Practical industry options to cut through hydrogen hype

Australia must transcend the hype over hydrogen and narrow its use down to practical industrial options, a leading business group says.

Employer association Ai Group's chief executive Innes Willox will tell a summit the energy source "is not the be-all and end-all, but it can still be a very big deal".

"We should establish near-zero emissions production capacity for aluminium, ammonia and steel with output equivalent to at least half of Australia's current primary production of those products," he will say at the event in Brisbane on Thursday.

That requires large-scale, near-zero emissions hydrogen production capacity of roughly 300,000 tonnes per year, according to Mr Willox, which would require at least six gigawatts of renewable generation to make.

"Large policy signals" equivalent to tens of billions of dollars in incentives would be needed to promote investment to decarbonise local industry and build new export partnerships, he will say.

According to Ai Group, a financial tool known as "contracts for difference" (CFDs) could be used to cover the risk of backing a commodity that is not yet commercially viable.

CFDs are contracts between investors and financial institutions or governments in which investors take a position on the future value of an asset and don't lose out if it falls short.

Also known as a "reverse auction", the contracts were widely used to encourage initial investment in wind and solar electricity generation before their costs fell. 

Treasury modelling suggests future gains from processing critical minerals, not simply shipping raw materials, could more than make up for expected falls in coal and gas exports as the world decarbonises.

Batteries, wind towers and electrolysers are also in hot demand, but Mr Willox warns Australia will not be best placed to become a manufacturer of everything.

Using the existing industrial base as a starting point, he says getting to the stage of producing significant exports of hydrogen or green iron could make Australia a globally significant demand centre for many energy components. 

"Local production of those might make a lot of sense for security and even efficiency. By contrast, we'll never be a major market for electric cars."

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