How Will a Hydrogen Future be Funded?

As hydrogen begins to dominate the narrative of net-zero across the globe, Hydrogen Industry Leaders answers the hot question, how will it be funded?

A hydrogen future is becoming a mainstream conversation after years of discussion. While most projects are convincing and essential for a pathway to a net-zero future, questions remain about the roles public and private funding will play.

Joining Hydrogen Industry Leaders was Allan Baker, Global Head of Power & Project Finance at Societe Generale. He discussed how best to finance hydrogen and what can be learned from other green developments.

What is clear to the industry is that the technology is ready, the political backing is there and large scale projects are happening all over the globe. However, there are many challenges facing finance and market security.

Starting the interview, Allan explained how public investment is essential for the R&D aspect of hydrogen. He said: “There is the money going in, particularly from the government, in R&D around some of the newer technologies. Such as trying to improve the older style of electrolysers more relevant for the industry we are heading towards.”

In terms of developing Gigafactories to reinforce the supply chain and the electrolysers required for delivery of the pipeline of projects, funding is required

Despite government funding, most of the money will come from private investment. So, building a strong business case and securing the market is essential if hydrogen is going to follow the same trajectory as wind and solar.

Balancing the equilibrium of public/private investment is difficult

Allan added to this, explaining: “The vast majority of the money is going to come from the private sector but with frameworks to support the development of the industry. We are beginning to look at frameworks for delivering the hydrogen economy.”

It is one of the reasons we try and work closely with the government in developing the hydrogen industry model. We can see that creating a market that could be a good framework to start the domestic market in the UK

The equilibrium between public and private finance is a difficult balance but the clearest framework is using public money for supporting the development of the industry, but private money funds the innovation, and the projects.

When discussing the trajectory of hydrogen compared to other sectors such as wind and solar Allan told Hydrogen Industry Leaders: “I think it will follow the same path. In many respects, the paths will join because a lot of the large-scale projects we are seeing now, offshore wind projects, for example, are also focused on producing green hydrogen. So, you’ve got those two clean energy sources merging to produce one hydrogen future.”

There is a level of excitement in the finance community around hydrogen. It is a new industry but has key similarities to other things we have already done in the past. So, there is a level of understanding and comfort with the technology

Despite the optimism surrounding the future of hydrogen, there are additional constraints beyond finance that are currently hampering the globalisation of hydrogen. One of those is the distribution of hydrogen across the globe.

Hydrogen has logistical obstacles preventing a globalised market

As it currently stands, shipping hydrogen is extremely difficult and despite R&D on the issue, it is a fundamental problem for the industry at the moment. Allan built on this: “It is going to be a constraint on the globalisation of the industry and the current solution is to convert to ammonia. There is an additional cost converting to green ammonia in both capital and energy. These kinds of issues might slow down development.”

Additionally, politics will shift the balance of control in terms of importing and exporting hydrogen on a global scale. Japan, for example, will rely on importing hydrogen and already have strong trade deals with the Middle East with oil and gas, so new green deals will be easier to create between the regions.

Politics will play a key role in import/export trade deals

This may hamper hydrogen production funding in other countries that might not be able to sell hydrogen on the global market and will only rely on hydrogen for domestic purposes.

The CFD model the UK is proposing for hydrogen is like the one for offshore wind and we think it will have the same effect in terms of driving investment in the industry. If that model turns out to be as we expect it will give the same impetuous to hydrogen that we saw for offshore wind.

Rounding up the interview, Allan told HIL: “The politics are the overlay that is going to help drive the market. Ultimately, the bigger challenge is how governments are going to incentivise the industry. Government targets were key for the development of offshore wind and the framework for investment was made.”