Accelerating Financial Support for Sustainable Hydrogen Energy

The Role of International Financial Institutions

As the world pivots towards cleaner energy sources, the role of international financial institutions (IFIs) like Multilateral Development Banks (MDBs) and Development Finance Institutions (DFIs) is becoming increasingly critical. These organizations have the potential to be catalysts in the acceleration of financing for hydrogen energy projects, particularly in Emerging Markets and Developing Countries (EMDCs).

The Need for Investment in Clean Hydrogen

The current landscape of clean hydrogen production and financing, according to recent data, shows a stark need for scaled-up investment. With less than 2 million tons of clean hydrogen produced globally in 2022 and less than 1 GW in global installed electrolyzer capacity for clean hydrogen in the same year, it is evident that there is significant room for growth.

Projected Demand and Financial Requirements

To meet the projected demand and production targets of 40 million tons of clean hydrogen by 2030, with an expectation of 20 million tons in EMDCs, substantial financial injections are required. The global investment need until 2030 stands at $2 trillion, divided among production, transport infrastructure, and end-use sectors. The total annual EMDC financing needs are expected to reach $100 billion per year, with a financing gap of $10 to $40 billion per year until 2030.

Strengthening Support for Energy Transition

MDBs and DFIs can play a pivotal role in overcoming these financial hurdles. By bolstering their support for EMDCs that are advancing the energy transition through carbon pricing and the rapid rollout of renewable power generation, they can help close the financing gap.

Knowledge Sharing and Capacity Building

Support is not only needed in terms of funding but also in knowledge sharing, capacity building, and fostering international cooperation. Efforts such as the World Bank’s Hydrogen for Development Partnership, which emerged from COP27, exemplify the type of initiatives required to channel clean hydrogen development and climate funding effectively.

Risk Mitigation and Technical Assistance

For governments eager to lead the way, MDBs and DFIs can offer guarantees and instruments to mitigate risks. This encompasses technical assistance, development policy financing, and infrastructure loans for critical facilities like ports and pipelines. Moreover, they can facilitate demand aggregation and bolster matchmaking between EMDC governments and international hydrogen initiatives.

Support for Lighthouse Production Projects

MDBs and DFIs are also in a prime position to support ‘lighthouse production projects’ in EMDCs. These projects can inspire further investment and include prioritizing project proposals, supporting project development stages, pooling funding to lower financing costs, participating in blended finance arrangements, and offering risk-mitigation instruments.

Balancing Export-Oriented and Domestic Demand

To date, international support has focused on making EMDCs appealing sites for hydrogen production, concentrating on export-oriented investments. However, there is a need to balance this with demand-side assistance, encouraging local companies to decarbonize through clean hydrogen use. This can be achieved by creating the right mix of tax incentives, regulations, and policies.

Maximizing the Impact of Financing

Efficient coordination among international institutions can minimize transaction costs and expedite deployment. MDBs, in particular, should consider a joint strategy to maximize the impact of limited concessional and development financing, especially for early-stage projects.

Advancing Renewable Hydrogen Financing at COP28

Looking ahead to COP28, there is an opportunity to discuss the support for renewable hydrogen lighthouse projects further. These projects are essential for scaling up the clean hydrogen market rapidly. To foster this growth, active government and financing institution support will be crucial. A pilot program with a 10-GW electrolyzer capacity could be a game-changer, increasing investor confidence and leading to more accessible capital for various EMDC settings.

Setting Precedents for Future Financing

The upcoming COP29 could be a turning point, where projects are screened for diversity, replicability, size, and cost-effectiveness, setting a precedent for future clean hydrogen financing. By seizing this opportunity, IFIs can make a substantial impact on the global transition to a cleaner, more sustainable energy future.

Should you have any further inquiries or require additional information on financing for green hydrogen initiatives, please do not hesitate to reach out.

Dr Mayilvelnathan Vivekananthan M.Eng.,PhD

Director, Cipher Neutron Inc

[email protected]

www.cipherneutron.com