Argus Media Limited

11/30/2021 | News release | Distributed by Public on 11/29/2021 22:36

Australia most optimal for Asia-Pacific hydrogen: Fitch

Australia has the most favourable balance of rewards and risks within the hydrogen sector in Asia-Pacific given strong support from federal and state governments, particularly for export-focused projects that have translated into significant investor interest in the nascent sector, according to a new report by Fitch Solutions industry research, part of Fitch ratings agency.

Australia has a robust electrolyser pipeline with around 29,000MW at present, Fitch said in a new paper. "We expect this momentum of hydrogen development to continue, given that demonstrations to export hydrogen, in collaboration with Japan, have registered strong progress and shows commercial viability," it said.

At present, conversion of hydrogen into more stable compounds and organic liquids such as ammonia is offering the greatest routes to market, shipped via gas carriers, Fitch said. "Over the past year, we've seen an increasing number of bilateral trade and cooperation agreements signed with several other markets, which will unlock further demand for green hydrogen and green ammonia production in Australia," it said.

A number of Australia-Japan hydrogen joint ventures has been established in the past 12 months focusing on producing hydrogen in Australia and shipping to Japan. Japanese trading house Mitsui plans to build a fuel-use clean ammonia supply chain in Australia as well as in the Asian region, including Japan.

Queensland state-controlled utility CS Energy and its joint venture partner Japanese engineering firm IHI will build a pilot hydrogen plant in Gladstone with capacity of 50,000 kg/yr from 2023. Japanese utility J-Power and Australian utility and gas firm Origin Energy will develop a green ammonia business in Australia's Tasmania state.

"We believe that Australia has a high potential to scale up the development of green hydrogen and reach cost parity, given its large and well-developed renewables sector, making it a highly competitive and viable generation source in the market," Fitch said. Renewable energy generated around 30pc of the electricity in the national electricity market that covers eastern Australia, in the past 12 months.

Japan and South Korea are expected to be some of the largest hydrogen demand growth markets in the Asia-Pacific and they have both set out ambitious targets and strategies for hydrogen and ammonia use in fuel cell vehicles and power generation in their respective latest energy plans, with strong support from domestic investors, Fitch said.

"A portion of this will however be fuelled by clean hydrogen and ammonia imports produced in cheaper locations, such as Australia," it said.

Hydrogen project developments in China have lagged other countries, but a rapid change is expected for the sector in the world's second largest economy over the coming decade, it said. China is already the world's largest hydrogen producer, accounting for a third of global supply, and utilises the gas for industrial processes including oil refining and ammonia production, it said.

As China moves toward its net-zero greenhouse gas emissions by 2060 and decarbonisation agenda, an uptick in low carbon hydrogen projects could provide potential pathways for decarbonisation as the country works to build a hydrogen economy and explores hydrogen consumption in new sectors, predominantly in the auto sector and lower carbon steel production, Fitch said.

But the rest of Asia-Pacific provides a contrast in investor appetite and government support for the hydrogen sector, the paper said. There remain pertinent risks in markets such as Sri Lanka, Myanmar (Burma), Bangladesh, Cambodia, and Laos due to their opaque business environment and a lack of strong legal and financial institutions, Fitch said.

There is also a notable divergence between risks and rewards across several markets, such as Singapore, New Zealand and Hong Kong, which have highly favourable risks profiles but are weighed by limited industrial demand for hydrogen, compounded by subdued growth in their renewables sector. India has high potential but there are high industry risks due to its weak competitive landscape, poor grid network and high legal risks in the market, it said.

By Kevin Morrison