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Financial instruments. | Energy, hydrogen
Finance, hydrogen
Around EUR 487 billion would need to be invested each year in the energy systemuntil 2030 to meet the Fit-for-55 objectives.
On top of that, meeting REPowerEU targets requires €210bn of investments between 2022 - 2027 including:
- €86bn for renewables;
- €27bn for key H2 infrastructure by 2030.
The emerging green hydrogen industry provides an example of how capital intensity and technology readiness level (TRL) influence LCOE:
- TRLs for green hydrogen production processes are generally lower than for grey hydrogen, which is a mature technology.
- today, the cost of producing one kg of H2 via SMR technology far outcompetes production via electrolysis, making electrolysis commercially unattractive as of today.
- the commercial unattractiveness of electrolysis is because green hydrogen requires higher CAPEX (as well as OPEX), and also has a steeper learning curve than grey hydrogen.
Barriers to investments in hydrogen:
- there is a tension between the supply and demand market for hydrogen projects: developers of hydrogen projects may be reluctant to invest in building facilities where demand for the product is uncertain.
- without a secure supply and potential high prices, off-takers may be reticent to invest too.
- when hydrogen projects do start, the owner will be under considerable pressure to meet the commercial operation date to ensure it can meet its offtake agreement obligations.
Financial instruments by targeted production technology:
- most instruments available for energy production are technology neutral;
- hydrogen is targeted mostly by 17 grant instruments, mainly due to the innovative and recent nature of the different technologies in the H2 value chain, which still require high upfront costs, and only to a lesser extent by loans.
Recommendations for hydrogen:
- tailored advisory support could be provided for large-scale hydrogen projects, which require long-term planning and coordination;
- additional support is required for technologies like the production of green hydrogen characterized by high CAPEX costs and high perceived risks, but could nonetheless play a key part in the EU’s future energy supply.
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