Financing Green Hydrogen Projects in the Middle East

Gajendra Yadav, Director, Synergy Consulting, Inc. shares insights:

Driven by the worldwide decarbonization targets, decrease in renewable energy tariffs and cost of key components such as electrolyzer, globally green hydrogen projects are forecasted to reach over $89 billion by 2030, registering a CAGR of 54.2% as reported by MarketWatch.

To capitalize on the opportunity, almost every MENA country has created a green hydrogen project strategy. Several projects and initiatives are operational across the region including in Egypt, Morocco, Oman, Saudi Arabia, and UAE. A $55 billion hydrogen project pipeline is envisaged in MENA region where 75% of the projects are green hydrogen as stated in the H2 Energy News.

Green hydrogen projects are capital intensive in nature and a significant step forward in the energy transition is financing. It is important to realize that most financing will be received from the private sector. At the same time, we must recognize the importance of the role of the government in mobilizing finance. When promoting growth, State Owned Enterprises (SOEs), Export Credit Agencies (ECAs) and Sovereign Wealth Funds (SWFs) can be used. For financing projects in low-income countries and to accelerate technology adoption Multilateral Development Banks and Development Finance Institutions are expected to play a crucial role.

The financial framework is but one piece of the sustainable environment. Long-term sustainability requires the definition of a common language for investors, developers, and policymakers. Each country needs to define policy, regulation, and governance frameworks that align at a regional and international level. The existence of a uniform framework for certifying Green Hydrogen across geographies establishes the conditions viable for sustainable investments and financing. Other key risks being highlighted by financiers include:

1.      Technology Risk: Though individual technologies such as renewables power, electrolyzer, and ammonia production have existed for a long time, it is the interface risk that is yet to be understood on a commercial scale.

2.      Price Risk:  Current expected prices for Green Hydrogen / Ammonia prices are significantly higher than the long-term historical average of Grey / Blue Ammonia. Acting as a hurdle to enter long-term fixed price contracts essential for attracting long-term competitive financing. Risk can be mitigated with government support in the form of grants / concessional financing.

Further, Governments need to think about the way forward to develop the hydrogen infrastructure making it available to end users. A comprehensive framework based on a common language aligned with regional and international compliances will activate green hydrogen project financing.