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Potential risks for hydrogen infrastructure projects revealed

Oil&Gas Materials 28 June 2021 10:18 (UTC +04:00)
Potential risks for hydrogen infrastructure projects revealed

BAKU, Azerbaijan, June 28

By Leman Zeynalova – Trend:

To develop the European Hydrogen Backbone a significant investment is required over the coming years to repurpose and build the required infrastructure, Trend reports with reference to the hydrogen legislation paper prepared by the Gas for Climate consortium.

The required investment volumes will need both access to funding on this scale from the market and a professional financing approach. Multiple interviews with financial institutions were carried out to describe investors’ perspective on financing the hydrogen backbone and to identify the key challenges.

Multiple financing challenges and potential risks for hydrogen infrastructure projects were described by the investors. The most important ones are:

Regulatory challenges: Investors in the corporate financing field indicate that regulatory issues are one of the most important factors influencing their investment decisions. A political decision to actively start taking steps toward a hydrogen market in Europe would be needed, providing a reliable and transparent regulatory framework.

Economic model: The rate of return needs to be attractive enough for the investor. With the security that the cashflow of the company will be enough each year to service the debt. Subsidies can mitigate this risk and create incentive for investments.

Political & country risk: The current political landscape is deemed favourable for the employment of hydrogen. However, national political parties who do not see the energy transition as a priority and that are less in favour of renewables, are seen as country specific risks. Furthermore, the transparency and predictability of the decision making of national government and regulators are considered by investors when making their investment decisions. At the EU-level, investors indicate that a harmonised approach between Europe and neighbouring countries, such as the UK and Norway, would be favourable.

Supply & demand risk: As the market for hydrogen is not yet developed, the viability and potential variability is being perceived as a risk for the development of hydrogen infrastructure, as stranded assets should be avoided.

Technology risk: Every new technology has its risks, the risks for hydrogen infrastructure are not deemed substantial but are taken into account. Potential leakage and the perception of the public are for example factors that are considered.

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Follow the author on Twitter: @Lyaman_Zeyn

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