SYDNEY -- A $36 billion project to mass-produce hydrogen from renewable power sources is underway in Australia, fueling Canberra's hopes of turning clean energy exports into a major revenue generator as countries begin to shun coal.
The Asian Renewable Energy Hub plans to build wind turbines and photovoltaic systems generating 26,000 megawatts on 6,500 sq. km leased in the state of Western Australia. The space for the project is six times the size of Hong Kong.
The venture looks to churn out 1.75 million tons of hydrogen a year, enough fuel for thermal power plants equivalent to six nuclear reactors. Construction is slated to begin in 2026 after a geological survey and fundraising. Hydrogen will be converted into ammonia for transport to domestic and international markets.
The project is run by a consortium of four corporate partners, including a private investment company affiliated with Australia's Macquarie Group.
They aim to meet Canberra's hydrogen production cost target of 2 Australian dollars ($1.50) per kilogram. Reaching that target is sure to spark demand, said an industry source in Japan, noting that the current cost in the Asian country is around 1,000 yen ($9.60).
Australia has "a lot of wind and solar [energy potential], and a lot of space," which make it "a very good country to do investing for resources," said Alex Tancock, managing director of InterContinental Energy, one of the consortium members.
Renewable energy makes up only about 20% of electricity sources in Australia today.
Australia recently awarded the energy hub "Major Project Status," which recognizes its "national significance" in economic development and job creation while facilitating government approvals. This status is expected to help in negotiations with business partners and investors as well.
The project also has received some environmental approvals from the state government.
Australia aims to become a hydrogen powerhouse by 2030 under its National Hydrogen Strategy unveiled in November 2019, and has committed AU$570 million to support technology development and testing operations. Canberra expects the hydrogen sector to contribute as much as AU$26 billion to gross domestic product in 2050.
The global exodus from coal leaves Australia desperate to promote hydrogen. Coal and liquefied natural gas make up one-quarter of the country's exports.
When Japan, a major market, recently unveiled its goal of achieving net-zero greenhouse gas emissions by 2050, Kobad Bhavnagri at research firm BloombergNEF called the move tantamount to serving "divorce papers" on Australia.
But coal and natural gas can be used to produce hydrogen.
A group that includes Japan's Kawasaki Heavy Industries and Electric Power Development, known as J-Power, is pursuing a pilot to produce hydrogen from lignite -- low-grade coal known as brown coal -- in Australia, then liquefy it for shipment to Japan. This consortium also includes Australian utility AGL.
Shipments are expected as early as March in the AU$500 million project, for which the governments of Australia and the southeastern state of Victoria are paying a combined AU$100 million.
Other hydrogen projects are also underway in Australia. The biggest challenges involve securing long-term buyers and deciding the scale of production.
"Without a long-term contract, a project cannot move to construction," said an industry insider. Many countries including Japan seek to tap hydrogen as a major energy source, but they have yet to begin full-fledged efforts to build infrastructure.