Hydrogen industry update in Australia

Introduction

The recent announcements of funding rounds and the release of State Bills and policies regulating hydrogen and its related activities provide both clarity and areas of interest for stakeholders in the growing Australian hydrogen industry.

This update provides a state-of-play of developments in the proposed funding and regulation of hydrogen across each Australian jurisdiction.

Commonwealth: Hydrogen Headstart

Following the 2023-24 Federal Budget announcement of the establishment of $2 billion in federal funding for the Hydrogen Headstart initiative, on 7 July 2023, the Federal Government released the Consultation Paper for its Hydrogen Headstart Program.

In a policy shift, Hydrogen Headstart focuses on green hydrogen production only, and the Federal Climate Change and Energy Minister, Chris Bowen MP, has ruled out Hydrogen Headstart funding for blue hydrogen.

As set out in the Consultation Paper, the primary goal of the Hydrogen Headstart program is to invest the $2 billion in federal funding to accelerate development of Australia’s hydrogen industry, catalyse clean energy industries and help connect to new global hydrogen supply chains.

The detailed design of the Hydrogen Headstart program will be a collaborative exercise between DCCEEW and ARENA with the aim of achieving up to 1GW of hydrogen electrolyser capacity by 2030 through support of at least two large-scale hydrogen generation projects.

Importantly, the Consultation Paper notes the process for selection and financing of projects under the Hydrogen Headstart program as follows:

1. Selection of projects to be by way of a two stage competitive tender process referred to in the Consultation Paper as the ‘Competitive Round’ (i.e. an EOI stage followed by a Full Application stage with merit gating for each stage) with a focus on project cost and deliverability;
2. Financial support to projects selected for funding will be primarily provided by way of ‘Hydrogen Production Credits’ (HPC) (to be paid quarterly in arrears) for each kilogram of renewable hydrogen (or metric equivalent of a renewable hydrogen derivative) produced by the facility;
3. The HPC value is nominated by the project proponent during the application stage and should represent the difference between the expected sale price for hydrogen for each offtaker and the applicant’s cost of production of the hydrogen (or hydrogen derivative product); and
4. HPC funding will be provided for a maximum period of 10 years from the commencement of hydrogen production.¹

Further key elements of the Hydrogen Headstart program noted in the Consultation Paper are set out below:

1. There will be detailed eligibility requirements for projects to be considered in the Competitive Round (to be specified in Guidelines which are still being finalised). At present the proposed eligibility requirements include the following noteworthy elements:
   1. Technology: Facilities must be a new deployment of electrolysis/renewable hydrogen production facilities;
   2. Must be ‘renewable hydrogen’ 100% powered by (or a combination of) behind the meter renewables (with associated surrender of LGCs); grid electricity, with surrender of LGCs or other certificates under the proposed guarantee-of-origin scheme to match electricity use; or renewable energy under a power purchase agreement (with associated surrender of LGCs);
   3. Eligible use and offtake: All end uses of hydrogen/hydrogen derivative products are eligible and consideration may be given to a balance between domestic use and export;
   4. Minimum electrolyser capacity: A minimum of 50MW capacity while the maximum project size is proposed to be unrestricted;
   5. Location: The facility must be in Australia but need not be located in a Federal or State Hydrogen Hub; and
   6. Commerciality: The facility must be a single deployment and applications must include a valid commercial case for hydrogen end use and a commercialisation pathway analysis;
2. As alluded to above, confirmation that hydrogen produced using coal gasification or steam methane reforming coupled with CCS will not be eligible for funding under the Hydrogen Headstart Program;
3. Proposed upside sharing and volume risk support mechanisms, including mechanisms where offtake customers unexpectedly reduce demand;
4. Merit assessment criteria (including for passing from EOI to Full Application stages) which focuses on cost competitiveness and deliverability, applicant capability and capacity, project financial capability and compliance with proposed knowledge sharing criteria to be required of successful projects; and
5. Indicative program timing, with the EOI stage of the Competitive Round proposed to open in Q4 CY23/Q1 CY24, the Full Application stage to open in Q3 CY24 and final decision dates likely to be in Q4/CY24 or a date to be determined.²

