Exclusive: Major blow hits Illawarra's green energy ambitions

What's needed now to get the region's green industrial future back on track.

EnergyAustralia has indefinitely shelved its plans to run the Tallawarra B power plant on green hydrogen, despite the company’s managing director saying the company planned to have green hydrogen in the mix as soon as this year.

The backdown, reported here for the first time, comes as the Illawarra suffers a series of setbacks on its path to be a green industrial superpower, raising questions about how the region’s energy intensive manufacturers will be able to transition to a carbon neutral future.

UOW energy expert Ty Christopher said a combination of global uncertainty and a lack of local coordination had scuppered plans to run Tallawarra B on green hydrogen. Picture credit: EnergyAustralia, UOW.

A green mirage?

On the western shores of Lake Illawarra, the steel and concrete of the recently commissioned Tallawarra B power plant still glimmers as if it’s just been installed.

Here, what was once promised to be a sign of the Illawarra’s energy future, could instead become a monument to the failed planning and coordination that has bedevilled the Illawarra’s energy future.

In 2021, when the project was announced with the support of $78 million from the NSW government and $5 million from the Commonwealth, then-NSW Minister for Energy Matt Kean said the project would “set a new benchmark” through using green hydrogen and offsetting residual emissions.

But now, the first part of that equation has fallen through.

In its 2024 climate transition action plan, the utility revealed it does not expect hydrogen to form part of the energy mix for “the foreseeable future”.

The company blamed rising equipment and financing costs for green hydrogen, as well as the “slow implementation of support schemes”.

In response to questions from The Pulse, an EnergyAustralia spokesperson said the market was not yet able to supply the plant with green hydrogen, despite the installation of world-first ‘hydrogen-ready’ turbines.

“Renewable hydrogen manufacturing and production in Australia is not yet available. Tallawarra B is not expected to use hydrogen for generation in the foreseeable future,” the spokesperson said.

The company has a current standing offer with the market, with a starting price of $5.28 per kilogram of green hydrogen. In the meantime, the company is offsetting emissions from the power plant until at least 2030.

Alternative energy on the back-burner

Less than 10 kilometres away, a site that could produce the hydrogen required for a plant such as Tallawarra has had a long-awaited investment decision delayed once again.

Industrial gases manufacturer BOC was announced as the recipient of $28.5 million in NSW government funding for its hydrogen technology hub in 2023, with the aim to produce up to four tonnes of hydrogen a day, more than double the daily requirements of Tallawarra B.

Since the announcement, there has been little sign of progress on the ground, with documents indicating a final investment decision could be reached by late 2024 or the first quarter of 2025.

BOC did not respond to questions from The Pulse.

As a partial funder of the project, the NSW government is also on the hook, and a spokesperson for the Department of Climate Change, Energy, the Environment and Water said the government was continuing to support the development of the hub, one of three around the state, “which will increase the production and availability of green hydrogen across the state”.

‘Disappointing’ lack of progress

The challenges for the production and consumption of green hydrogen in the Illawarra come after BlueFloat pulled out of the Illawarra offshore wind zone earlier this year, leaving the area without any commercial interest.

This leaves the Illawarra without a significant future source of local power production to replace the coal and gas the region’s industry rely on.

A digital rendering of how the proposed Illawarra offshore wind zone would have appeared from Bulli lookout. Picture credit: DCCEEW.

University of Wollongong energy expert Ty Christopher said that part of what scuppered commercial interest in the Illawarra offshore wind zone also put the brakes on the development of a hydrogen industry.

“Whether it’s offshore wind, whether it’s hydrogen or other renewable fuels, what we’re seeing is the big capital across the globe is seeing their risk profile increase and they’re pausing their investments as a result.”

Despite these global jitters, when projects do get off the ground, they have been oversubscribed. For example, Coregas’s open-access hydrogen refuelling station has been a local success story, with hydrogen-powered garbage trucks a common site in Wollongong and Shellharbour.

In addition, researchers at UOW earlier this month secured a $650,000 grant for critical hydrogen research.

Government funding to fill the gap

But for projects to scale up to the size required for Illawarra industry, there needs to be government involvement to bridge the gap between ambition and commercial reality.

A market survey conducted by ATCO, another Port Kembla hydrogen proponent supported by the Australian and German governments, found government support was key to overcoming barriers of cost and distance in the supply of green hydrogen.

Mr Christopher said it was for this reason “disappointing” that BOC had not been able to progress its project, given the significant financial support on offer from the NSW government. But elsewhere, state government support for hydrogen projects had dried up.

“The substantial forward progress that was made on hydrogen hubs, at the state government level, was all made under the previous state government,” Mr Christopher said.

“That funding flow, that tap, got turned off when Labor came to power.”

The Energy department spokesperson noted that the total grant funding to EnergyAustralia was yet to be paid out, given not all milestones had been met.

“A portion of the funding is allocated for hydrogen-related milestones.”

A further lack of coordination between government and industry could see the Illawarra’s green industrial future slip through its fingers. While the largest energy user, BlueScope, will run primarily on coal for at least the next 20 years, the path to producing green iron without a significant source of cheap, renewable energy grows more complicated each day.

Mr Christopher said the way out of this dilemma required longer-term thinking than what the Illawarra had experienced so far.

“This is not easy, it’s not fast and it’s certainly not an issue that you can resolve within an electoral cycle,” he said. “This is a five to 10 year horizon exercise that’s trying to start in the three year, stop-start cycle of politics.”