According to a new report by Fitch Solutions industry research, part of the Fitch rating agency, Australia has the most favorable balance of rewards and risks in the Asia-Pacific hydrogen sector, thanks to strong support from federal and state governments, particularly for export-focused projects, which has translated into significant investor interest in the nascent sector.
According to Fitch, Australia has a robust electrolyzer pipeline of roughly 29,000MW at the moment. “We expect the pace of hydrogen research to continue, given that demonstrations to export hydrogen, conducted in conjunction with Japan, have made significant progress and demonstrated commercial feasibility,” the statement stated.
The conversion of hydrogen into more stable chemicals and organic liquids like ammonia, which are then carried via gas carriers, currently offers the best routes to market, according to Fitch. “Over the last year, we’ve seen an increasing number of bilateral trade and cooperation agreements inked with a number of foreign countries,” it stated, “which will unleash greater demand for green hydrogen and green ammonia production in Australia.”
In the last year, a number of Australia-Japan hydrogen joint ventures have been formed, with the goal of manufacturing hydrogen in Australia and delivering it to Japan. Mitsui, a Japanese trading firm, intends to establish a clean ammonia supply chain for fuel consumption in Australia as well as the Asian area, including Japan.
From 2023, CS Energy, a Queensland state-owned utility, and its joint venture partner, Japanese engineering firm IHI, will construct a trial hydrogen plant near Gladstone with a capacity of 50,000 kg/yr. In Australia’s Tasmania state, Japanese utility J-Power and Australian utility and gas firm Origin Energy will create a green ammonia industry.
“Given Australia’s vast and well-developed renewables industry, we believe it has a strong potential to scale up the development of green hydrogen and approach cost parity, making it a highly competitive and feasible generating source in the market,” Fitch said. In the previous 12 months, renewable energy generated roughly 30% of the electricity in the national electricity market that encompasses eastern Australia.
Japan and South Korea are expected to be among the Asia-fastest-growing Pacific’s hydrogen demand markets, according to Fitch. Both countries have set 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.
“However, a portion of this will be fueled by clean hydrogen and ammonia imports generated in less expensive areas, such as Australia,” the report stated.
The growth of hydrogen projects in China has lagged behind that of other nations, but the industry in the world’s second-largest economy is likely to evolve rapidly over the next decade, according to the report. China is already the world’s greatest hydrogen generator, producing a third of the world’s supply, and uses the gas in industrial operations such as oil refining and ammonia manufacture, according to the report.
As China works to build a hydrogen economy and explores hydrogen consumption in new sectors, such as the auto sector and lower carbon steel production, an increase in low carbon hydrogen projects could provide potential pathways for decarbonization as the country works to achieve net-zero greenhouse gas emissions by 2060, according to Fitch.
The rest of Asia-Pacific, on the other hand, shows a disparity in investor interest and government support for the hydrogen industry, according to the research. Due to their opaque business climate and lack of solid legal and financial institutions, economies like Sri Lanka, Myanmar (Burma), Bangladesh, Cambodia, and Laos continue to pose significant risks, according to Fitch.
There is also a significant risk-reward disparity in certain economies, including as Singapore, New Zealand, and Hong Kong, which have relatively favorable risk profiles but are dragged down by limited industrial demand for hydrogen, compounded by slow development in their renewables sector. India has a lot of promise, but it also has a lot of industry hazards because of its weak competitive environment, insufficient grid network, and significant legal risks, according to the report.
