A group of major international companies including TotalEnergies, French industrial gases giant Air Liquide, equipment manufacturer Chart Industries and services firm Baker Hughes is collaborating on a push to accelerate the clean hydrogen economy via a new €1.5bn ($1.73bn) investment fund called Hy24.

The participating companies, which also include industrial group Lotte Chemical and asset management and insurance firm Axa, are each committing €100mn as anchor investors.

They recently selected a joint venture between French private equity investment house Ardian and pure-play clean hydrogen investment platform FiveT to manage the fund, which they say is the largest so far in the clean hydrogen infrastructure space. 

Hydrogen Economist spoke to Pierre-Etienne Franc, co-founder and CEO of FiveT, and Mathias Burghardt, head of Ardian Infrastructure and member of Ardian’s executive committee, about their plans for Hy24.

Tell us about the timing of the Hy24 launch?

Franc: It is time to scale up. The size of projects is growing—we are moving to hundreds of megawatts. Before it was more venturing, tomorrow it could be very commoditised. So we need to step in now if we want to create value and help move the industry at scale.

Burghardt: This acceleration, which is happening both at government level and the industrial level, requires us to move fast and have the best team, combining both expertise in infrastructure investment and hydrogen, if we want to be the first mover, the largest player.

We are the largest [clean hydrogen infrastructure] fund in the world, which is a very exciting position to be in. We are the first to start at this scale. But this is meant to be a long-term marriage with a nascent industry, so I think this should be one of a series of funds.

“Before, it was more venturing, tomorrow it could be very commoditised” Franc, FiveT

Energy has always been a big topic for us. For 15 years, we have been early investors in the renewable energy space, where we have today more than 7.5GW of capacity.

More recently, we have been investing in other technologies like battery storage.

However, two years ago we realised that hydrogen would be the cornerstone of the move towards an energy transition and a low-carbon society. And that is when we started to investigate and look at hydrogen.

What are your criteria for selecting investments?

Franc: We are going to look at the whole value chain, upstream to downstream. The key triggering selection factors are the size of the projects, the ability to work with partners in the right location and the scalability of the projects which enable us to invest in tickets up to €150mn per project. So the strategy is spread between upstream and downstream, as well as being spread geographically. We are going to invest in bits and pieces in all of the segments. We should probably eventually invest in 20-30 projects ranging from €50mn to €100mn.

Burghardt: The low-hanging fruit is the 70mn t of hydrogen produced for industrial use. This hydrogen, made through methane, has a carbon emission factor of ten, so basically for every 70mn t of hydrogen produced, there are 700mn t of CO₂. So the first step would be to get green hydrogen for those applications, which are mainly industrial.

Which geographies are you targeting?

Franc: We are going to focus on all the countries that have strong policies on hydrogen and have been part of the transition, so basically around 30 countries: Europe, the US, Korea, Japan, maybe China, Australia and, tomorrow, maybe South America and a couple of Middle East countries.

Have you identified any specific investments yet?

Burghardt: We are looking at half a dozen projects, of which maybe two or three could be signed in a matter of months. We expect to sign the first project in Q1 and the second one in Q2. 

What are you looking for in terms of return on investment?

Burghardt: Each project is different, and there is a rule of law in finance that the most risky projects deserve the highest returns. I think we will invest in a blend of different types of projects with different risk profiles, and generally with public support. I think the returns would be on average low double-digit returns, so similar to what we found in the infrastructure space, with the caveat of how the risk embedded with the producer.

The idea is to have more diversification because hydrogen is a nascent industry with regulations that are implementing new technologies, and at a different scale.

Returns should be slightly higher than for infrastructure, but generally in the low double digits. 

Tell us about the anchor investors who have committed an initial €800mn.

Burghardt: It is not very common for industrial leaders, who sometimes compete, to join forces to launch a fund and to find a fund manager from a selection process, in order to accelerate developments in their industry. 

All those industrial players, whether oil companies, hydrogen industry players or utilities, are working together, as they are convinced this will be probably one of the most important industrial revolutions we have experienced for a long time.

How important is hydrogen to the energy transition?

Burghardt: We have a vision of energy transition as a way to avoid the obsolescence of our investments. We are really convinced that being able to have carbon-efficient investments, in particular in the energy sector, is key if we want to preserve the value for our investors.

“We believe that hydrogen will become an asset class just as renewables is today a major asset class” Burghardt, Ardian

The next step you will see is significant. We are a big player in the renewable energy space. We need scalable technology to store energy for long periods between winter and summer.

Ultimately, the solution is hydrogen because batteries can store energy for hours, but certainly not for 3-6 months at such volume as hydrogen can. 

Hydrogen has two unique components—it enables storage of renewable energy, to increase the amount of renewables in the mix, and it decarbonises industries where it, is in many cases, the best low-carbon solution.

What is the outlook for green hydrogen as a competitive energy carrier?

Burghardt: You need to narrow the gap between the cost of producing green hydrogen and grey hydrogen. You also need to accelerate the downstream. So, for example, you need to accelerate the deployment of [hydrogen] refuelling stations. To create public transport fleets you really need to create a hydrogen ecosystem, which would happen in any case, but maybe not for 15 or 20 years—however, it has to happen now. Subsidies will allow it to accelerate. 

What is quite interesting is that this is not that different to renewables 15 years ago. We believe that hydrogen will become an asset class—just as renewables is today a major asset class. Some 50pc of the investments in infrastructure now are renewable energy investments. 

Nonetheless, we are much closer to market equilibrium (with hydrogen) than we were at the time of renewables 15 years ago. And in certain sectors, we can even make it work without subsidies.

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Author: Stuart Penson