The Hydrogen Headstart program also allocates $4.2M in funding in the 2023-2024 financial year for ARENA to develop the program, in consultation with DCCEEW, including development of the program Guidelines referred to above.³

In addition to the $2 billion in funding for the Hydrogen Headstart Program, the federal government has also announced:

1. Guarantee of Origin Scheme Funding: $38.2 million in funding will be provided for a Guarantee of Origin scheme for the certification and verification of clean energy products, including hydrogen. Such schemes, and the robustness of such schemes, are a key step in gaining access to export markets and green investment where policies focus on green or low-emissions hydrogen;⁴
2. First Nations Funding: $2 million in funding will be provided to support First Nations peoples and business to engage with hydrogen projects, planning processes and project design; and
3. Leverage Funding: $5.6 million will be provided to identify ways to leverage Australia’s competitive strengths in renewable energy, critical minerals and highly skilled workforce to accelerate other clean industrial and manufacturing capabilities. Action items under this funding stream will be refined throughout 2023.⁵

Hydrogen Headstart funding, with the additional funding summarised above, is in addition to Federal and State funding for the development of regional hydrogen hubs, which is a focus of the National Hydrogen Strategy.

The Hydrogen Headstart consultation period is open until 3 August 2023.

Commonwealth: Review of National Hydrogen Strategy

The existing National Hydrogen Strategy was first released in 2019. It was intended to set a vision for a clean, innovative, safe and competitive hydrogen industry that benefits all Australians.⁶ Relevantly, ‘clean’ in the context of the 2019 Strategy included both green and blue hydrogen and was intended to facilitate the development of carbon capture and storage projects as well.

Representatives of all Australian Governments agreed in February 2023 to review the National Hydrogen Strategy.⁷ The review will consider global developments in hydrogen policy and regulation since the Strategy was first released, including the impact of the Inflation Reduction Act and other policies to support hydrogen emerging overseas

The review and update of the National Hydrogen Strategy is part of the Australian Government’s adaptive approach to hydrogen industry development and is intended to allow for ongoing refinement and adaptation of the strategy as new policy, technology and industry developments emerge.

The consultation paper (National Hydrogen Strategy Review Consultation Paper) was released for feedback on 7 July 2023. Interestingly, the consultation paper notes the dramatic changes that have occurred in the hydrogen regulatory and development landscape since Australia introduced its hydrogen strategy in 2019. Such changes (it notes) include that since 2019:

1. Over 30 nations have now published strategies with many more in development, while developments in overseas markets and regulatory approaches have significantly changed the hydrogen landscape⁸; and
2. Overseas progress in FID and development of hydrogen projects has accelerated while Australia has few hydrogen projects at the FID stage, despite a significant pipeline of projects at various stages of assessment.

With this changing landscape as context, the consultation paper seeks stakeholder feedback on a range of issues including the specific barriers that may need to be considered and addressed in order to accelerate uptake of hydrogen end uses so that Australia can reach its full hydrogen potential. These requests for feedback include the following:

1. Whether the current Hydrogen Hub model should be replaced or augmented by a sector driven approach;
2. Whether mandates and targets for hydrogen end use should be used to drive demand for hydrogen (noting that such approaches have been adopted in some overseas jurisdictions);
3. What supply chain and technology/infrastructure technical risks and barriers need to be addressed and overcome (including whether policy should be technology neutral), while noting that a range of hydrogen national standards have either been released or are under development;
4. How best to facilitate community support, benefit sharing and First Nations engagement and participation issues;
5. What specific barriers to development of a large-scale export industry for Australian hydrogen exist and how best to address and overcome such barriers; and
6. What financial incentives and risk management measures ought to be considered, including consideration of tax credit, mandates and other financial measures to promote capital investment in hydrogen production and hydrogen supply chains, including associated infrastructure.⁹

Feedback on the National Hydrogen Strategy Review is open until 18 August 2023.

Despite the change in the Federal Government since the Strategy was first produced and the current review, one of the Strategy’s priorities which is continuing to be pushed forward is the adoption of ‘smart, consistent, light-touch regulation’.¹⁰  This includes regulatory reform to assist jurisdictions in removing barriers to hydrogen industry development and to promote consistent approaches to laws and other regulatory measures, wherever practicable, while ensuring State, Territory and Federal laws are fit for purpose to ensure a properly regulated, safe and efficient industry.

