Net Zero Investor | Inside Australia’s Billion Dollar Push for Low Carbon Fuels
HAMR Energy Featured in Net Zero Investor Article, September 2024 // Scaling up the nascent industry is key to delivering the country’s new 2035 emissions reduction target // By Atharva Deshmukh
It had been months in the making. On 18 September, the Albanese government announced a new emissions reduction target of 62 - 70% by 2035.
Ambitious as it may seem, the government reckons it is achievable. There is a multi-pronged plan in place including a $5bn Net Zero Fund and $2bn allocated to the Clean Energy Finance Corporation (CEFC). There’s even a $50m budget to get sport clubs to decarbonise their operations.
As part of its plan, the government has also announced a $1.1bn push to incentivise the production of low carbon liquid fuels (LCLF) in Australia. The CEFC, Australia’s state-backed investor, estimates this to be a $36bn opportunity in which the country possesses a hefty comparative advantage.
Billion-dollar idea
From Canberra’s perspective, there is an inherent and urgent appeal to increasing LCLF production. Over 80% of its liquid fuel demand is serviced from overseas. In addition, these fuels account for 32% of Australia’s emissions and half of the country’s energy use.
The government’s new Clean Fuels Program is a grant financing package spread over the next decade. It offers support to domestic LCLF players producing sustainable aviation fuel and low-carbon diesel. The use-case for these fuels is concentrated in hard-to-electrify transport segments such as aviation and shipping.
According to the government’s statement, the first production of ‘drop-in’ LCLF – which can be used in today’s engines – is expected by 2029.
Beneficiaries
Beneficiaries of the scheme will include companies such as HAMR Energy – a LCLF producer currently finalising a $10m series A funding round.
“This is a major boost for LCLF production in Australia, putting in place the incentives so project proponents like HAMR Energy can rapidly scale the industry”, ”
Earlier in the year, when CEFC published a LCLF market study – it found evidence of a first mover advantage on offer. Much of the thesis rests on the country’s agro-industrial base and the supply of feedstock.
““We have MoUs for our feedstock - locally-sourced forestry residues which will provide an additional income source for that industry; we have strong demand for offtake from shipping and aviation companies; and now there is Federal funding in place that will be catalyst for LCLF production””
Licella, another LCLF company also welcomed the government’s financing package. The company’s proposed biorefinery in Queensland received $8m in funding support from the Australian Renewable Energy Agency.
“Our technology is efficient, highly scalable, and combines low-cost production with access to abundant, low-carbon feedstocks. This gives Australia a genuine competitive advantage in producing the next generation of sustainable fuels”, says Dr. Len Humphreys, Licella’s chief executive.
Foreign clean fuel producers have also welcomed Canberra’s announcement. LanzaJet, which is aiming to deliver the country’s first ethanol-to-SAF plant in Queensland is one such company. Jimmy Samartzis, the company’s chief executive, commended Australia’s leaders for their ‘demonstrated vision and pragmatism’.
Missing piece
While the new funding is supply-side support, the demand-side of the equation is equally critical to the financial viability of LCLF businesses. HAMR Energy’s Stribley says progress on that front is being made.
““With significant supply-side support, the missing piece of the puzzle is on the demand-side. Globally this is already underway, with the International Maritime Organisation set to introduce a carbon price and international markets adopting SAF mandates””
The ability of LCLF companies to deploy their solutions at scale will depend on not only the underlying economics of their businesses but also investor conviction in their plans.
As these companies move up the financing ladder, at some point institutional financiers might fancy a seat at the table. To what extent this new $1.1 bn support package pushes that needle, only time will tell.
Continue reading the full article here: https://www.netzeroinvestor.net/news-and-views/inside-australias-billion-dollar-push-for-low-carbon-fuels