On 4 May 2020, the Australian Commonwealth Government directed the Clean Energy Finance Corporation (CEFC) to make available $300 million to support the growth of a clean, innovative, safe and competitive Australian hydrogen industry.
This announcement is a significant step in the positioning of Australia as a leading player in a sector that has the potential to become the dominant source of energy in the global supply chain and a key feedstock in the ongoing decarbonisation process across the world within the next 10 years.
The announcement could not have come at a better time as Australia turns its focus to re-stimulating private sector investment as the COVID-19 restrictions are eased.
Where, when and how will the CEFC allocate the $300 million?
The Clean Energy Finance Corporation Investment Mandate Direction 2020 (the Mandate), in which the Australian Government has allocated $300 million of existing CEFC funding for hydrogen, provides that the CEFC must:
“Focus on projects where there is State or Territory Government financial support or policy alignment with the National Hydrogen Strategy.”
The Mandate also provides that when considering investment proposals the CEFC must prioritise projects that focus on one or more of the following:
- advancing hydrogen production projects;
- developing export and domestic hydrogen supply chains, including hydrogen export industry infrastructure;
- establishing hydrogen hubs; and
- other projects that assist in building domestic demand for hydrogen.
What projects fit within this category?
Across Australia there have been a range of relevant projects announced in recent times. This includes, but is not limited to:
- the conduct of a feasibility study by Stanwell Corporation, with funding support from the Australian Renewable Energy Agency (ARENA), into the development of a 10MW hydrogen electrolysis plant at the Stanwell Power Station located south-west of Rockhampton;
- the conduct of a feasibility study by BP Australia, with funding support from ARENA, into the establishment of an export-scale renewable hydrogen production facility in Western Australia;
- a circa $22 billion Asia Renewable Energy Hub in Western Australia, made up of a consortium consisting of InterContinental Energy, CWP Energy Asia, Vestas, Pathway Investments and Macquarie Group; and
- the $1.61 billion H2-Hub, with proposed hydrogen electrolyser capacity of up to 3,000 MW, that has been proposed by The Hydrogen Utility and will be located near existing LNG export infrastructure in Gladstone.
Is there a potential shortcut to securing CEFC funding?
All CEFC funding is subject to a rigorous due diligence process. This process cannot be avoided.
However, parties seeking to enhance the appeal of their hydrogen project to the CEFC, and therefore increase the likelihood of securing CEFC funding, should give due consideration to submitting an expression of interest to the ARENA Renewable Hydrogen Deployment Funding Round (Hydrogen Funding Round). The CEFC has stated that it will seek to invest in, and give priority of investment to, projects included in the Hydrogen Funding Round.
Who is eligible?
The Hydrogen Funding Round is a competitive process by which ARENA intends to grant a minimum of two hydrogen projects a combined total of $70 million to assist those projects advance the hydrogen industry in Australia. To be eligible, projects must satisfy the following criteria:
- the projects must include a new-build electrolyser for the production of renewable hydrogen in Australia, although the project may utilise existing energy generation infrastructure or hydrogen end use infrastructure;
- the projects must meet or exceed the minimum electrolyser size of 5 MW with preference given to projects with an electrolyser size greater than 10 MW;
- the projects must be for a single site location in Australia;
- the projects must have a valid commercial case for the production and use of hydrogen; and
- hydrogen produced must be 100 percent powered by either on-site renewable electricity generation, retirement of Renewable Energy Certifications (or equivalent), contracted electricity derived from a renewable power purchase agreement or a combination of the afore mentioned; and
- the applicant must present a credible commercialisation pathway (cost reduction pathway) for hydrogen production.
A full list of the parameters and scope of the ARENA Funding Round can be found here.
How to submit an expression of interest
For parties who meet the above criteria and are serious about advancing and commercialising the hydrogen sector in Australia, ARENA is accepting expressions of interest for the ARENA Funding Round until 5pm on 26 May 2020. Information on what is involved and the forms that must be completed can be found here.
After submissions close, ARENA will assess each of the expressions of interest and within 45 days will invite shortlisted applicants to submit a full application. ARENA has also said it will target a final announcement on the award of funds by no later than 30 November 2020.
Alternatives to CEFC and ARENA funding?
Putting aside the private debt markets and equity investment, parties requiring low-cost funding might consider the array of State-based hydrogen funding that is gradually being made available.
To date dedicated funding is available in Queensland, Tasmania and Western Australia. However, with the remaining States and Territories still finalising their hydrogen strategies further State and Territory funding is expected to be announced throughout the course of 2020.
The allocation of government funding, through the CEFC and ARENA, by the Australian Government is an important step in Australia’s move to developing a domestic hydrogen supply chain that will serve both the domestic and export markets.
Like all emerging sectors, industry is two steps ahead of policy and regulation. As such, the regulatory framework in Australia for hydrogen is expected to change to ensure Australia becomes the leading player in the sector.
This publication is introductory in nature. Its content is current at the date of publication. It does not constitute legal advice and should not be relied upon as such. You should always obtain legal advice based on your specific circumstances before taking any action relating to matters covered by this publication. Some information may have been obtained from external sources, and we cannot guarantee the accuracy or currency of any such information.