To this end, since 2021, the Legal Frameworks Review Working Group (a combination of Federal, State and Territory government agencies, departments and officers) has reviewed existing legislation to identify current barriers or regulatory gaps that need to be addressed in order to both promote, and properly regulate the hydrogen industry.¹¹ The first tranche of this work has recently been released, being the list of all key Commonwealth legislation which regulates the hydrogen industry and associated supply chain for the following six example projects:

• Hydrogen Production Facility;
• Hydrogen Refuelling Station;
• Hydrogen Use in Production;
• Hydrogen Mobility and Cargo;
• Electricity Generation using Hydrogen; and
• Hydrogen Export.¹²

The next tranche of the work to improve hydrogen regulation has recently been announced, being the preparation of the following National Hydrogen Codes of Best Practice:

• National Code of Best Practice for Hydrogen Production Safety;
• National Code of Best Practice for Ammonia Production Safety;
• National Code of Best Practice for Hydrogen Refuelling Stations;
• National Code of Best Practice for Hydrogen Appliances, Plant and Equipment Compliance; and
• National Code of Best Practice for Ammonia Appliances, Plant and Equipment Compliance.¹³

Commonwealth: National Gas framework

On 21 August 2021, Energy Ministers agreed that the national gas regulatory framework (National Gas Framework) should be amended and that these amendments be expedited to ensure:

1. That proposed investments in projects are not hampered by regulatory barriers; and
2. The existing protections in relation to gas and gas pipelines continue to function where renewable gases are supplied.

Under this expedited process, jurisdictional officials, the Australian Energy Market Commission (AEMC) and the Australian Energy Market Operator (AEMO) are responsible for identifying the amendments to be made to the National Gas Framework.

Consultation paper and consultation draft amendments

In October 2021, the jurisdictional officials for energy released an initial consultation paper on a proposed approach to amend the BGL, National Gas Regulations, National Energy Retail Law (South Australia) Act 2011 (NERL) and the National Energy Retail Regulations (collectively, the National Energy Laws).

The consultation paper received submissions from 19 stakeholders with interests across the natural gas, biomethane and hydrogen industries.

A consultation draft of the National Energy Laws Amendments (Other Gases) Bill 2022 and the associated consultation paper were released in March 2022 after feedback from the initial consultation process was considered.

Policy paper on the National Gas framework amendments

Following the end of the consultation period for the consultation paper and draft amendments outlined above, on 28 October 2022, Energy Ministers agreed on the amendments to be made to the National Gas Law and the associated Regulations to bring hydrogen blends and other renewable gases under the National Gas Framework.

In December 2022, The Energy Ministers released a policy paper on the extension of the National Gas Framework to hydrogen blends and other renewable gases (Policy Paper). The Policy Paper states that the following amendments will be made in relation to the National Gas Law and NERL:

1. The National Gas Law will be extended to apply to ‘covered gases’ instead of just natural gas, which includes hydrogen, bio-methane and synthetic methane; and
2. The NERL will be extended to ‘natural gas equivalents’ (NGE) and ‘prescribed covered gases’ (PCG).

Both the National Gas Law and the NERL will also be amended to enable market bodies to exercise their functions and powers in relation to covered gases, NGE and PCGs. Further, the National Gas Law will be amended to include a new third-party access regime for separate blend processing facilities.

The following elements of the NERL will be extended to NGEs and PCGs:

1. Consumer protection;
2. Retailer authorisations and exemptions; and
3. Retailer of last resort elements.

Importantly, the proposed extension of the National Gas Framework to cover hydrogen and other gas blends will not affect the current allocation of responsibilities between the National Gas Framework and the States and Territories. This allows for the States and Territories to retain authority over which gases can be transported by pipeline or other means to be supplied to customers in their jurisdictions.

As at the time of this article’s publication, there have not been any updates to when the draft bills for the expected changes to the National Energy Laws are purported to be introduced.

States and Territories: State of play

The status of outcomes of hydrogen legal and regulatory reviews differ between the States and Territories. The current status of this review process in the States and Territories is broadly summarised below:

With hydrogen law, regulatory and policy reviews under way across the various jurisdictions, we expect further development and exhibition of Bills to address identified gaps in existing legislation in the remaining States and Territories in the near future.

