The clean hydrogen sector needs government support to help it through the early stages of development as banks will remain reluctant to finance projects until they start generating cashflow, financiers say.

“A lot of projects are being worked on, but very little financing is available from the banking industry today because hydrogen is not really bankable,” Max Gottschalk, managing partner at London-based investor Hycap, told the World Hydrogen Summit in Rotterdam.

“The government will play a very critical role in the initial phase of the development of the hydrogen market, providing some financing to projects that cannot get financing from banks.”

Hycap is strongly focused on investing in the UK’s clean hydrogen sector, looking at projects across the supply chain from production, storage and distribution to equipment and final demand, especially in transport. It owns a bus manufacturer and operates a fleet of 100 hydrogen buses in the UK.

“Very little financing is available from the banking industry today because hydrogen is not really bankable” Gottschalk, Hycap

“A lot of our investors are strategic investors, part of the value chain, many of which are coming from the demand side,” says Gottschalk.

In terms of government support, contract-for-difference (CfD) mechanisms for hydrogen—which are being developed by the UK government and elsewhere in Europe—will play a key role in kickstarting the hydrogen market, he says, noting the UK’s renewable transport fuel obligation is also working well, enabling a hydrogen bus to cost the same per mile as a diesel bus.

In the US, the emphasis is more on providing support to projects through tax equity mechanisms, though the number of projects benefitting from this is limited, says Michael Mudd, director of global sustainable finance at Bank of America (BofA).

“In Europe, the approach of CfDs seems much simpler than having some sort of tax equity credit where you have to set up a partnership and have a financial institution like us play a significant role,” he says.

Mudd acknowledges the challenge in lending to clean hydrogen projects. A rapid scale-up of capacity is important to allow some cost deflation “so that we can come in as a senior debt provider for hydrogen both in Europe and the US”, he adds.

Breakthrough Catalyst

BofA is a partner in Energy Breakthrough Catalyst, a coalition of private investors set up in 2015 by Microsoft co-founder Bill Gates to support innovation in clean energy technology, including hydrogen, needed to reach net-zero emissions. It issued a call earlier this year for projects seeking support in Europe.

Europe is ahead of the US in terms of its ambitions for clean hydrogen and the number of projects being announced, according to Mudd.

“The focus in Europe is really specifically due to the fact that we are seeing a lot more projects happening here. We are seeing clear mechanisms and targets from governments. And, obviously, the EU has pretty ambitious targets—we really want to come where the action is happening,” he says.

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Author: Stuart Penson