One of Australia’s largest energy companies, Origin Energy, has withdrawn from plans to build what would have been the country’s biggest green hydrogen facility, citing the high costs of producing the fuel.
In a significant setback for the federal government’s ambitions to create a green hydrogen industry, Origin announced on Thursday that it is stepping away from the Hunter Valley Hydrogen Hub project, located near Newcastle, New South Wales. This project, a joint venture with explosives giant Orica, was set to produce 5,500 tonnes of hydrogen annually using renewable energy.
In a statement to the Australian Stock Exchange, Origin’s CEO Frank Calabria confirmed that the company was exiting the project due to the financials not adding up. Furthermore, Origin declared it would cease all work on hydrogen development opportunities, effectively halting its green hydrogen ambitions.
This move is a further blow to the hydrogen industry, which has already faced setbacks, including billionaire Andrew Forrest’s Fortescue cutting jobs and investments in the technology. Despite these challenges, Mr. Calabria still believes hydrogen has potential, but acknowledged that the market is evolving more slowly than expected, with costs and technological advancements posing significant hurdles.
“With these uncertainties, we can’t justify moving forward with the project,” Calabria said.
Federal Climate Change and Energy Minister Chris Bowen expressed disappointment in Origin’s decision, stating it undersells Australia’s potential as a global leader in green hydrogen. Bowen pointed out that the government’s $8 billion hydrogen head-start program could unlock billions in private investment and praised Orica for continuing its involvement in the Hunter Valley project.
“Green hydrogen is a critical part of Australia’s future manufacturing and industry, both here and abroad,” said Bowen. “While Origin’s exit is disappointing, Australia’s hydrogen pipeline is still strong, valued at over $200 billion with more than 100 projects in the works.”
Origin, instead of pursuing hydrogen, will now shift its focus toward renewable energy investments like wind and solar farms, and battery storage. Calabria reassured that the company remains committed to its decarbonisation goals but explained that the economics of hydrogen production and the uncertainty around market demand were key factors in the decision to pivot away from the project.
“When we initially announced the Hunter Valley project, our goal was to use green hydrogen to replace natural gas in Orica’s ammonia manufacturing,” Calabria explained. However, uncertainties surrounding the production costs and profitability of green hydrogen-ammonia made the project unviable.
Calabria emphasised that Origin’s capital expenditure will now prioritise opportunities more aligned with its strategy, particularly in renewable energy and storage, which can better support decarbonisation and energy security in the near term.
Industry analysts were not surprised by Origin’s move. Dale Koenders, head of energy and utilities research at investment bank Barrenjoey, stated that high production costs remain the largest obstacle for the hydrogen industry. While hydrogen will likely be needed as more industries transition from fossil fuels, Koenders questioned how widespread its adoption will be, given the availability of cheaper renewable energy alternatives.
“Hydrogen is still in its infancy here in Australia,” Koenders said. “Although there’s hope it will play a role in decarbonisation, the current market demand just isn’t there, and few are willing to pay a premium to develop it.”
Koenders also noted that major potential markets like Japan and South Korea are showing more interest in green ammonia, a derivative of hydrogen because it is easier to transport and use. Ultimately, he believes that without strong customer demand and lower electricity costs, it’s not the right time for large-scale hydrogen projects like Origin’s.
“In the current landscape, it’s logical for a company like Origin to avoid high-risk, uneconomical ventures,” Koenders concluded.
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