Queensland: Hydrogen gas and Pipeline bills

The Queensland Government has also undertaken a review of Queensland legislation as part of the Queensland Resources Industry Development Plan (Department of Resources, Queensland, 2022) to identify legal and regulatory amendments required to enable hydrogen and other clean energy sources in the State.

As part of this review process, on 10 May 2023, the Queensland Government introduced the Gas Supply and Other Legislation (Hydrogen Industry Development) Amendment Bill 2023 (Qld) (Hydrogen Industry Bill). The Hydrogen Industry Bill proposes amendments to the Gas Supply Act 2003 (Qld) (GS Act) and the Petroleum and Gas (Production and Safety) Act 2004 (Qld) (P&G Act) to provide approval pathways for hydrogen pipelines and the carriage of hydrogen, hydrogen blends and other renewable gases through pipelines in Queensland. The GS Act and the P&G Act have been reviewed in consideration of the proposed changes to the National Gas (South Australia) Act 2008 (National Gas Law).

Key amendments proposed by, and objectives of the Hydrogen Industry Bill, as set out in the Bill’s explanatory note, are summarised below:

Objectives

1. A key objective of the Hydrogen Industry Bill is to provide a clear regulatory assessment pathway to authorise the construction and operation of pipelines for hydrogen and hydrogen carriers (e.g. ammonia, methanol, toluene and other hydrogen carriers) in Queensland; and
2. In October 2022, Energy Ministers agreed to extend the National Gas Law and the National Energy Retail Law to hydrogen and other renewable gases. The Hydrogen Industry Bill is intended to provide consistency with these national gas regulatory reforms.

Key amendments to the GS Act

Specifics of the proposed amendments to the GS Act are set out in the Hydrogen Industry Bill, while key amendments are summarised below:

1. The main purposes of the GS Act will be extended to include the regulation of the distribution of ‘covered gases’ rather than being limited to processed natural gas (through amendments to section 3 of the GS Act), and a definition of ‘covered gas’ is included in section 9 of the GS Act, which includes ‘primary gas’ and a ‘gas blend’;
2. ‘Primary gas’ includes processed natural gas, as well as hydrogen, biomethane, synthetic methane, or additional substances prescribed by the Regulations, that is suitable for consumption, while a ‘gas blend’ is comprised of primary gases that have been blended together, and is also suitable for consumption. ‘Hydrogen’ itself is not defined in the GS Act, which means this term will have its ordinary English meaning;
3. Consequential amendments to section 28, which deals with applications for a distribution authority under the GS Act, are also proposed to ensure applications can be made with respect to distribution of hydrogen and other renewable gases, as well as processed natural gas, and consequential amendments are proposed to section 29 of the GS Act, which go to public notice requirements for the regulator, including publication of the type of covered gas for the proposed distribution authority;
4. Chapter 7 of the GS Act will be amended to insert a new Part 4, which sets out savings and transitional provisions as a result of the proposed amendments. Importantly, proposed new section 343 ensures existing distribution authority holders remain authorised with respect to processed natural gas and will be automatically authorised with respect to biomethane and synthetic methane. This means that a distribution authority holder will only need to apply for authorisation with respect to the use of hydrogen, which does not already fall within the definition of processed natural gas (noting that the definition of processed natural gas allows for the blending of small amounts of hydrogen, provided it is suitable for consumption);
5. The transitional arrangements in section 343 mean that if a distribution authority holder commenced a pilot project to blend small amounts of hydrogen prior to the commencement of the Hydrogen Industry Bill, the project will continue to be authorised under the existing authority; and
6. Consequential amendments are proposed to ensure that existing Ministerial directions regarding insufficiency of supply continue to have effect (by the insertion of new sections 344-345 in the GS Act).

