A Headstart for Hydrogen: Expressions of Interest open for project developers seeking ARENA funding 

What you need to know

• On 10 October 2023, Expressions of Interest for applicants seeking funding under the Hydrogen Headstart Program opened.
• Applicants are invited to submit an Expression of Interest by 10 November 2023. Successful applicants will be invited to submit a Full Application.
• This is an important step in the development of the renewable hydrogen industry in Australia.

What you need to do

• Review the Hydrogen Headstart Program Guidelines and Frequently Asked Questions to consider eligibility criteria.
• Interested applicants should create an account and complete an online application form.

Summary

Expressions of Interest for the Hydrogen Headstart Program (the Program) opened on 10 October 2023. This a signal of further investment to be injected to grow and scale hydrogen project development in Australia. There is a push to keep Australia in the global hydrogen "race", post the US Inflation Reduction Act and other international incentives for hydrogen.

Applicants must complete an online form, including the submission of a project plan, financial model, completed budget, sources and uses spreadsheet and other key attachments set out in Appendix B of the Program Guidelines.

ARENA will select large Australian-based projects producing hydrogen or derivative products produced from renewable hydrogen, which achieve the Program Objectives. Successful projects will be assessed against the Merit Criteria set out in the Guidelines and invited in January 2024 to submit a Full Application.

A Decision outcome for Full Applications is expected to be made in October 2024.

Background

In the 2023 Federal Budget, the Commonwealth Government announced a A$2bn investment in the Hydrogen Headstart Program to fund large-scale hydrogen production projects.

ARENA and the Department of Climate Change, Energy, Environment and Water (DCCEEW) designed and undertook consultation on the Program.

The Guidelines outline the Program Objectives, Funding Allocation, Funding Model and eligibility criteria.

Eligibility and Funding

Eligible facilities must be a new deployment of a hydrogen production facility producing hydrogen from electrolysis (minimum of 50MW nameplate capacity of the electrolysis deployment at a single site), with the entire hydrogen production process (including balance of plant) powered by renewable energy. All end uses of hydrogen or any derivative products (including where exported) are eligible.

All electricity used in hydrogen production must correspond with the surrender of eligible renewable energy certificates (e.g. LGCs or other units accepted in the Guarantee of Origin Scheme) created within 12 months of hydrogen production. Applicants must also outline how they intend to comply with the proposed Guarantee of Origin Scheme.

Grant funding under the Program will be paid in the form of a Production Credit per unit of eligible renewable hydrogen or derivative product produced (rather than the traditional upfront CAPEX model used by ARENA for other grant funding schemes). The Production Credit should represent the difference between the expected sales price of a unit of hydrogen and the cost of production of that unit (including a justifiable return on capital). The Production Credit funding model also has some similar features of recent State based renewable energy and storage schemes, with upside sharing and recoupment provisions proposed.

The funding will be available from the 2026 – 27 financial year for a maximum funding period of 10 years. Projects which intend to reach financial close at a similar time may be assessed with higher merit than others with later financing timetables.

Merit Criteria

Applicants must demonstrate merit against the Merit Criteria, which includes:

• The strength of the Project design, in meeting the Program objectives, timeframes and budget. Projects will be assessed on criteria including: (a) the quality and completeness of the project plan, including timelines for financial close and commissioning; (b) the status of key project workstreams (e.g. grid augmentation, any necessary permits or approvals); and (c) engagement with the community and First Nations communities (including future plans for ongoing engagement).  
• The financial viability of the Project, including level of co-investment and evidence of commitment. Projects will be assessed on criteria including: (a) the amount of the proposed Production Credit and the total funding request for a Project; (b) cost competitiveness and efficiency of the Project (implied cost of hydrogen per kilogram, funding/tonne of Co2 abated, etc.); (c) deliverability of financing plan; and (d) conditionality and bankability of EPC / OEM arrangements and the creditworthiness of proposed hydrogen offtakers.

We will continue to provide updates on these Program developments. If you have any questions or would like any background knowledge, please reach out to us.

Authors: Paul Lingard, Partner; Cassandra Wee, Partner; Mike Webb, Senior Associate; and Jack Jones, Lawyer.