Hy ho, hy ho, it’s off to work we go…

Tasmania has attempted to steal a march on the rest of Australia by becoming the first individual state to publish its hydrogen strategy. As befits the hydro dominated state, it is focussed on opportunities for green hydrogen, both domestically and for export. It would certainly be a fantastic economic boost for Tasmania if the government and industry is able to realise all the proposed opportunities, which include:

  • Local hydrogen-powered transportation
  • Hydrogen blending in the local gas network
  • Antarctic power and fuel requirements
  • Green ammonia and related agricultural products
  • Integrating hydrogen and related by-products (i.e. oxygen) into the local aquaculture sector
  • Servicing Asian export markets

In practice hydrogen is unlikely to be all things to all people and not all of these opportunities will manifest. But the government is backing up its talk with an initial $50m support package, consisting of a $20m renewable hydrogen fund, $20m concessional loans and up to $10m worth of support services including “competitive electricity supply arrangements”. This appears to be a euphemism for subsidised electricity from Tasmania’s state-owned generator.

While hydrogen is clearly going to need a financial leg-up, whether in Tasmania or elsewhere, the pitfalls of providing ongoing subsidies to either fledgling or sunset industries are well-known. Exhibit A being the Australian car manufacturing sector. There’s a risk that the industry becomes so dependent on subsidised operating costs that it can never move off them (by contrast capital subsidies, while not always judicious at least require a facility or sector to cover its own ongoing costs). Moreover the most useful way to subsidise from the buyer’s point of view would be a low fixed price, which leaves hydro Tasmanian (and ultimately the Tasmanian treasury exposed to wholesale price rises, in the event of, say, a run of dry years depleting the dam levels.

Curiously, although not directly relevant to the hydrogen sector, the strategy also continues the government’s relentless promotion of Marinus link/Battery of the nation – its plan to increase interconnection with the rest of the NEM. Other things being equal this would push up the local price of electricity, given the logic of Marinus is to be able to export more electricity to the mainland (and so justify new hydro storage and wind generation).

Neither Marinus link/Battery of the nation nor the Hydrogen strategy are inherently bad ideas. If they can both be pulled off, the economic boost to Tasmania will be significant, and they will contribute to global emissions reduction. But juggling two mega-projects is a high degree of difficulty for any government.