Inside Infrastructure: Highlighting Hydrogen

The global energy transition stands at a critical juncture - ambitious decarbonisation targets have been set, and now the hurdles to scaling up new technologies in order to achieve these need to be overcome. We explored this in relation to carbon capture, usage and storage (CCUS) in our post earlier in this series. This week we look at another key component of the energy transition as we turn our focus to the hydrogen economy and the role it has to play. 

Following their moderation of the opening panel of the Investing in Hydrogen Summit held in London after the summer and their participation at the Carbon Capture Global Summit, Andreas Ruthemeyer and James Chapman share their thoughts the status of the hydrogen economy and the challenges and opportunities ahead. 

Unlocking investment decisions to power the energy transition

Whilst there was clear initial enthusiasm for hydrogen's potential, this has been followed by the realisation of the challenges that exist, both technical and regulatory. Whilst progress has been slow it is clear that the markets are learning, with projections continuing to point to significant growth ahead. Hydrogen technologies continue to show huge potential for making the energy transition and the decarbonisation of the economy a reality. This is not, however, a "silver bullet," with the questions of how to accelerate its deployment and secure the significant investment required to meet the ambitious goals set by policymakers remaining key challenges.

The transformation that is required is complex, and the early promise of a widespread hydrogen economy has failed to materialise, primarily due to high costs, lack of infrastructure, and the technological and logistical challenges of producing and storing hydrogen. However, hydrogen technologies will still have their role to play, particularly for hard-to-abate industries. This was recently demonstrated by German steel producer SHS Group’s announcement of the conclusion of a contract with French energy company Verso Energy for the delivery of over 6,000 tons of green hydrogen.

Bridging the investment gap for hydrogen

The European Union's ambitious 2030 goal of 40 GW of electrolyser capacity and 10 million tonnes of domestically produced and imported renewable hydrogen highlights a significant gap between policy targets and actual investment activity as currently the scale of the investment required to meet these targets is not being made. This challenge is not unique; for example, the recent cancellation of South Korea's green hydrogen tender illustrates the global struggle to translate national targets into successful project investment. In order to meet the ambitious goals being set it is clear that ways much be found for unlocking, and accelerating, investment.

Developing hydrogen projects has proven to be more complex than initially anticipated, and presents unique challenges. Factors such as new and unproven technology, uncertain demand ramp-up, and evolving regulatory landscapes contribute to a higher perceived risk. Nevertheless, hydrogen’s role in the energy transition, especially for hard-to-abate sectors, is undeniable, and there are already investable hydrogen projects, particularly those based on co-located producer-offtaker arrangements. Delivering these early projects is crucial for generating learning, even as the industry works to solve the more challenging problem of the significant infrastructure of pipe networks and storage that are required.

The critical role of demand and offtake agreements

One key to unlocking funding lies in establishing clear demand signals and robust offtake agreements. Industry leaders have stressed the need for regulatory frameworks that generate demand and the importance of demand aggregation. Without clear offtake signals, it is hard to establish the required flow of capital into large-scale projects.

This point is crucial for making projects bankable and attracting investment. Long-term offtake agreements provide the revenue certainty that financiers require, mitigating market risk and demonstrating a clear path to profitability. Such agreements are particularly vital for stimulating sustained demand in hard-to-abate sectors—such as steel, chemicals, and aviation—where hydrogen and its derivatives, such as ammonia, can play a transformative role in industrial decarbonisation. 

Hydrogen and ammonia are seen as climate solutions whose value will increasingly be determined by carbon intensity (how much carbon dioxide or equivalent greenhouse gases are emitted per unit of hydrogen produced) and credible certification of this measurement. This differentiation creates market premiums, rewarding the cleanest production methods and further supporting investment. The challenge, therefore, is to build the bridge between investments in supply and aggregated, certified demand underpinned by robust policy.

The power of regulation and partnerships

A visible and reliable regulatory framework is widely recognised as a strong driver for accelerating investment across decarbonisation technologies. For hydrogen in the European Union, the Low-Carbon Hydrogen Delegated Act, which provides clarity on classifications and production avenues, offers a methodology to classify greenhouse gas emissions. While progress on the regulatory framework has been made, continuous adaptation by policymakers is essential to ensure the framework truly unlocks investment at scale.

Beyond regulation, strategic partnerships are gaining traction. It is suggested that decarbonisation requires a fundamental re-invention of economic activities, necessitating collaborations across the industry to navigate challenges and capitalise on emerging opportunities. These partnerships are vital for driving innovation, sharing risks, and accelerating decarbonisation efforts, thereby creating more attractive investment opportunities. 

Optimising infrastructure and future outlook

The "infrastructure shortfall" debate often highlights the significant levels of infrastructure not yet in existence that will be required to support the scale of decarbonisation that hydrogen is supposed to deliver.  However, it is also productive to focus on ways in which existing infrastructure can be optimised for use. Balancing long-term planning with making the most of today's assets can drive immediate progress and build market momentum for hydrogen.

In conclusion, while there's no “quick fix” in respect of the current challenges that are faced by the hydrogen economy, the path  that can be taken to unlock the private capital required for hydrogen technologies to play a significant role in the energy transition is clear:

• Robust offtake agreements to de-risk projects and stimulate sustained demand, especially in hard-to-abate sectors.
• Implementation of a fit for purpose and adaptive regulatory frameworks that provide certainty for investors.
• Fostering strategic partnerships to share risks and accelerate innovation.
• A focus on bankable projects that can be delivered now, while planning for future infrastructure needs.

By addressing these elements, the hydrogen industry can make a key contribution to a decarbonised future, attracting the investments, including private capital, essential for its success.

And finally, Real Asset or Fake News?

Well done to everyone not caught out by the fiction of floating cities last week. This week staying with the theme of our post we keep our focus on hydrogen. Can you spot which of these hydro-facts is pure hydro-fiction?

Hydrogen, hydrogen everywhere….: Hydrogen is the most abundant element in the universe, however it does not exist naturally in its pure form on Earth,  as it is locked up in compounds such as water and methane.

…really *everywhere*: Hydrogen molecules are also the smallest in the universe meaning they can even diffuse through some solid metals, which is one of the reasons why designing storage tanks and pipelines for hydrogen is so challenging.

Planes, trains and automobiles: Hydrogen based fuel systems are already being trialled across the transport sector, including to power trains, trucks, buses, planes and ships.

All aboard the night train: Due to the fact that liquid hydrogen evaporates so quickly in sunlight trains that are designed to run on liquid hydrogen fuel will only be able to do so at nighttime.

Pretty in pink: Many forms of hydrogen production have been designated as “colours” including pink hydrogen, which is hydrogen produced via nuclear powered electrolysis. 

We will be back next week with the answer, but if you think you have spotted the fiction hiding in the facts  please reach out and let us know.