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Introduction
The Australian Hydrogen Council (AHC) is the peak body for the hydrogen industry and our membership includes companies from across the value chain. Our members are at the forefront of Australia’s hydrogen industry, developing the technology, skills and partnerships necessary to ensure that hydrogen, its derivatives and flow on industries play a meaningful role in decarbonising and strengthening Australian industry.
AHC welcomes the opportunity to engage with the design of the second round of the Hydrogen Headstart program, and to respond to the consultation paper.
Policy intent
Hydrogen Headstart was first announced in May 2023 as the Australian Government’s flagship support mechanism for the emerging clean hydrogen industry. With an initial allocation of $2 billion, the program was designed to support one or two large-scale projects to reach final investment decision, effectively bridging the commercial gap for early entrants.
Twelve months later, the 2024 Federal Budget introduced the Hydrogen Production Tax Incentive (HPTI), signalling a longer-term policy mechanism that will take effect from 2027. The original expectation was that Hydrogen Headstart would serve as a bridge to the tax incentive, providing certainty for early projects until the broader framework was in place.
Since then, however, we’ve seen delays in both the Headstart announcement and project timelines, many of them driven by external factors. And with the HPTI now legislated, the role of Headstart has necessarily shifted. Headstart 2 is now less of a bridge to HPTI and more a co-existing policy tool that may offer additional support to strategically important projects. As currently proposed, Headstart 2 appears to retain a focus on large-scale projects, with eligibility set at 50 MW per facility and targeting one to three recipients. This suggests that its intended role is to provide additional commercial support for projects that would also qualify for the HPTI (which begins at 10 MW per facility).
Since the first iteration of Headstart, we’ve seen further policy clarity. The release of the National Hydrogen Strategy and confirmation of the Future Made in Australia (FMIA) package have helped define the strategic context. These policy signals suggest a clear focus on hydrogen and derivatives as enablers of low carbon metals (particularly iron and alumina), and as feedstock for low carbon liquid fuels and green chemicals such as ammonia and methanol. That direction is welcome, and particularly so with recent developments in international maritime regulations for emissions reduction. If the proposed International Maritime Organisation regulatory mechanism is adopted later this year, Australia will see opportunity in both ammonia and methanol production for ships that bunker in our region.
We support Headstart 2 being aligned with these priority use cases, especially where government support helps to close the remaining commercial gap for hard-to-abate industries delivering national benefit. We also ask that further government analysis and support is provided for associated infrastructure needs, such as for hydrogen storage.
Addressing broader policy gaps
The reality is that the transition to net zero will take time and will carry real costs for society. That is the rationale behind programs like Headstart and the HPTI. However, these initiatives have always been understood as parts of a necessary and broad ecosystem – one in which forms of carbon pricing, demand-side measures, and supportive policy settings ensure a level playing field between fossil fuels and low-emissions alternatives.
At present, we do not yet have that level playing field. In fact, public funding continues to support incumbent fossil fuel activities in ways that create distortion before we even begin to address the absence of meaningful carbon pricing. The current fuel excise exemption for miners is an example of this distortion.
If the Australian Government is to meet the ambitions of the FMIA and the National Hydrogen Strategy, a stronger and more coordinated approach is needed. That means clarifying policy intent and backing it at scale. It also means designing demand side mechanisms to enable the stacking of funding sources and identifying areas of the market that still require tailored support. Headstart 2 plays a key role in delivering this.
For hydrogen’s hard-to-abate end uses – including iron and alumina, methanol, and ammonia – we suggest that the Australian Government assess for each market the producer and buyer transition incentives, end customer willingness to pay, and other key underlying market dynamics that affect how the transition rolls out, and to what timeline. Current and future policies then need to stack –we need to include state and territory support measures and international opportunities such as H2Global initiative’s Australian window – to ensure the best chance of attracting investment to have the commercial gaps closed in the right time. This is critical not only to deliver on decarbonisation goals but also to sustain Australia’s competitiveness in producing these industrial commodities and chemicals for domestic and global use.
We are therefore calling for the Australian Government to be clearer about the specific policy intent behind Hydrogen Headstart 2 and to tailor the approach according to the best means of filling the key FMIA market gaps.
