NSW Government releases its Hydrogen Strategy with 3 billion in incentives

What you need to know

• The NSW Government has released its Hydrogen Strategy, which includes $3 billion in incentives and seeks to attract $80 billion of investment in new hydrogen infrastructure.
• The Hydrogen Strategy includes $70 million to develop NSW's hydrogen hubs, exemptions for green hydrogen producers from government charges and electricity network charges, incentives for green hydrogen production and a hydrogen refuelling station network. 
• The Hydrogen Strategy focusses on green hydrogen given its potential as a versatile energy carrier and feedstock.
• A copy of the NSW Hydrogen Strategy can be found here.

What you need to do

• If you are seeking to participate in the Illawarra and Hunter hydrogen hubs, you will need to submit an expression of interest to the NSW Government by the end of October.

Context

On 13 October 2021, following the NSW Government's inquiry  into the development of the hydrogen industry in NSW, it has released the NSW Hydrogen Strategy to increase the scale and competitiveness of green hydrogen production and use in NSW (the Strategy).

"Green hydrogen" refers to hydrogen produced from electrolysis using renewable electricity with zero direct emissions or responsibly sourced renewable biogas in the steam methane reforming process.  The Strategy focusses on green hydrogen as opposed to "blue hydrogen" (which is hydrogen produced from natural gas with emissions subject to carbon capture and storage (CCS)) given considerations of timing, pricing, market demand, modularity and CCS efficiency.

Policy aims

The Strategy is aimed at:

• providing up to $3 billion of incentives to support industry development;
• reducing the cost of green hydrogen by $5.80 per kg in the next decade;
• delivering the State's 2030 stretch target of 110,000 tonnes of green hydrogen production per annum from 700MW of electrolyser capacity for under A$2.80 per kg; and
• driving decarbonisation in the transport, industrial and energy sectors to support NSW in reaching net zero emissions by 2050. 

Three strategic pillars

The Strategy is underpinned by the following three strategic pillars with associated actions to support development of the entire hydrogen value chain in NSW:

• Enable industry development, which includes the following actions: undertaking a state-wide strategic hydrogen infrastructure masterplan, undertaking upfront strategic planning and port infrastructure assessments, ensuring hydrogen-ready regulatory frameworks, providing for skills development and investing in hydrogen innovation.
• Lay industry foundations, which includes the following actions: developing hydrogen hubs, rolling out a hydrogen refuelling network, developing decarbonisation roadmaps and supporting Australia's first duel fuel green hydrogen/gas power plant for the Tallawarra B project in the Illawarra. 
• Drive rapid scale, which includes the following actions: providing network concessions, providing electricity scheme exemptions, supporting industry projects, implementing a market engagement model and a NSW Government hydrogen fleet target and trials.

Break-down of key incentives

Relevantly, the $3 billion in incentives includes the following:

• $70 million as part of the hydrogen hub initiative in the Illawarra and Hunter hydrogen hubs, with possible further support to be given to other strategic regions in NSW, such as the Special Activation Precincts and Renewable Energy Zones; 
• a 90% exemption to network use of system (NUoS) charges for a period of 12 years for electrolysers that connect to parts of the electricity network with spare capacity by 2030, subject to the following conditions: 
  
  • electrolysers being placed in parts of the network where there is existing spare capacity up to a state-wide cap of 750 MW, 
  • electrolysers being directed to turn off if required supply during peak events; and
  • hydrogen producers being required to pay 10% of the NUoS charges. 
  
  It is anticipated that the NUoS concession charges will be available to the market by 2024;
• exemptions to environmental and electricity schemes for hydrogen producers for a period of at least 12 years, and subject to review, may be extended for new capacity installed from 2031 onwards;
• an expansion of the NSW Energy Security Safeguard to support hydrogen with a market-based scheme that provides financial incentives for green hydrogen productions. The scheme target will commence in 2024 and increase to 8 million GJ of hydrogen by 2030; and
• a hydrogen refuelling station network to be rolled out along strategic freight corridors in NSW.

A full list of the actions and incentives as part of the Strategy are listed in the Appendix  to the Strategy.

Key actions for business

In order to participate in the Illawarra and Hunter hydrogen hubs, businesses will need to submit an expression of interest to the NSW Government by the end of October.

The NSW Government will be engaging with industry over the coming months to consult on regulatory updates and seek applications for funding for hydrogen initiatives.

Authors: Paul Curnow, Partner; Joshua Hetzel, Lawyer.