularly hefty black swans: Queensland had a change in government and the move to take back commitments for the state's largest project appeared politically motivated. In South Australia, the government had to step in to save the steelworks that was tied to the hydrogen project, and money attached to the project was (understandably) reallocated.Not all reasons for project delays or cancellations are black swans of course, often the planning and evaluation process uncovers difficulties and costs that require a rethink on ambition. This is an important part of any project planning and evaluation process.We have also seen a reduction in hydrogen use priorities over time, which was to be expected given the early premise that hydrogen was a 'Swiss Army knife' that could do it all, and the challenges outlined above. Many of us in the hydrogen space have understood that not every MOU [memorandum of understanding] announced would result in a major project; instead we have celebrated the next steps of an emerging industry.Håkon Volldal at Nel's offices in Oslo, Norway.RelatedElectrolyser sales contracts are 'being significantly delayed or cancelled as customers fail to secure funding': NelThe bigger picture for AustraliaThankfully, the project difficulty stories do not provide the whole picture. There are projects moving ahead, and there is appetite to do the necessary and difficult things.We continue to see major industry players undertaking the engineering and economic studies to understand how to take projects forward, and they are learning by doing for those projects in operation.Smaller players are also making headway, with Australian hydrogen technology companies already sought after in the international market.Politically, we see the Australian government supporting the hydrogen sector with the Future Made in Australia package, and with important financing initiatives such as Hydrogen Headstart (which we hope to see announced soon but I also note that Tropical Cyclone Alfred is the ultimate black swan from a political timing perspective) and the Hydrogen Production Tax Incentive.Eduardo Menezes, CEO of Air ProductsRelatedAir Products exits two clean hydrogen projects but hints that the rest of its H2 portfolio is safe - for nowWe also see our states and territories supporting local projects.Hydrogen is not a monolithic topic or endeavour, to be bought into or written off based on a single project or use case (or even unfortunate groupings of negative reports). For too long, hydrogen has been treated this way by those outside the industry.I think we all accepted this simplistic view when "hydrogen" as a term was in the ascendant; the hype also gave us space for the right conversations about priorities and to take the next steps. While losing the hype is not a bad thing, it is to our collective detriment if that space to get things done is also lost.In summary, the fundamentals for hydrogen have not changed. We still need hydrogen for the energy transition.Queensland state premier David CrisafulliRelatedFuture of 3GW Australian green hydrogen project in doubt as state government pulls fundingAustralia remains an excellent place to invest. Australia has great potential for generating huge amounts of renewable electricity. There remains an enormous opportunity for us to also produce more with this electricity, such as making hydrogen and using it to then produce ammonia and methanol, as well as exportable intermediate goods such as iron and alumina.But others also see the opportunities, and there is competition for globally footloose investment capital. We need to pick up the pace on developing the foundations for the private sector to build upon in Australia: the policy, the planning, and the common user infrastructure, such as ports.Ideally, we would also stop the opportunistic negativity about the value of the industry, because this only hurts our collective efforts to decarbonise.A much abridged version of this article appeared in The Australian newspaper on Friday.(Copyright)Published 10 March 2025, |
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