Leading from this, if entry criteria are to be tightly drawn, this should be made explicit to avoid misaligned expectations. This is important in light of the unintended consequence we observed during Headstart 1, namely, the effective chilling of the project pipeline while boards waited to see whether funding might materialise.
EOI vs rolling applications
The consultation paper outlines two process options for Headstart 2: a time-bound expression of interest (EOI) round such as that used for Headstart 1 with a final application due within a set period (such as 12 months), or a rolling application model similar to ARENA’s usual approach. Both have merits and drawbacks.
The key issue is that hydrogen projects vary enormously in scale, offtake structure, technological readiness, and market destination. This diversity makes it difficult to apply a single timeline or competition logic. Competitive EOI rounds may inadvertently disadvantage projects with longer lead times or less standardised configurations.
At the same time, rolling applications may favour earlier movers; some of whom may not deliver the greatest public value. And of course, in both models, those funded in the first round will always be better off.
A possible middle ground would be:
- Run an initial EOI round with clear eligibility criteria tightly aligned to policy intent, particularly around iron, alumina, ammonia, and methanol production.
- Discuss the EOI timing with key stakeholders who have advised their interest to participate in the process and test the best process timeframes with them so as to capture projects of strategic value.
- Use the EOI process as the gateway to structured and collaborative engagement between proponents and ARENA to shape viable applications, noting these may be in FEED.
- Allow greater flexibility and tailoring in final submission timelines, reflecting project-specific needs, while setting clear funding timeframes.
The consultation paper’s proposed application window period is welcome. Some members have indicated that even 12 months may be tight, depending on project complexity. We believe the timeframe should be negotiable within clear bounds, particularly if payment structures are phased.
Dealing with real-world project risks
Headstart 2 should be a partnership between the proponent and the Australian Government to see strategically important projects supported in the public interest. In order to potentially address some of the issues that led to delays in the due diligence of projects short listed under Headstart phase 1, we suggest that due diligence for projects participating in Headstart 2 should align with the timing of FEED as there is a higher estimation certainty in project costs, meaning that negotiations with ARENA and other lenders are likely to be more credible. Similarly, the requirement in the indicative grant contract that asks projects to have locked in confirmed offtake before all financing is completed is unrealistic – all project proponents that AHC has spoken with are agreed that confirmed offtake can occur only once project costs are locked down.
It will be important that projects and ARENA then work together to anticipate and manage the kinds of challenges that have already become familiar across the sector. These include input cost volatility between EOI and final submission, chilling global risk sentiment affecting capital raising, and a resulting need for reasonable flexibility on development milestones. This is particularly in response to conditions outside proponent control.
We would expect that upon submission of an EOI to ARENA, proponents could engage in initial conversations to clarify any areas of uncertainty or address issues that might otherwise preclude eligibility. We are also keen to understand the process for those projects that submit expressions of interest that are well regarded but do not progress to full application. AHC also recommends a separate process for the Australian Government (including ARENA and CEFC) to consider further support for projects that are invited to submit full applications but do not receive funding in this competitive round.
While this is not the current remit of ARENA, we also suggest stronger government support through the process to help proponents with contracts, partners and clients to ensure that the investment succeeds.
Aligning Community Benefits Principle coverage
Finally, we note a structural issue emerging around community benefit principles (CPBs) and their coverage in Future Made in Australia Plans. Specifically, we are concerned that CBPs and their reporting in Plans may become duplicative or misaligned across stacked funding mechanisms. Under the current framework, recipients of the HPTI will be required to meet CBP obligations under tax legislation (administered by Treasury), while separate CBP obligations apply under ARENA’s remit for Headstart.
We strongly recommend that government consider mechanisms for harmonisation within the Australian Government and the respective state and territory jurisdictional requirements. CBP coverage should be consistent and streamlined, avoiding redundant parallel reporting processes, especially where differences in requirements are minimal. This will be essential to ensuring that otherwise strong projects are not deterred by administrative burden. We recognise this sits across agencies – notably Treasury and Industry – and encourage coordination on this point. Coordinated engagement with the appropriate state and territory jurisdiction is also critical as there could be duplicative requirements.