plants , often with captive or on-site hydrogen production . This creates an obvious starting point to upgrade existing hydrogen production units by adding carbon capture and storage ( especially at or near geologically favourable locations for storage ). The hydrogen produced already has a captive buyer and , where the blue hydrogen project is structured as a separate project from the rest of the refinery or plant , a project financing could increase the returns from such an upgrade by reducing the sponsor ’ s equity commitment and and spreading the cost over a longer period . Such structures have the obvious cost benefit of allowing a quicker and wider roll-out of such technologies than using equity alone . As decarbonisation regulations continue to advance globally , we can expect more owners of refineries and fertiliser plants to look to blue hydrogen as a solution to reducing emissions , especially in the medium-term .
• Blending – Many existing gas-fired power plants can operate on a blend of methane and some hydrogen with minimal or even no investment , thereby reducing the carbon intensity of electricity production at that plant . Such plants provide a perfect offtaker to a nearby small-tomedium scale green hydrogen project . The plant can buy all hydrogen produced from renewable energy but still use methane to supplement hydrogen if production or storage levels go down . As above , the plant ’ s incentive to purchase hydrogen at a higher price than methane would be to reduce its emissions . While there are likely to be some challenges with bankability of certain electrolyser technologies , as is the case with any new technology , the increased investment in these technologies means they are becoming more established by the day . Project finance has a long and distinguished history of facilitating the wide-spread roll-out of new technology in the energy sector – for example , the recent project financings of bifacial solar panels . As we have seen with some of these types of projects , being near favourable geological structures such as existing caves where hydrogen can be stored can significantly reduced the initial outlay and make the project more attractive .
• Hydrogen network PPPs – Widespread use of hydrogen will require efficient and effective means of transportation . In Europe and the UK that is most likely to take the form of gas pipelines . Many existing pipelines can handle a blend of methane and some hydrogen , but in order to transport pure hydrogen pipelines will need to be upgraded , replaced or newly constructed . It is difficult to see how such upgrades , replacements and new pipelines could be constructed without direct government support . Thankfully , however , such projects lend themselves to government-led PPP projects and could follow traditional forms of PPP procurement and financing . As the European Union and the UK ramp up their hydrogen efforts , we could start seeing an increasing number of such initiatives to put in place the backbone of a hydrogen economy .
In summary , while some of the rhetoric around hydrogen mega-projects seems premature , project finance can have an important role to play even in the early stages of the development of the hydrogen economy . Forward-thinking sponsors who try to structure their hydrogen projects to enable project financing are increasingly likely to find a range of project financiers eager to support the energy transition and invest the time and effort to help make these projects happen . •
Footnotes
1 – https :// www . iea . org / fuels-and-technologies / hydrogen 2 – “ Comparison of Alternative Marine Fuels ”,
05 https :// safety4sea . com / wp-content / uploads / 2019 / 09 /
DNV-GL , Report No : 2019-0567 , Rev . 3 dated 2019-07-
SEA-LNG-DNV-GL-Comparison-of-Alternative-Marine- Fuels-2019 _ 09 . pdf 3 – Note , however , that hydrogen is significantly lighter per MJ than diesel and even LNG . 4 – https :// www . volkswagen-newsroom . com / en / stories / battery-or-fuel-cell-that-is-the-question-5868
© Scharfsinn86 | Dreamstime . com . Hydrogen gas station with solar panels and wind turbines in the background . Getting green hydrogen from renewable energy sources
66 Project Finance International September 8 2021