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Green hydrogen projects are complex and costly. To be successful, a hydrogen project will need a range of stakeholders who understand risks throughout the value chain. This will be key to securing financing while global demand is still developing.
Significant levels of new investment will be needed to successfully commercialise and scale a global hydrogen industry. The Hydrogen Council estimates global investments of US$540 billion will be required by 2030 to remain on track to meet its 2050 global net-zero goal, whereby 22% of the world’s energy demand is met by hydrogen. The investment required in Australia will only represent a portion of this, but it will require large amounts of capital to be deployed.
Traditional private sector energy and infrastructure projects source only 20%–40% of total financing from equity, which can make optimising debt finance key to a project’s capital structure.
There are three primary risks that can be mitigated by forming hydrogen project consortia:
For investors, the complex supply chain considerations for hydrogen projects present more challenges than common infrastructure assets. Many hydrogen export projects under development in 2021 have formed consortia bringing together the requisite industry knowledge, skill sets and delivery capability. We have observed companies like Stanwell, Origin, Fortescue Future Industries, Province Resources and Total Eren forming strategic partnerships with offtakers and value chain participants, such as IHI, KHI, ENEOS, Marubeni, Iwatani and others.
Ideal export partners have strong creditworthiness with existing knowledge and skills in related industries. This makes them well placed to guarantee their component of project delivery and operational efficiency, bolstering investors’ confidence.
These partners have tended to emerge from jurisdictions with strong policy commitments to a green hydrogen economy and have a vested interest in the progression of the wider industry. In some cases, the export partner may be the offtake party or may develop a ‘back-to-back’ offtake arrangement with a trading partner or industrial user in the export country.
At present, hydrogen has multiple uses and no liquid traded market. With no merchant market, projects will require a bankable offtake arrangement to be financeable. To give confidence of the returns the project is likely to achieve, a project will need clear end-use markets and customers, and certainty of volume and price.
Domestically, displacement of grey hydrogen or use of clean hydrogen in gas blending may be among the first opportunities to be financeable given the existing downstream infrastructure and market. For export projects, the end user may be separated from the party providing guarantee of offtake. An example of this could be a consortium member that may provide volume and price guarantees to the project but may sell the hydrogen to a variety of changing domestic customers. In this case, it is the role of this party to absorb price risk, potentially integrating earlier higher-cost hydrogen offtake agreements into a portfolio of new hydrogen projects to create a blended price average to maintain price competitiveness.
A variety of additional strategic partners should be considered by project developers, depending on size, location and government stakeholders. These may include:
Throughout our Getting H2 right series, we have looked at Australia’s path to building a competitive hydrogen industry, from getting the price right, and establishing a hydrogen-ready supply chain, through to navigating policy and regulation and engaging partners and offtakers. These success factors will need to be considered by project developers and investors as projects progress towards construction and operation. The factors remain essential for both individual projects looking to secure financing, and for the development of the wider hydrogen economy.
Lachy Haynes
Partner, Advisory, Energy Utilities & Resources, PwC Australia
Tel: +61 499 039 476
Guy Chandler
Partner, Advisory, Energy Utilities & Resources Industry Leader, PwC Australia
Tel: +61 439 345 045