Enhancing the Bankability of Green Hydrogen Projects
Youssef Merjaneh, Managing Director of Black & Veatch in EMEA, looks at the value of an EPC wrap in ensuring green hydrogen projects are bankable
Green hydrogen can be used as zero-carbon fuel, feedstock and energy carrier, and as a method of long-term energy storage. As a result, green hydrogen is key to decarbonisation strategies the world over, leading to an expected ten-fold growth in demand for the element and its derivatives by 2050.
In the Middle East green hydrogen is expected to have a major role not just in decarbonisation, but also the region’s continued prosperity. Very favourable irradiation resources coupled with strong wind resources allow the region to generate cost effectively the renewable energy upon which green hydrogen production relies, resulting in the potential to produce the element at a competitive price.
The ability to act as both revenue stream and decarbonisation cornerstone is driving ambitious green hydrogen goals across the region. Oman is aiming for annual green hydrogen production of between one-and-1.25-million tonnes by 2030, with Abu Dhabi’s Masdar targeting up to one million tonnes of production by the same date. When complete in 2026, Saudi Arabia’s NEOM facility is on track to be among the world’s largest green hydrogen plants; while Egypt’s new National Hydrogen Strategy envisages green hydrogen contributing between US $10-$18bn to the country’s GDP by 2025.
While ambitions are big, most of the Middle East’s green hydrogen projects are currently small and nascent, often comprising memoranda of understanding, feasibility studies and pilot-scale proof-of-concept facilities.
Unprecedented developments
While the technologies utilised for green hydrogen production and storage – electrolysis, water treatment, AC to DC power conversion – are not new, the design and construction of projects currently being developed is unprecedented. Traditionally, hydrogen has been produced for heavy industry by industrial gas suppliers; with supplier and user often in close proximity. Green hydrogen allows for more distributed production in more diverse locations, serving a broadening client base.
This has heralded an abundance of new projects – many first-of-a-kind in terms of location, scale, configuration and technology – and new entrants into the hydrogen market. This combination has the potential to increase the risk profile for green hydrogen projects, making bankability more challenging.
Youssef Merjaneh, Managing Director of Black & Veatch in EMEA
Our experience, however, suggests an engineer, procure, construct (EPC) wrap offers an effective way, but not the only way, to mitigate some of these risks. For some client types it may be that open book or EpCM contracting forms offer a suitable alternative to balancing risk. Regardless of contract type, the contractor should be engaged at the outset of project design, in order to undertake the pre-feed or FEL 1 studies necessary to identify, and therefore mitigate, risk as the project is structured.
Black & Veatch is currently the EPC contractor on two commercial-scale green hydrogen projects, among them the world’s largest green hydrogen production and storage hub with a production capacity of 100 tonnes per day. Both projects are well advanced with production scheduled to commence in 2025.
Green hydrogen is created by using renewable energy to power electrolysis – the decomposition of water into its elemental constituents. Current electrolyser production capacity cannot match the demand envisaged to meet the needs of the burgeoning hydrogen economy. This, and the potential rewards, means a lot of new electrolyser suppliers are entering the market. Because the electrolyser is mission critical to a green hydrogen production project, using electrolyser suppliers new to the market can pose technical and financial risk for a project, affecting bankability.
Technical uncertainty lies in whether an unproven system will deliver as-forecast or as-specified performance; how much performance will degrade over the lifetime of the project and the extent to which reliability will affect availability. There is also a degree of programme uncertainty around a new supplier’s ability to deliver equipment to schedule and, when it arrives on site, the buildability of new systems.
Financially, even if the technology is good, a new electrolyser supplier may not have a strong enough balance sheet to provide the necessary investor confidence; or be able to satisfy investors and insurers of their longer-term viability.
Reducing risk
A proven EPC partner – with a high degree of technical expertise – can undertake the technical and financial due diligence necessary to minimise their own exposure to risk when selecting the most appropriate technology supplier, thus reducing the overall risk for investors and enhancing bankability.
Successfully navigating the supply/demand pressures that will affect the electrolyser supplier market for the short to medium term requires a technology agnostic EPC provider able to flex between proven and new electrolyser suppliers, and identify the insurances and performance guarantees best suited to the project’s specific needs.
Technical risk extends beyond the ability to select the most suitable electrolyser supplier. Because a green hydrogen plant requires the coexistence of electrons and molecules within the project – bankability requires an EPC partner expert in the technologies and disciplines that define green hydrogen projects, and are able to successfully manage the complex interfaces between them.
Finally, there is the financial strength of the EPC provider itself. Because the EPC provider acts as the single entity responsible for mitigating risk and ensuring technical and commercial viability, investors need confidence not just in the EPC’s ability to select bankable technology suppliers and manage programme risk, but also in the bankability of the organisation providing the EPC wrap. A robust, proven EPC entity with a sufficiently strong balance sheet will, of itself, enhance the bankability of the overall project.
