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Hydrogen projects face funding gap in Europe: banks

Highlights

Policy makers need to bring market clarity

Few hydrogen project FIDs on the horizon

European hydrogen projects face a funding gap due to slow deployment of private capital and limited government support, leading asset finance banks said at the S&P Global Platts Hydrogen Markets Europe Conference Nov. 25.

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"You need a lot of money, and to be honest, I don't see it," Rabobank Senior Sustainability Strategist, Executive Director, Hyung-Ja de Zeeuw said of public investment.

ABN Amro Executive Director, Project Finance, Lisa McDermott said that more critical choices were needed from governments on which industries and sectors should be targeted for deploying low-carbon and renewable hydrogen.

To date, most governments with hydrogen strategies had deployed a "scatter-gun" approach to targeting use cases, including some sectors where hydrogen would be less effective, such as light transport and heating, McDermott said.

There will not be enough renewable energy or electrolyzer capacity to reach all sectors, so governments need to act fast to bring clarity to which areas should be prioritized, so as to avoid the risk of assets becoming stranded, she added.

De Zeeuw said money to support hydrogen market development should be channeled to sectors where there is no other alternative way to decarbonize, such as steel and petrochemicals.

McDermott also noted a dearth of final investment decisions for new hydrogen projects, with most being between announcement and FID and very few close to a decision.

ING Bank's Head of Energy and Infrastructure, Iberia, Wafaa Ermilate, said too many FIDs were dependent on receiving public grants or support, and agreed that some use cases did not make financial sense.

Governments could also help by bringing clarity to rules around carbon intensity of hydrogen production, and a finalized EU taxonomy for renewable energy, the panelists said. Combined offshore wind and hydrogen tenders would also help stimulate investment.

Subsidies and support models for hydrogen end-users could make project finance challenging, making the projects less bankable, McDermott said.

And de Zeeuw noted that while financing an entire hydrogen value chain reduced risk for the project, this approach also made it harder for private banks to finance.

Equinor's Senior Vice President, Low Carbon Solutions, Grete Tveit confirmed at the conference an FID for its blue hydrogen project on Humberside in the UK, would be taken in 2023/24, with operations starting in 2026 if government support was forthcoming.

And BP Vice President for Hydrogen Market Development Sally Prickett said the company now saw the opportunity to create viable business models for early projects as funding mechanisms emerged.

Platts assessed the cost of producing hydrogen via alkaline electrolysis in the UK (including capex) at GBP14.01/kg ($18.67/kg) Nov. 24. PEM electrolysis production was assessed at GBP16.58/kg, while blue hydrogen production by autothermal reforming was GBP5.20/kg (including capex, CCS and carbon).