Australian mining and clean-energy billionaire, Andrew Forrest, is set to plough $54 million into a new battery manufacturing plant in the United States. Fortescue Metal Group (of which Forrest owns the majority share) is also allocating $US550 million to the Phoenix Hydrogen Hub in the US where it plans to build an 80 megawatt electrolyser and liquefaction plant with production capacity of up to 11,000 tonnes a year of liquid green hydrogen.
It is little wonder that Forrest has chosen to invest his millions offshore. In making a smart business decision, Forrest will cash in on the enormous benefits and tax incentives afforded by US President Joe Biden’s $550 billion Inflation Reduction Act (IRA)—incentives that Australia’s governments seem unwilling to entertain.
According to not-for-profit think tank Climateworks, $625 billion worth of investment is needed to decarbonise Australia’s industry and energy system by 2050. This comprises $400 billion of business-as-usual investment by the private sector, and a further $225 billion to transition the energy system.
And yet, Australia is still considering its response to the IRA.
Our governments must stop prevaricating over our response to the IRA and enact equivalent policies and legislation that encourage private investment and secure a pipeline for local business. The alternative is that Australia remains a dig and ship economy until we run out of ore—and options.
We must grow our manufacturing capability at a rapid pace if Australia are to have the resources to meet net zero targets.
This is particularly pertinent in the wake of Australia’s declining productivity growth. According to the Productivity Commission’s recently released five-yearly performance report Advancing Prosperity, we recorded just 1.1 per cent growth in in the decade to 2020, the slowest growth rate in 60 years. Australia is now 22 per cent less productive than the US.
The transition to net zero, and the policy steps taken in response, will have a huge effect on Australia’s productivity growth over the next 10 years. According to Deloitte Access Economics, an effective transition to net zero by 2050 could prompt an $890 billion increase in GDP over the next 50 years.
Federal Treasurer Dr Jim Chalmers himself said: “To realise this opportunity, we’ll need billions of dollars in new investment by 2050 – plus thousands of new clean energy workers in just the next few years alone. With a global race for clean energy capital, we need to invest in our comparative advantages and remain a reliable global partner open to trade and investment.”
And yet, the Federal Government has not allocated funding, or enacted any kind of industry policy, tax incentives, or legislation.
Industry policy needs to stimulate demand and secure Australian content in order to drive investment. The Australian Government must enact a national policy framework that guarantees a sufficiently strong pipeline of work for manufacturers to attract the required investment to build a sovereign renewable energy manufacturing capability. Weld Australia recommends mandated local content of 60 per cent of Australian fabricated steel by kilogram compliant to Australian Standards.
The international context
Australia is already 15 to 20 years behind its international competitors in the global race to net zero and, with every day that passes, we slip even further behind. Most of our international competitors have already responded to the IRA.
It is estimated that the IRA’s provisions will facilitate a 43 per cent reduction in US carbon emissions by 2030. The US, through the IRA, has taken shown tremendous leadership, enacting a plan to tackle the challenges of the renewable energy revolution; a plan with manufacturing at its heart; and a plan that is already delivering unprecedented growth in the sector.
A combination of tax credits, loans and subsidies, the IRA is driving private sector investment in clean electricity and electric vehicle manufacturing. The IRA is an investment in—not a cost to—the US economy. When announced, the IRA was expected to amount to US$391 billion on energy and climate change provisions. However, independent research estimates that this may rise to US$1.2 trillion. It is estimated that this will pave the way for some US$3 trillion of private capital investment in renewable technology and manufacturing—including Forrest’s $54 million.
These bold government-led investment plans have already been echoed in Europe, Canada, India, Japan and South Korea.
The European Union recently announced the Green Deal Industrial Plan, which provides a framework for green technology and critical mineral supply. In addition, in July 2023, approval was confirmed for the European Chips Act, which will support an estimated €43 billion of investment between now and 2030 in measures such as next-generation technologies, and certification procedures for energy-efficient chips.
