The secret to fulfilling Australia’s National Hydrogen Strategy may lie in deepening our understanding of how different stakeholders make decisions, according to Dr. Fiona Simon, Chief Executive of the Australian Hydrogen Council.
While Australia has many of the right ingredients for a future clean hydrogen industry, it still needs to get to scale, and cost-compete with higher emission energy inputs.
Achieving this will involve target, value, and milestone setting between different stakeholders – buttressed by a clear understanding of how each party operates, she says.
“The hydrogen sector involves the interplay of various subsectors and these often have very different operational processes and decision-making criteria,” said Dr. Simon.
“For the sector to reach its potential we need to understand and work with the way these various systems think: their core values, their perception of risk and the way they conceptualise time. For example, the time-frame in which industry and government make big financial decisions differs greatly – as do their decision-making criteria.
“If we want to secure long-term investment – say ten to thirty years’ worth – we need to consider how ready different stakeholders are to embrace change; how far ahead they typically plan; and how tolerant they are of risk and uncertainty,” she added.
Closing the investment gap
Australia has made progress in developing its hydrogen industry to date, with the roll-out of international partnerships, supply chain studies and major investment packages. Despite the challenges present with hydrogen production, storage and transportation, green shoots are beginning to appear.
It is however important for Australia to remain focussed on the steps needed to achieve its stretch target of $2 per kilogram, as outlined in the Low Emissions Technology statement. This will ensure hydrogen is cost-competitive on the domestic and international stage.
To achieve this, governments must recognise where industry is prepared to take financial risk in an uncertain industry – and where there may be a role to underwrite investment, to build a functioning market.
“Industry, academic and government enthusiasm for hydrogen is huge and still growing,” said Dr. Simon. “This is fantastic. But if we are to close the investment gap for the hydrogen sector, we need to translate this enthusiasm into action: funding, policy, larger scale projects and infrastructure rollouts. This means improving partnerships between the private and public sector to share risk.”
For these partnerships to be a success, all parties will need to improve their perspective taking.
“Perspective taking is the only way we can cut across these barriers. Translating someone else’s case into someone else’s values,” Dr. Simon added.
“For example, the medium of the economy is ‘money’ and its risk is therefore ‘financial’. Businesses and investors are focussed on investment cycles, financial reporting periods, and market values. Economic decisions relate to these and ultimately need to show profit over loss.
“To incentivise industry investment in hydrogen, we need to understand that investors and entrepreneurs will only invest in markets where there is a reasonable return in the short-to-medium term, relative to other uses for their money.
“In understanding industry, we need to ask: what are the competing cases for an industry player when it comes to spending money? Is there a sufficient short-to-medium term business case for investment? What is this timeframe and when does it run out? How does industry see its risk and how can risk be managed?” she said.
Like industry, governments also confront competing cases for their attention and money.
“Governments need to be able to demonstrate public benefit from investments while managing the political risk from opposition and special interest views, all within a 24-hour news cycle. We need governments to make long term decisions in the public interest,” Dr. Simon said.
“In other words, if we are seeking government investment, we need to understand the context for political decisions and how these are made. What are the competing cases for government attention? Is there sufficient political capital generated from investing in a certain industry compared with other things? How does government see its risk and how can risk be managed?”
Continuing the momentum
While generous government funds and various industry roadmaps have improved confidence on both sides, Dr. Simon believes more clarity is needed.
She commends the ‘H2 under $2’ stretch target in the Low Emissions Technology Statement but says, without a date attached to it, it may fail to mobilise industry.
“Currently, the government hasn’t associated this target with a year. And without a year it isn’t really a stretch target,” she said.
“Giving a tangible deadline will improve industry confidence. There is a huge amount of enthusiasm here and now is the time to bring stakeholders across all sectors together to harness that enthusiasm and build a robust, sustainable hydrogen industry.”
Dr. Fiona Simon is Chief Executive of the Australian Hydrogen Council. Join her for more recommendations on this topic at the Australian Hydrogen Conference – due to take place 26-27 May 2021.
This year’s event will be held both virtually and at the ICC Sydney.
Learn more and register.