Consultation on the design of the Federal Government’s Hydrogen Headstart program (Program) has officially opened following the release of the Hydrogen Headstart Consultation Paper (Consultation Paper) on 7 July 2023.
Announced in the 2023 Federal Budget, the Program allocates $2 billion in funding towards minimising the cost of low-carbon alternatives such as hydrogen and enhancing Australia’s capacity to participate competitively in the global hydrogen market. For more on the 2023 Federal Budget, see our New Energy Quarterly which also highlights developments in the Australian hydrogen market.
According to the Consultation Paper, the intention of the Program is to support early large-scale renewable hydrogen projects and propel Australia to reach up to one gigawatt of electrolyser capacity by 2030. This goal will be achieved by bridging the commercial gap between a successful applicant’s expected sales price of hydrogen or hydrogen derivatives and the applicant’s cost of production, inclusive of a justifiable return on capital.
The Consultation Paper sets out the indicative eligibility criteria which interested applicants will have to satisfy as part of a two-stage competitive process (Competitive Round). The Competitive Round is limited to projects that are new deployment of electrolysis projects or new renewable hydrogen production facilities, which are entirely powered by renewable energy generation. The carbon emissions of these facilities will be verified by the incoming Guarantee of Origin scheme.
All end uses of hydrogen or hydrogen derivative products will be eligible under the Program, however, hydrogen produced using coal gasification or steam methane reforming with carbon capture and storage technology is ineligible for funding. Other proposed project requirements include single-site deployments with a minimum electrolysis deployment of 50MW. Applicants will also be required to have a valid commercial use for the end use of hydrogen.
Successful projects will be able to receive a production credit known as a “Hydrogen Production Credit” (HPC) over a 10-year period to cover the cost difference between the production cost per kilogram of hydrogen produced from renewables and the sales price of that hydrogen or its derivative products. Applicants will receive HPCs for each kilogram of renewable hydrogen or equivalent metric of hydrogen derivative produced by the facility. Facility volume limits over the initial 10-year period will have to be declared by the applicant and any output beyond the limit will not be eligible for funding through the Program. Accordingly, the maximum support available to a recipient will be the value of the HPCs multiplied by the total volume limit for the facility.
The Consultation Paper also proposes a 50/50 upside sharing scheme with the Government, arising from decreased operating costs or increased sales price over a contract period. Interestingly, no volume risk support for projects is proposed.
Consultation on the Program’s proposed design will close on 3 August 2023, ahead of the consultation on the National Hydrogen Strategy, which closes on 18 August 2023. Stakeholders may submit their comments and responses online here.
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