Page 12 - AsiaElec Week 27 2021

AsiaElec HYDROGEN AsiaElec

Green hydrogen needs supportive energy

policies and lower costs

GLOBAL GREEN hydrogen is currently five times more the introduction of hydrogen, as renewables
expensive than grey hydrogen, meaning that could benefit from higher realised or implied
the renewable fuel is unlikely to affect the credit power prices and lower levels of curtailment.
profiles of European, Middle East and African Research from IHS Markit also found that
EMEA integrated utilities in the next few years, 2030 could be the date when green hydro-
Fitch Rating said in a recent report. gen begins to become competitive with grey
The agency said that green hydrogen cur- hydrogen.
rently costs EUR5–6 per kg to make, compared IHS Markit said that costs for producing
to EUR1-2 per kg for hydrogen derived from green hydrogen had fallen by 50% since 2015 and
fossil fuels. could be reduced by an additional 30% by 2025.
Because of this, governments will have to This could be done by increased economies of
provide substantial subsidies and mechanisms scale and more standardised manufacturing.
to support green hydrogen until it reaches a tip- In terms of power generating utilities across
ping point when costs will fall, as has happened the EMEA region, Fitch noted that renewables
in recent years with renewables. already accounted for a sizeable share of the busi-
Fitch noted that the EU aims to develop ness mix for many EMEA integrated utilities,
40GW of electrolyser capacity by 2030, which which are de-risking their portfolios away from
should lead to economies of scale and a cost thermal generation (merchant risk) towards
reduction for green hydrogen. renewables generation (usually under price sup-
This means that for the next decade, green port schemes or power purchase agreements).
hydrogen, which involves using green electricity Fitch assessed that such moves towards green
generated by solar or wind to electrolyse water were positive for their business profiles.
to produce hydrogen. This compared to grey Furthermore, European utilities have sub-
hydrogen, which burns fossil fuels, usually nat- stantially increased their plans to expand into
ural gas, to produce hydrogen using a process renewables. If debt-financed, such large capex
called methane reforming. The chemical and plans may weaken their credit metrics.
refining industries currently make up the bulk The profitability of new investments will
of global hydrogen demand. gradually decrease as competition increases due
Green hydrogen therefore needs subsidies as to public auctions and the increasing number of
it forms a part of the EU’s climate ambitions, such projects.
as reducing emissions by 55% by 2030. However, stronger business profiles, better
Hydrogen is a key fuel for the energy transi- integration with supply, and the high valuations
tion as it provides way of storing and distributing of asset-rotation transactions could mitigate
wind and solar energy that cannot be immedi- these pressures.
ately consumed in the place it is generated. Indeed, stronger business profiles have been
It can also be used as feedstock and fuel, espe- key to several improvements in Fitch-defined
cially in “hard-to-abate” sectors, such as steel, debt capacity in recent years for companies such
fertiliser and chemicals. as Iberdrola, Enel, RWE and EDP.
Fitch noted that green hydrogen will need However, Fitch warned that despite increased
subsidies as it become technologically more exposure to green energy improving these major
energy efficient. The “power to hydrogen to European utilities’ business profiles, they will
power” model entails significant energy losses have to wait to feel the effect of any investment
of up to 60%. in green hydrogen.
Only in the long term, when renewable pen- Green hydrogen projects included in current
etration is much higher, this storage mechanism business plans will have a negligible impact on
should be compared to other technologies such EBITDA until the second half of the decade, so
as batteries. they will not be a key rating driver for a few years.
However, green hydrogen has good pros- Investment in green hydrogen has been
pects, Fitch noted. Green hydrogen and renew- almost negligible so far. However, IEA projec-
ables offer mutual development support, as tions show a sizeable increase in 2019-2040,
development of green hydrogen will accelerate accelerating in 2041-2070.
demand for renewables. The IEA forecasts that global green hydrogen
At the same time the development of renew- output must reach 150mn tonnes in 2030 from
ables and continuous cost-reduction for both 850 GW of electrolysers in order to reach Paris
renewables and electrolysers can make green goals and reach net zero by 2050. By 2045, this
hydrogen more cost-competitive. could rise to 435mn tonnes of green hydrogen
Renewables economics should improve with from 3,000 GW of electrolysers.™

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