Renewable hydrogen: Lessons learned and the importance of industry support

Over the past 8 years, ARENA has invested more than $370 million in 65 renewable hydrogen projects, as well as two projects under the first Hydrogen Headstart funding round. From early-stage research through to first-of-a-kind deployments, we’ve seen the industry evolve and have gathered valuable insights along the way.

What we’ve learned so far

The promise of renewable hydrogen is significant, but so are the hurdles. At present, renewable hydrogen is not yet cost-competitive with fossil fuels. The cost of electrolysers and renewable electricity remains high, and forecasts suggest hydrogen may reach $3-4/kg by 2050, still above the approximate $2 per kilogram needed to match fossil fuels. Technical challenges, such as equipment not suited to Australian standards and a shortage of local skills, have also slowed progress.

We’ve also learned that hydrogen’s greatest value is likely to be in specific applications. Over time, ARENA has sharpened its focus to sectors where hydrogen, and early stage funding, can make the most impact: green ammonia, iron and steel, alumina, and long-distance heavy transport like shipping and aviation. These are areas where electrification is difficult, and hydrogen’s unique properties – such as high energy density and long-term storage – can offer real benefits.

Another challenge is demand. While there is interest from international trading partners like Japan, Korea, and Singapore, there is global discourse around the willingness to pay a ‘green premium’ across the board and the impact of those costs further along the supply chain as a whole. Strong decarbonisation targets both here and overseas are helping, but the market is still developing.

Bridging the cost gap for first-movers

ARENA recognises that getting renewable hydrogen to commercial scale will take time, innovation, and ongoing support. Bridging the commercial gap and supporting first-movers willing to invest in new technology and business models is core to ARENA’s mandate. This support, alongside policy measures such as the Hydrogen Production Tax Incentive, is vital in establishing any fledgling industry.

The recently launched second Hydrogen Headstart funding round is designed to build on what we’ve learned so far, with a focus on projects that target high-priority use cases that aim to reduce the cost of hydrogen production through:

• Smarter plant design and construction
• More efficient electrolysers
• Flexible operations to lower electricity costs
• Proving infrastructure for end uses like green ammonia, iron, steel, alumina, and heavy transport

Backed by ARENA’s latest Investment Plan

Hydrogen Headstart Round 2 is part of ARENA’s broader commitment to support the commercialisation of renewable hydrogen, as outlined in our latest Investment Plan.

Amongst a number of strategic priorities, we’re also working to unlock ultra low-cost solar, support heavy industry decarbonisation, and decarbonise transport, all as part of Australia’s path to a lower emissions future.

We know that there are many levers to be pulled across sectors and technologies that ultimately contribute to not only achieving our net zero goals, but reducing costs and building efficiencies for all renewable energies.

Looking ahead

Australia is well placed to play a leading role in renewable hydrogen, thanks to our world-class solar and wind resources, available land, and strong trade relationships. But the future of hydrogen will depend on continued innovation, collaboration, and support across the whole supply chain. ARENA is helping Australia take the next step, ensuring renewable hydrogen can reach its potential in the sectors where it’s needed most.

For more detailed insights on lessons learned from hydrogen projects to date, visit the ARENA Knowledge Bank.