Investing in clean hydrogen – the capital outlay required
Market watch
Investing in clean hydrogen – the capital outlay required
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09 February 2024
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Infrastructure
Reading time: 5 minutes
Amir Sharifi
Energy Transition Lead & Infrastructure, Senior Managing Director at Ardian and CIO at Hy24
Hydrogen’s flexibility has put it in a position to grow into a $2.5 trillion industry that supplies up to 13% of global energy demand.
No other clean energy source can match hydrogen’s flexibility – it can take liquid or gas form and can be transported and stored more effectively than electricity.
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$2.5trillion
is the amount generated by the hydrogen industry
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5million
people are employed in the hydrogen industry
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13%
of the world's energy demand is supplied by hydrogen
This flexibility has put hydrogen in a position to grow into a $2.5 trillion industry that employs more than five million people and supplies up to 13% of global energy demand.
Building up clean hydrogen production to a level that can cover the required contribution to the green energy mix in the future, however, will not be easy and will require massive upfront capital expenditure and investment.
Hydrogen is not a molecule that can simply be extracted from the ground. That is the big difference from oil and gas. This introduces cost and complexity to any green hydrogen roll-out.
Clean hydrogen investment must be done at scale to make it worthwhile and meaningful. Both governments and the private sector are starting to recognizing that.
Clean hydrogen roll-out: investment at scale required
Global hydrogen annual production currently sits at around 94 megatons (Mt), according to International Energy Agency (IEA) estimates, but will have to expand almost six-fold to 530Mt by 2050 in a net-zero emissions scenario. What makes scaling production at this rate even more challenging is that most incumbent hydrogen production capacity is currently produced using fossil fuels.
Even before new green hydrogen manufacturing can start to move the needle, legacy hydrogen production will have to be repurposed or replaced. Entire clean hydrogen value chains will have to be brought online simultaneously. Current estimates put the outlay needed to facilitate the build-out of green hydrogen capacity to the required levels at $15 trillion by 2050.
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$15trillion
is the amount of expenditure needed to facilitate the development of green hydrogen production capacity to the levels required by 2050.
Sharifi adds that securing the absolute amount of investment required is only part of the solution. Equally important is the timing of this investment. The simultaneous development of clean hydrogen infrastructure, both upstream and downstream, will be a cornerstone of accelerating hydrogen use.
Clean hydrogen investment has to be done at scale to make it worthwhile and meaningful. That is the whole trick. You have to start big to see the economics start to work.
“Starting at scale also addresses the chicken and egg scenario that we often encounter with hydrogen. If you have a car powered by hydrogen you need to have hydrogen filling stations. Who makes the first investment? The reality is that both have to happen at the same time. If a hydrogen economy is to exist, there has to be a systemic shift”, Sharifi says.
Ready to face the hydrogen investment challenge
The good news is that governments and the private sector are recognizing that if hydrogen is to reach its potential as a clean energy source, investment will be required at scale and pace.
At policy level, governments around the world have thrown their weight behind the clean hydrogen roll-out, providing long-term certainty and financial support to accelerate the industry’s development.
As part of its RePowerEU strategy, for example, the European Union has upped its 2030 renewable hydrogen target from 5Mt to 20Mt, as it pivots energy supply away from Russian gas, and has approved $5.2 billion of public funding for hydrogen projects. In addition, the block has outlined plans to form a €3 billion “hydrogen bank” that will provide purchase guarantees for clean hydrogen producers.
In the US, the Inflation Reduction Act has put a $3/kg subsidy in place for green hydrogen projects. This makes green hydrogen production significantly more attractive than hydrogen produced by fossil fuels, which costs around $2/kg to produce, according to The Economist.
Ardian, meanwhile, has formed a joint venture with hydrogen investment pureplay FiveT Hydrogen: Hy24, which is managing today the largest infrastructure fund dedicated to the clean hydrogen value chain with €2 billion of allocations.
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€2billion
of allocations are currently managed by Hy24, the largest infrastructure fund dedicated to the clean hydrogen value chain.
Sharifi says that when combined with public support, debt capital and equity co-investment the vehicle will invest up to €20 billion in green hydrogen projects.
Hy24’s managed fund will invest globally across the entire clean hydrogen value chain, covering everything from electrolysers and other upstream hydrogen production to downstream applications such as refuelling stations to serve heavy duty and intensive mobility. The fund has already secured seven deals, for example with H2 Mobility, a German hydrogen fuelling station network, and upstream producers Hy2Gen and Enagas Renovable, as well as with H2 Green Steel to decarbonize the hard-to-abate steel industry, and InterContinental Energy to support giga scale development of integrated renewables and green hydrogen projects in places in the world with lowest cost of renewable power (Australia and Oman).
It may be simpler to invest in the upstream production space at the moment, but we have always maintained that the downstream piece has to be rolled out in parallel. That is how the fund is designed. It is in place to serve as a kick-starter for the green hydrogen economy.
We suggest you to read or re-read our the first article of a series of three articles exploring investment in clean hydrogen:
Investing in clean hydrogen – why solar and wind cannot do it alone
