Near-term investments, supportive policies to ensure bankability of green hydrogen projects, report finds

The European Union (EU) has set a target to increase the consumption of hydrogen from renewable energies to 20 million tons (Mt) by 2030. To reach this goal, green hydrogen should be produced cost-effectively and in large volumes, with a focused view on near-term investment projects, early identification and mitigation of challenges and risks, and a clear regulatory framework, according to a new white paper from Hamburg Commercial Bank.

In its recently released white paper, Green Hydrogen: Is Tomorrow’s Energy Source Bankable?, Hamburg Commercial Bank delves into the prospects for green hydrogen projects and the challenges of financing them.

As pointed out, the biggest challenges for the EU’s green hydrogen ambitions are scaling up the production capacity and improving cost efficiency.

Reaching the target of producing 10 Mt of renewable hydrogen in the EU by 2030 would require 80 to 100 GW of capacity.

So far, the EU has secured only 3.5 GW of capacity from 84 projects that have received final investment decisions, and 55 GW is still in the feasibility stage, facing the possibility of missing the set target.

While resources for green hydrogen production must be available on an ongoing basis, significant investments are also needed for transportation to design safe and efficient pipelines, ships, and trucks.

To ensure the bankability of green hydrogen projects, the initial focus should be on local production and use. This could minimize transport costs and risks, but it requires a clear framework for the construction and operations of the plant, including long-term offtake agreements that justify the investment in the production facilities.

According to the white paper, the metal industry, the chemical industry, and refineries are likely to be among the main consumers in the near term.

The necessary infrastructure, such as pipelines or storage capacity, is expected to be created in Europe by 2030, which would help expand regional production and could lead to global production.

Describing a supportive policy framework as essential to further advancing the green hydrogen market, the white paper argues that government subsidies, funding programs, and regulatory incentives such as CO2 prices or tax breaks help to achieve positive investment decisions, noting that the economic viability of a project should be achieved primarily through commercial aspects.

Policy frameworks, funding mechanisms, and demand-side mandates were also listed as critical points that create a widening gap between ambition and reality in Europe’s hydrogen sector in the latest report from energy market research and consultancy firm Westwood Global Energy.

If these points are not urgently addressed less than 20% of the EU’s planned hydrogen project pipeline is expected to be realized by 2030, Westwood warned, noting that 23 European projects totaling 29.2 GW already stalled or canceled by the end of 2024.