Key amendments to the P&G Act

Specifics of the proposed amendments to the P&G Act are set out in the Hydrogen Industry Bill while key amendments are summarised below:

1. Facilitation and regulation of the construction and operation of pipelines for regulated hydrogen (in a way that is safe, effective and efficient) as an additional secondary purpose of the P&G Act (through amendments to section 3A of the P&G Act;
2. Section 11 of the P&G Act will be amended to include hydrogen (including pure hydrogen) and hydrogen gas blends within the scope of fuel gas for the purposes of the Act and ‘regulated hydrogen’ is included in the Act (by insertion of a new section 11A). This addresses definitional and other regulatory gaps in the P&G Act which was previously focused on petroleum based gases and fuels;
3. The definition of ‘pipeline’ has been expanded to apply to the transportation of both prescribed storage gases and regulated hydrogen, addressing a gap in the Act where transport of hydrogen or hydrogen blends through pipelines was not previously contemplated (by amendments to section 16 of the P&G Act);
4. A range of amendments are proposed to pipeline land and pipeline licence application requirements, decision-making powers regarding the grant of a pipeline licence and public notice requirements to ensure that pipeline licence applications can be made with respect to regulated hydrogen while also strengthening safety considerations (through amendments to sections 399, 409-412, 415 and 418 of the P&G Act);
5. The existing obligations on pipeline operators to safely and reliably transport substances in their pipelines, under section 422 of the P&G Act, are extended to regulated hydrogen and ‘prescribed storage gases’. This ensures existing safety and reliability obligations for pipeline authority holders covers these new gases;
6. Existing limitation of pipeline licence holder’s liability provisions in section 437 are also extended to transport of regulated hydrogen through a pipeline;
7. Consequential amendments are proposed with respect to pipeline licence surrender notice requirements and offence provisions for the unlawful taking of petroleum or fuel gas will be extended to ensure unlawful taking of regulated hydrogen and hydrogen blends are covered by the provisions (through amendments to sections 577 and 809 of the P&G Act);
8. Amendments to section 670 of the P&G Act will allow for regulated hydrogen substances to be excluded from being operating plant where the substance is prescribed as an ‘excluded compound’. This will allow Resources Safety and Health Queensland to independently determine if the operating plant safety framework is the most suitable safety framework for regulated hydrogen substances prescribed in section 11A; and
9. Savings and transitional arrangements are set out in a proposed new Part 30 in Chapter 30 of the P&G Act. These include:
   1. Any petroleum pipeline licence applications made before commencement of the amendments and which are undecided after their commencement, will be decided under the P&G Act as in force immediately before commencement of the amendments;
   2. The P&G Act in force immediately before commencement of the amendments will continue to apply to existing pipeline licences for a period of one year. Holders of existing pipeline licences cannot transport regulated hydrogen unless their licence is amended to include regulated hydrogen. If a pipeline licence is amended during the one year period, the P&G Act as amended then applies. Nonetheless, any amendments of a pipeline licence should have regard to the underlying tenure (including easements) for the pipeline land upon which the pipeline is built including the rights and interests of the land interest holders including native title;
   3. Existing pipeline licence holders are required to give notice to the chief executive about the existing substances being transported in pipelines, within one year of commencement of the amendments. These substances will be taken to be substances that can be transported in the pipeline for the purpose of new section 422(2). If a notice is given under this provision, the transitional period of one year ceases to apply and the amended Act then applies to the licence. Failure to provide a notice to the chief executive could result in the pipeline licence holder being in breach of the new requirement under section 422(2) after the transitional period ends; and
   4. Any pipes or systems of pipes that were transporting a substance that becomes regulated hydrogen on commencement because of new section 11A, remain under their existing regulatory arrangements and are not a pipeline or an operating plant under the P&G Act.

The Hydrogen Industry Bill also makes minor, consequential amendments to a range of other Queensland legislation, which is listed in Schedule 1 of the Hydrogen Industry Bill.

South Australia: Hydrogen and Renewable Energy bill 2023

Introduction

On 12 May 2023, the South Australian Government released a draft of the Hydrogen and Renewable Energy Bill 2023 (SA) (HRE Bill) for public consultation.

The HRE Bill introduces a streamlined licencing and regulatory framework for hydrogen generation and establishment of renewable energy infrastructure¹⁴ in South Australia. It also makes related amendments to the Pastoral Land Management and Conservation Act 1989 (SA) and the Planning, Development and Infrastructure Act 2016 (SA) (PDI Act).

