Innovating to finance the hydrogen economy

Innovating to finance the hydrogen economy

Financing the hydrogen economy is the final step in the energy model shift we are facing, with more electricity and a decarbonized gas network to rebuild, to complement and gradually replace existing fossil liquid energies. Its massive deployment will be long and will go through structuring intermediate stages during the decade, but it will be one of the best indicators of an irreversible shift towards a sustainable productive model, which will strengthen our sovereignty tools.

The shifts needed to achieve the Paris Agreement are unprecedented in scale and require unprecedented cooperation from political, economic, and financial systems, as well as societal acceptance of the energy transition. The latest quantified study of the transition published by Bloomberg indicates that global investments in the energy transition reached $1.8 trillion in 2023, a 17% increase compared to 2022, thus setting a new record despite the context of multiple crises, inflation, and high-interest rates. According to the study, investments in the energy transition are expected to average $4.8 trillion per year between 2024 and 2030, which represents nearly three times the total investment observed in 2023.

Significant Financial Needs

In this context, decarbonized hydrogen is emerging as a major energy vector, alongside the electron, to achieve objectives that are now raised to match the stakes and threats posed by climate change. On the one hand, we observe the now consensual recognition of the place that the hydrogen economy must occupy in a decarbonized productive model. This ranges between 10 and 15%, with identified priority segments, such as the decarbonization of heavy industries and mobility applications (land, maritime, aviation).

On the other hand, we observe the progress of all players in the sector in deploying more reliable, efficient, and competitive technologies to produce, store, distribute, and use hydrogen or its derivatives (from ammonia to SAF, sustainable aviation fuels, including methanol or synthetic gas).

More than 1,400 projects have been announced, representing over $500 billion in investment. The total investment needs to establish a hydrogen economy in service of the transition, from low-carbon energy bases (renewable or nuclear), or including investments in carbon capture and storage (CCS) technologies and projects, for which France is a leader, represent a need of several tens of trillions of dollars over the coming decades.

Accelerating Final Decisions

All of this seems very promising, but only 7% of the more than 1,400 hydrogen projects announced worldwide are currently in the construction or operation phase. 7% is very little. This figure must be compared with the support dynamics established in different geographies.

At the same time, support programs for the deployment of this industry, covering all industrial segments in use and many manufacturing sectors in production, have multiplied in Europe, the United States, Japan, Korea, China, Australia, and in Latin American and Middle Eastern countries, with modalities varying according to cultures, investment support policies, multi-annual demand or supply support programs, as well as the tax credits favored by the American legislator under the Inflation Reduction Act.

Alas, these programs, which could themselves unlock several hundred billion potential projects, are slow to implement, especially since most are still in the gestation phase and fail to unlock the FID (final investment decision) rate per project to bring it around the required 30%.

Read the full piece on La Jaune et Rouge magazine website