Andrew Forrest’s ambitions to manufacture electrolysers in Australia that can be used to split water into hydrogen and oxygen are a good match for the amount of activity that awaits, if everyone’s plans go ahead as hoped.
NSW has committed $3 billion to incentivise investment of a further $80 billion in the green hydrogen sector, Western Australia hopes to host 100GW of hydrogen capacity by 2030 and Queensland also has plans for production of hydrogen, all made using renewable energy sources.
On top of all that, Forrest’s dedicated clean energy company Fortescue Future Industries is committed to generating 15 million tonnes of green hydrogen a year by 2030, rising to 50 million tonnes by 2040.
Forrest has got to where he is today, helming a $43 billion company, by placing all of his faith in demand for premium grade iron ore. That might sound like a conservative strategy in hindsight, and diversifying into the clean energy sector sounds just as assured as the world pitches towards net zero. But the renewables sector is booming … and that brings plenty of risk.
Will Forrest’s plans for manufacturing clean energy gear in Australia, including solar and wind technology along with electrolysers, take him deeper into darker territory?
“It’s going to be challenging for Australia to be competitive but the way to do it is to scale, and [Forrest’s] plans have the right potential,” says BloombergNEF global head of industry and building decarbonisation Kobad Bhavnagri.
“They are giving it a good shot and increasing the chance of success because they are thinking big.”
The curse of Australian manufacturing is that it seldom gets to reach the big league. We’re a small market and it’s hard to produce enough of something to make it cheaply.
China leads the world in this respect because with access to such a huge market it can design and implement manufacturing at vast scale. The pursuit of very high production targets brings costs down.
Forrest’s Fortescue Future Industries has declared plans to make electrolysers in Queensland, and although the details are fairly vague the level of manufacturing expected is large enough for there to be “some chance of success”, Bhavnagri says, “but it’s going to be tough.”
A big green bubble
A lot of companies are crowding into the sector, Bhavnagri says, including Chinese manufacturers and some solar PV firms.
“The competition is going to be fierce and there is also a lot more electrolyser manufacturing capacity than there are hydrogen projects at the moment.”
Forrest’s plans appear to hinge on Australia being an exporter of hydrogen, not necessarily an exporter of electrolysers.
The clean energy technology industry looks to be guaranteed increasing demand for the next few decades at least as governments put the squeeze on carbon emissions. The fact is, however, that the industry is mature enough to have been running on wafer-thin margins for quite a while.
“Manufacturing solar panels has been a great way to lose a lot of money,” Bhavnagri says, and recent history includes corporate failures.
“There is a lot of glamour attached to manufacturing things – even more so for clean energy – but it’s generally not where the money is.”
Technological advantages can be quickly eroded as competitors relentlessly push out new solutions and keep their R&D teams under the whip.
“All of a sudden the thing you built three years ago which cost a couple of billion dollars is now a bit out of date and you’re starting to lose money,” he says. “They are really hard businesses to make money from.”