Lessons Learned in Developing and Financing a Green Hydrogen Project 2021
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Lessons Learned in Developing and Financing a Green Hydrogen Project 2021
Key Contacts Publications and Events
• Panel Discussion: Hydrogen, the missing piece to
a fully decarbonised economy?
MENA Future Energy & Decarbonisation Summit
February 2021
Dan Feldman, Partner
• Africa and a green hydrogen economy
February 2021
Samuel Ogunlaja, Senior Associate
• Hydrogen – is it the Answer to Clean Energy?
October 2020
Dan Feldman, Partner
• Panel Discussion: Green Hydrogen - electrolysis,
ammonia and other e-fuels
IRENA Virtual Innovation Week
October 2020
Dan Feldman, Partner
2NEOM / ACWA / Air Products’ Green Hydrogen Joint Venture
Background to the Project
Announced June 2020 Scheduled to be onstream in 2025
Involves 4 GW of captive greenfield 2 GW of electrolysis using
wind and solar generation Thyssenkrupp technology
Located in NEOM, a new US$500 billion
To produce 1.2 million tons per year of green
city being developed in Northwest Saudi
ammonia using Haldor Topsoe technology
Arabia, bordering Jordan and the Red Sea
Air Products to offtake 100% of green ammonia
NEOM, ACWA and Air Products
for distribution around the world to produce
each own 1/3rd of the Project
green hydrogen for transportation market
3NEOM / ACWA / Air Products’ Green Hydrogen Joint Venture
Highlights of the Project
Currently, electrolyser facilities are smaller than
Joint venture with Air Products and ACWA Power
100MW, just 5% of the scale of NEOM’s US$5
brings together hydrogen and renewables
billion plant making it the world’s largest
expertise.
electrolyser facility
The sites are abundant with solar and wind
NEOM’s future city will have zero net carbon
potential and the regulatory environment is
emissions, powered entirely by renewable energy
facilitative of the Project
Green ammonia is expected to be transported by
Air Products to Germany, Japan, South Korea
and the U.S.
4Background to the Project
5NEOM / ACWA / Air Products’ Green Hydrogen Joint Venture
But what is ‘green’ hydrogen?
H2 produced entirely from zero carbon renewable energy. It is also zero-carbon at point of use.
EU hydrogen demand is forecast to be 16.9
Hydrogen is the universe’s most common
million tons per year by 2030 and nearly 75%
element. It is lightweight yet energy-dense,
will need to be imported
and transportable in liquid form as ammonia
and methanol
The German government has said that most of its
hydrogen will need to be imported, and only ‘green’
Hydrogen has numerous applications, hydrogen is sustainable in the long term
including as fuel cells in the transport sector.
Ships, cars and other vehicles are able to be
powered by hydrogen fuel cells Japanese and South Korean governments have said
all hydrogen imports must be carbon-free by 2030
Green ammonia is the first scalable medium, or
energy carrier, for the export of one country's OPEC now estimates peak oil within 20 years as the
renewable power generated resources to energy transition to zero-carbon based sources
another accelerates
6Key issues
Construction and Interfacing Power and Water Supply Technology
• Highly integrated: Large number of • Clean sources: Electricity used for • Due diligence: Electrolysis application
components creates potential interface production needs to come from at utility scale is novel. Of the two
risk during both construction and renewable sources, with zero (or competing technologies (alkaline and
operations phase extremely little) “grey” power being polymer electrolyte membrane (PEM)),
used in the production process PEM is considered by some to be most
• Scale: No green hydrogen projects attractive but it is less well-proven,
have been built to scale. Pilot projects • Reliability: Renewable energy is which may impact technical diligence
aimed at identifying areas for naturally intermittent. Most projects will during financing of PEM-based projects
optimisation are running in parallel require power from multiple sources to
ensure plant utilisation rates can satisfy • Access: There are a limited number of
• First-mover advantage: Developers IRR hurdle rates. Ammonia requires a licensors for equipment at scale
need to move quickly to secure market constant supply of electricity and
share and ensure equipment supply requires access to stored power or grid • Financing: Licensing agreements for
connection electrolysis and ammonia production
• Risk allocation: Need to target single- technology must be bankable. Due to
point construction and appropriately • Access to water: A large volume of the uncertainty of the energy sector
allocate risk away from the project fresh water is required for electrolysis. over the long term, developers and
company and across the supply chain Projects without access to proximate lenders will focus on potential ‘stranded
fresh water supply will require asset’ risk
• Financing strategy: Developers may desalination plants. Carbon emitted
separate elements of supply chain into during desalination process will be
separate financings (i.e. utilities and attributed to the hydrogen
electrolysis plant)
7Key issues
Regulatory Offtake H Land
• Marketability: International regulations • Market risk: There is currently no • Availability: Greenfield green
setting criteria for ‘green’ hydrogen do merchant market for green hydrogen hydrogen projects involve a
not yet exist. We expect all aspects of and developers and lenders may not combination of elements and therefore
the supply chain will be taken into accept the associated exposure. To be significant vacant land mass. This can
account in determining the carbon considered bankable, green hydrogen impact due diligence if multiple land
content. First mover developers have to projects will require long-term, fixed acquisitions are involved
be extremely conservative to ensure so price offtake contracts with
as to not inadvertently exclude creditworthy offtakers, structured on a • Location: The quality and reliability of
themselves from a particular market take-or-pay basis the renewable energy sources will be a
key determinant in the cost and
• Power and water supply: Power and • Limited offtaker pool: There is a limited therefore overall IRR. Extensive
water supply is often highly regulated. pool of creditworthy offtakers with the meteorological forecasting will be
Renewable electricity taken from a grid risk appetite and downstream required to ensure the requisite
will need to be recognised as green in distribution network to offtake green renewable energy levels and therefore
the end markets (Europe may require hydrogen at utility scale projections can be met
single-purpose renewable projects for
hydrogen) • Production uncertainty: It is difficult for • Commerciality: The best renewable
producers to commit to steady and energy sites may not be conveniently
• Jurisdiction: Investors and lenders may predictable production profiles because located near other essential project
seek change in law or stabilisation of the reliance on renewable power infrastructure such as transmission
protection, unless the jurisdiction has a sources, making volume commitment infrastructure, roads and ports.
strong track record for the development arrangements complex Maximising renewable energy potential
and financing of large scale industrial may need to be weighed against other
and renewables projects logistical and commercial
considerations
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