Australia must sharpen its climate targets and refocus its clean energy strategy to attract investors and get stalled renewable hydrogen projects moving, energy and climate experts told Platts, part of S&P Global Commodity Insights, on Aug. 8.

A wave of setbacks -- most notably BP's withdrawal from the 26-GW Australian Renewable Hydrogen Hub, or AREH, the country's second-largest renewable hydrogen project -- has cast a shadow over Australia's new fuels sector and prompted calls for a strategic reset.

"Hydrogen and its derivatives need stronger demand growth," said Anri Nakamura, hydrogen analyst at Commodity Insights. "Large-scale projects can only succeed if matched by equally large-scale demand."

Nakamura added that continuing progress in the EU's Renewable Fuels of Non-Biological Origin targets and enforcement of International Maritime Organization penalties will be crucial to justify the scale of hydrogen production being proposed.

Details sought in climate planning

Domestically, Australia's renewable hydrogen sector would need stronger climate targets and detailed decarbonization plans to spur demand, according to the Investor Group on Climate Change.

"Consistency and confidence in the economic direction of travel, and the important mechanisms to drive that confidence are the 2035 emissions reduction target and the sectoral decarbonization plans," said Fergus Pitt, IGCC's director of communications.

Both Nakamura and Pitt emphasized that BP's exit from AREH, one of Australia's flagship clean fuel projects, is a major setback with ripple effects across the sector.

In July, BP announced its intention to exit AREH, which was expected to produce 1.6 million mt/year of electrolytic hydrogen or 9 million mt/year of renewable ammonia.

While acknowledging the project's potential to decarbonize Western Australia's Pilbara region, BP said it would shift focus to smaller renewable hydrogen initiatives in Australia.

"We are working to progress H2Kwinana, with strong support from our customers and the state and federal governments," a BP spokesperson told Platts, speaking of the sustainable aviation fuel and renewable hydrogen project in Western Australia.

"In the Mid-West, Project GERI is planned to be a phased development involving up to 14 GW of wind and solar generation to produce power and green hydrogen for domestic consumption and future export," the spokesperson added.

BP's exit followed Fortescue's announcement that it is not proceeding with a renewable hydrogen project in the US and an electrolyzer project in Australia, while asserting its commitment to renewable hydrogen and a pipeline of global clean energy projects.

Global momentum highlights Australia's lag

The large Australian setbacks contrast with projects going through auctions and deals elsewhere in the world, where large consumers are seen securing future supplies of renewable hydrogen/ammonia.

In India, 13 fertilizer companies are conducting auctions with the help of Solar Energy Corp., with the initial rounds seeing winning bids in a range of about $590/mt-$640/mt, a low price discovery for the world.

In China, Envision Energy commissioned its renewable hydrogen and ammonia plant at the Chifeng Net Zero Industrial Park in Ordos, with an initial capacity of 320,000 mt/year. The company also signed a binding agreement to supply renewable ammonia to Japan's Marubeni.

These developments highlight Australia's need to recalibrate its renewable hydrogen strategy, where the country aimed to be a renewable hydrogen superpower with export of up to 1.2 million mt/year by 2030, as seen in its National Hydrogen Strategy 2024.

"Smarter subsidies are required that forget targeting green hydrogen exports and instead support realistic, domestic use in sectors that already use hydrogen, including direct reduced iron," Simon Nicholas, lead analyst at the Institute for Energy Economics and Financial Analysis, said in a July report titled "Australia needs to get smarter with green hydrogen."

"The export of green hydrogen should not be supported," Nicholas added. "Instead, subsidies should be targeted towards projects where green hydrogen will be used domestically in sectors that already use grey hydrogen."

Challenges, the road ahead

For Australian projects to swing back into growth and start construction, the high production costs and supply chain issues would need to be addressed, hydrogen project developers and experts said.

"Australia is rich in renewable resources but lacks domestic supply chains on many hardware and equipment required to generate green electricity and green hydrogen," Nakamura said. "Also a comparatively smaller population may put Australia at a disadvantage to quickly scale up and realize cost reduction."

Technological innovation and scale are seen as the path forward. Companies like Hysata are working with advanced electrolyser technology, while InterContinental Energy -- a partner in AREH and the original developer -- is working on the Western Green Energy Hub, a massive 70-GW integrated renewable hydrogen/ammonia project with a captive port in Western Australia.

Despite the exits, the door remains open, particularly for the oil and gas majors to reengage. BP's continued commitment to smaller projects suggests that investor interest could return if Australia can offer prospects for better demand, according to the experts.

Platts assessed Western Australia hydrogen produced via alkaline electrolysis (with capital expenditures) at $4.09/kg on Aug. 6, down 15% month over month. It assessed Japan hydrogen produced via alkaline electrolysis (including capex) at $6.71/kg on Aug. 7, down 4.28% month over month.