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Only 12% of green hydrogen projects have binding purchase agreements
Industry News- Aug 13,24
Many deals are nonbinding and may fall through if buyers withdraw.
Hydrogen has long been hailed as a game-changing, carbon-free fuel with potential for a cleaner future. Globally, ambitious plans are underway to build nearly 1,600 green hydrogen plants, powered by wind or solar energy. Yet, despite the hype, most of these projects are struggling to secure buyers.
The challenge is evident: only 12% of low-carbon hydrogen projects have secured binding purchase agreements. Many deals are nonbinding and may fall through if buyers withdraw. "No project developer will invest in hydrogen production without a committed buyer, and no banker will finance a project without assurances of demand," notes Martin Tengler, Analyst, BloombergNEF.
Hydrogen is seen as crucial for achieving net-zero carbon emissions, particularly for industries like steel and maritime shipping that are difficult to electrify. When produced using clean energy, hydrogen emits no carbon. However, it remains costly—four times more expensive than hydrogen derived from natural gas—and the infrastructure to support it, such as pipelines, is still developing.
Building hydrogen infrastructure is akin to past energy developments; natural gas pipelines, for example, were only built after securing customers. Laura Luce, Hy Stor Energy points out that hydrogen supply requires a customer base, much like any other energy sector.
Countries with abundant renewable resources, like Chile, Australia, and Egypt, are setting ambitious hydrogen production targets, while the European Union aims to produce 10 million metric tons of carbon-free hydrogen by 2030. The US is also investing heavily in hydrogen hubs, with President Biden dedicating $8 billion to this initiative.
Despite these efforts, there are significant hurdles. In Europe, regulations are still being finalised, which delays private investment. In the US, debates over hydrogen tax credits continue, and global hydrogen transport systems are not yet in place. Shipping hydrogen involves either supercooling it, compressing it, or converting it into ammonia, which adds complexity.
Successful projects are those that integrate all aspects of the hydrogen ecosystem. For example, Thyssenkrupp Nucera AG is involved in a project in northern Sweden that will use hydropower to produce hydrogen for a steel mill, with Mercedes-Benz committed to purchasing the steel. Similarly, Hy Stor Energy is designing a project in Mississippi that will use local wind and geothermal energy to produce hydrogen for SSAB, a steel manufacturer.
As the hydrogen sector matures, it is expected that projects aligned with specific customer needs and integrated into a broader ecosystem will be more successful. "Customer-aligned projects are more likely to succeed," Luce asserts. "Building a project around a committed customer increases the chances of it being realised."
(Hindustan Times)
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