Investor appetite for the clean hydrogen sector remains strong despite the uncertainty in financial and energy markets caused by the crisis in Ukraine, financiers told Wood Mackenzie’s hydrogen conference this week.

Demand is especially strong for early-stage finance to support commercialisation of projects and technology, with financial investors and the venture capital arms of strategic investors such as oil majors looking to provide capital, the financiers say.

“What we see generally is still a huge appetite; we are talking about exponential growth here,” says Benjamin Colegrave, director of energy corporate finance at bank ING. “We see a huge amount of capital sitting on the sidelines waiting to be invested.”

The Ukraine crisis and resulting surge in gas prices has highlighted the issue of energy security, and this is driving stronger demand for clean hydrogen projects, according to Ed Craddock, director of natural resources at Japanese bank MUFG.

“We see a huge amount of capital sitting on the sidelines waiting to be invested” Colegrave, ING

“I do not think people will be spooked by [the Ukraine crisis] at all,” he says. “You have to take a relatively long view if you are making an investment for 20 years. You have to be comfortable with the economics of your project.”

The focus of London-listed fund HydrogenOne Capital had initially been on hydrogen-related equipment makers, but this has broadened to hydrogen production projects faster than previously expected because of the speed at which projects are coming forward, according to the fund’s managing partner, Richard Hulf. However, HydrogenOne would not invest in a project without an offtake deal in place, Hulf adds.

“[Hydrogen production] is not a technology risk; the very big risk is the offtake,” he says.

Volatility

HydrogenOne sees private hydrogen companies as more attractive investments than listed companies at this stage of the industry’s development.

Several speakers noted the volatility of listed hydrogen company share prices, and Hulf linked this to the industry’s immaturity and the difficulties companies have in delivering predictable earnings.

Respected electrolyser manufacturer ITM Power saw an almost 50pc fall in its share price last year, despite a strong order book and expansion plans.

Colegrave adds that the sector had stabilised after an initial bubble similar to the dotcom market of the early 2000s. “Investors are taking a more educated view now,” he says.

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Author: Stuart Penson