The overarching purpose of the new framework is to simplify the process for establishing renewable energy infrastructure and facilities for generating hydrogen for commercial use, promote economic benefits, reduce adverse impacts to the environment and facilitate engagement with the wider community, including indigenous peoples. Currently, renewable energy facilities can be difficult to establish as there is a range of legislation applicable through the lifecycle of a facility. Streamlining the current regime will assist South Australia in reaching net zero emissions by 2050, in accordance with the State’s policy and emissions reduction targets.¹⁵

Hydrogen Generation Licence

The HRE Bill proposes a new licensing scheme to provide a streamlined, one window to government regime for hydrogen projects. The key features of the proposed regime include:

1. A scheme for applications, assessment, management and terms and renewal of Hydrogen Generation Licences (HG Licences) and offence provisions. A HG Licence will be needed to construct, install, operate, maintain or decommission a facility for generating hydrogen;¹⁶
2. There are certain requirements which the Minister must be satisfied of before granting a HG Licence;
3. A HG Licence may only be granted if the applicant has sufficient ‘right or interest’ in respect of the land. Where that land includes any land that is the subject of a native title declaration or a native title claim registered under the Native Title Act 1993 (Cth) (NT Act), the Minister must be satisfied that an indigenous land use agreement, registered under the NT Act, is in place that authorises the grant of the HG Licence. This mechanism is intended to ensure certainty of tenure prior to the grant of the HG Licence and is expected to facilitate an increased level of participation and partnering with Traditional Owners at an early stage of project development;¹⁷
4. The Minister can attach conditions to the HG Licence¹⁸, including reporting obligations, process requirements including for decommissioning/rehabilitation, and requiring applicants to enter into a bond to ensure that any obligations in relation to undertaking authorised operations will be satisfied. It is expected this will enable a high level of bespoke conditions negotiated on a project-by-project basis;¹⁹
5. If the Minister refuses an application for a HG Licence, the applicant may appeal the decision to the Environment, Resources and Development Court;²⁰ and
6. If a provision of the HRE Bill is contravened, the Minister has the power to suspend or cancel the licence.²¹

Additional Licences under the HRE Bill

In addition to HG Licences, the HRE Bill also proposes licences for:

1. Renewable Energy Feasibility Licences;
2. Renewable Energy Infrastructure Licences;
3. Renewable Energy Research Licences; and
4. Special Enterprise Licences.

These licences will regulate the development of largescale renewable energy assessment, research and generation in tandem with the HG Licence, in order to ensure sufficient generation capacity for the anticipated largescale production of green hydrogen.

Environmental impact assessment

The HRE Bill creates an environmental impact assessment regime similar to impact assessed development and the Environmental Impact Statement under the PDI Act. Before commencing any authorised operations on the relevant land, a licensee must:

1. Have a statement of environmental objectives²² before undertaking any authorised operations on the land;²³ and
2. Have an operational management plan.²⁴

The ‘statement of environmental objectives’ requires:

1. The matters in the environmental impact report²⁵ to have been addressed;
2. Setting out of the environmental objectives to be achieved by the operation and the criteria for meeting them;
3. Management of reportable incidents;
4. Rehabilitation; and
5. The publishing of that report.

Penalties

Contravention of a term or condition of a licence, or undertaking authorised operations otherwise than in accordance with the terms and conditions of a licence, is an offence, with a maximum penalty of $250,000.²⁶ A change in control of the holder of the HG Licence without the Minister’s prior written consent attracts the same penalty.

Hydrogen and renewable energy fund and hydrogen and renewable energy register

The HRE Bill proposes the establishment of both a hydrogen and renewable energy fund (the Fund),²⁷ and a hydrogen and renewable energy register (Register)²⁸. The key role of the Fund is to assist in investing in the promotion of research into methods to reduce any potential environmental damage resulting from authorised operations. The Register will be public and will contain, amongst other things, HG Licence details.

The Regulations

Much of the detail of the environmental assessment process, including the preparation of consultation plans and scoping reports (relevant to projects that may also require assessment and regulation under the EPBC Act), is to be set out in the Regulations although no public consultation draft of Regulations to be made if the HRE Bill is enacted have been released.

Stakeholders will need to carefully review the Regulations once they become available for public comment.

This publication was co-authored by Edward Chan, Carmen Bradfield and Jayne Kelly.