Green hydrogen projects are coming through, but slowly, with challenges around securing buyers for supply, which would drive final investment decisions on projects. In a panel discussion at Wood Mackenzie’s Hydrogen Conference 2024, in November last year, the challenge was discussed by three key players in hydrogen finance and investment. Christian Annesley reports
In a context where lots of capital has been provisionally allocated for hydrogen projects, but reaching final investment decisions has been hard, how to do we speed things up from here and remain optimistic? What is the shape of the market today?
Arun Mago I can give you a flavor. At Société Générale we are advising on several projects and also helping clients to raise equity. Right now, my team is taking our first transaction to credit – that is, helping a client to raise debt. That’s a positive. For large-scale projects, we are talking with governments a fair bit and in particular engaging in discussions about hydrogen hubs and the creation of common infrastructure. A lot of discussion today is also taken up with looking at potential commercial models, and that’s an interesting piece. What is the value that’s being brought to the table? Does the capital that’s potentially being put up fit with the strategy of a particular government?
Andrew Doyle There is less hype today around the hydrogen sector. But giant projects like NEOM, in which we have been involved, were always outliers. If you put a project like that to one side, the industry today is broadly where you would expect it to be. The projects that are coming through are smallish, especially related to green hydrogen and green ammonia, but in the right place in relation to the industry as a whole and where the technology has reached. At the same time, there is positive momentum. There are some solid price signals now and accordingly some appetite to bring projects forward. At Mitsubishi UFJ, we are seeing more and more opportunities on the advisory side to bring projects to market. The lending will follow
after that.
Richard Hulf It is important to talk about the current state of the hydrogen market. We have been through this period of hype in relation to hydrogen as a molecule that will solve lots of different things. But that was always unrealistic and so expectations aren’t met. Right now, we think sentiment has probably turned too far against hydrogen, just when it is poised to begin to deliver. It is not a means to make money quickly, but right now projects and companies are moving ahead. It is on the rise and with over 200 green projects out there and already producing – in total making about 18,000 metric tons of hydrogen. That’s real. What we look for today at HydrogenOne Capital, alongside co-investors, is whether projects are viable. Do we have control on costs? Is there a long-term offtake contract in place that makes the whole thing sustainable? Just standard stuff for energy projects. Beyond that, is there long-term growth potential? Where is the site? Can it be expanded? What is the local infrastructure like? And so on. We are right into the meat of this industry now, even though it is a nascent sector. It needs time and patience, yes, and that means that when we bring in co-investors they need to understand the opportunity on different terms to an oil or gas project, but there are upsides, too. This market will take off. Not yet, of course, but it will catch everyone by surprise one day, and those that moved on the opportunity early enough will be those who will reap the benefits.
So the price signals really matter, from what is being said, as well as the standard project-related elements. Let’s return, then, to the market signals and securing creditworthy offtakers. We are seeing this take a long time, it seems. What is the art here to attracting demand?
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