Governments must look at long-term regulatory guarantees to encourage the development of a hydrogen economy, according to panellists at a PE Live webinar held in association with professional services firm EY.

Launching commercial-scale hydrogen projects is different from other energy infrastructure projects because the market is not yet developed, according to Tim Calver, executive director, energy and infrastructure advisory at EY.

“Those assets are selling into existing mature markets,” he says. “In the case of an emerging market like hydrogen there is a strong case to make anticipatory investments and therefore provide risk mitigation to upstream and downstream investors.”

Offshore wind model

A contract-for-difference model—as used in offshore wind—where the government pays the difference between any agreed price and the market price is likely to be best, according to Richard Hulf, managing partner with London-based HydrogenOne Capital.

“Greater coherence and clarity on carbon pricing is important” Collier, EY

“The UK government is moving towards contracts for difference,” he says. “If there were a safety net  whereby there was way you could put hydrogen into the grid combined with local offtakers, that would go a long way towards alleviating the risks that we are seeing.”

Hulf added that the model of using blue hydrogen to meet initial demand and create a stepping stone to green was being adopted in China and would help address the chicken-and-egg problem of creating supply and demand at the same time.

Another factor that would help with investment decisions is a long-term carbon price, according to Simon Collier, associate partner with EY.

“Greater coherence and clarity on carbon pricing is important,” he says. The EU—one of the regions where large commercial-scale projects are being announced most regularly—now has a carbon price of over €50/t CO₂ ($58/t CO₂).

Hub structure

A hub structure—such as that being pioneered in the UK by the carbon capture and storage cluster competition—is also a way to address the additional risk with blue hydrogen projects of transporting and storing CO₂, Collier adds.

Another key aspect in the midstream is ensuring there is adequate storage for hydrogen, according to Antony Green, hydrogen director with UK transmission system operator National Grid.

“It is all well and good having your production, but it is not always in sync with usage,” he says. “Hydrogen will need short- and long-term storage. I would regard salt caverns as providing some interday buffering going forwards.”

 

The PE Live webinar, De-risking Hydrogen Investments, held in association with EY, can now be viewed on demand.

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Author: Tom Young