To achieve national decarbonisation goals, the Japanese government has formulated the Green Development Strategy through Achieving Carbon Neutrality in 2050. The South Korean government is set to embrace the economic opportunities of decarbonisation through its landmark Korean New Deal. In a landmark March 2023 federal budget, the Canadian government unveiled C$80 billion worth of fiscal programs to accelerate clean energy investments and developments.
The global supply chain
It is probably too late to access global supply chains for the necessary renewable infrastructure and the window to acquire the necessary plant and equipment to establish a sovereign capability is closing fast.
There has already been significant speculation about the capacity of the global supply chain to deliver Australia’s material requirements for the renewable energy transition. Vestas, one of the largest wind tower OEMs, recently noted that their supply chain was already fully booked for 2024 and the only way they could guarantee to supply Australia was to build a local plant.
Australia also has ambitions to become a significant producer, exporter and user of renewable hydrogen. To achieve this we will need to have access to a risk free supply chain of electrolyser stacks.
At this stage it would be safe to assume that Australia, despite its natural advantages and ambition to become an energy superpower, will be a small player in the global market without the scale to secure supply or value. Therefore, relying on the overseas supply chain would pose a significant risk that can only be offset by establishing sovereign manufacturing capability.
If Australia is to develop a sovereign manufacturing capability, then we will also need to develop the accompanying technical infrastructure. It will be imperative that we have a suite of Standards covering all aspects of the manufacturing and construction process. Most importantly, we will need a set of design parameters that will allow for standardisation of infrastructure, transport and logistics.
Potential for local manufacturing – Onshore Wind Towers
Australian manufacturers have significant experience in making durable, innovative and reliable gearbox combinations for the mining industry.
Opportunity 1: There are several Australian companies with international reputations who would have the capability to manufacture high quality gearboxes for wind turbines at a competitive price.
International best practice for wind tower section manufacture relies on a continuous production process suitable for a high degree of automation. Once established a tower section plant could be run predominantly by a semi-skilled workforce supported by technicians and welding specialists to maintain the equipment and oversee the production.
Opportunity 2: Australia has the expertise to become globally competitive in the production of high-quality wind towers, built to Australian Standards. However, industry needs policy settings that deliver the security of a long-term pipeline of work to secure the required investment.
An Australian company, faced with competing on price, has developed an award-winning alternative solution for wind tower anchors made from 100 per cent Australian steel, 50 per cent of which is re-cycled. This solution only takes two workers with a crane 90 minutes to install and is substantially cheaper than the imported design.
Opportunity 3: Given demand driven incentive policies for local manufacture Australia could become a world leader in the design and manufacture of wind tower anchors.
Offshore Wind Towers
The floating foundation technology proposed for New South Wales requires steel semi-submersible foundations that will be anchored to the sea floor, most likely with steel suction pile anchors. Local fabricators could manufacture these floating foundations components and anchors with the right investment conditions.
Opportunity 4: Offshore wind semi-submersible floating foundations and anchors would provide a significant opportunity for the Australian fabrication industry.
As an alternative to importing flat pack lattice construction kits for transmission towers, Australia could use locally manufactured monopole towers, particularly in more sensitive locations that require a more sympathetic ascetic.
Opportunity 5: Manufactured using similar plant as wind towers transmission, monopole towers could be locally produced at a substantial cost saving.
Australia has ambitions to become a significant producer, exporter and user of renewable hydrogen. To achieve this, we will need to have access to a risk free supply chain of electrolyser stacks which form an essential component of a green hydrogen manufacturing plant.
Opportunity 6: Establish an electrolyser manufacturing plant to meet local and regional demand.
The construction of Hydrogen Plants will require a significant number of high calibre welding engineers, supervisors, inspectors and highly skilled all-process, all-position welders.
Opportunity 7: A coordinated training and immigration program should be initiated now to increase the number of welding engineers, technologists, supervisors, inspectors, and welders. This can be achieved by modernising the trade training system and subsidising higher level technical training.
As Treasurer Jim Chalmers said: “We can’t afford to waste another decade of complacency and conflict.”
The Australian Government must act now.