Green hydrogen is a type of electricity that breaks down water molecules into hydrogen and oxygen using renewable energy sources. It has a lot of potential to help meet global energy demand and help achieve climate change mitigation goals.
The demand for green hydrogen is estimated to have grown from 87 million metric tons (MT) in 2020 to 500–680 million MT by 2050.The market for hydrogen production was worth $130 billion in 2020 and 2021, and it is expected to grow by 9.2% annually through 2030.
But there is one caveat: Over 95% of the hydrogen produced today is produced using fossil fuels, and very little of it is "green”. Hydrogen production currently consumes 6% of global natural gas and 2% of global coal. However, green hydrogen production technologies are regaining popularity.
This is because there are more and more potential applications for hydrogen in a variety of fields, including power generation, manufacturing processes in steelmaking and cement production, fuel cells for electric vehicles, heavy transport like shipping, green ammonia production for fertilizers, cleaning products, refrigeration, and stabilizing the electricity grid.
Also, falling sustainable power costs, combined with the waning expense of electrolysers and expanded productivity because of innovation enhancements have expanded the business reasonability of green hydrogen creation. The projected global range of levelized costs for hydrogen production for large projects through 2050.
According to various studies, by 2050, green hydrogen could be produced in most of the world for $0.70 to $1.60 per kilogram, which would be comparable to the price of natural gas. NEL, the world's biggest maker and producer of electrolysers, accepts that green hydrogen creation cost equality (or even predominance) with petroleum derivatives could be accomplished as soon as 2025.
How do we structure a green hydrogen project that can be funded? The green hydrogen industry ought to attract investments due to the significant growth in demand, the scale of the required input energy (22,000 TWh of green electricity to produce 500 million tons of green hydrogen annually), and the similarities between the hydrogen value chain and the fossil fuel value chain (with upstream, midstream, and downstream elements).
However, only a few green hydrogen projects have been commercialized successfully to date. Multinational corporations says that most green hydrogen projects that are built and running are in the pre-commercial stage and only have 50 MW or less of electrolyser capacity.
Even though some of the proposed plants have a capacity of at least 100 MW, they are still insignificant in comparison to alternatives that do not use fossil fuels. Green hydrogen projects also present additional peculiarities and dangers that pose a challenge to conventional project financing: a lack of technology knowledge; separating the input of energy; transformation and production; storage; and transportation to users at the end.
Panellists at the most recent Global Infrastructure Facility (GIF) Advisory Council Meeting agreed that hydrogen projects that combine public and private capital can become bankable and commercially viable, but there are some considerations that must be made.
Finding facilities that produce hydrogen and renewable energy together so that they can be better integrated is one way to position these projects for success. This was the strategy in Puertollano, Spain, home to Europe's largest green hydrogen facility for industrial use and a 100 MW solar farm. Additionally, policies and regulations that encourage investment must be developed by governments.
The development of these regulations, as well as ensuring that they are implemented and adhered to, require the development of capacity and the provision of technical assistance to governments, particularly those in developing economies and emerging markets. In addition, a method for guaranteeing and certifying the fuel's origin and a globally agreed-upon definition of green hydrogen are required.The need to assist workers in developing the skills they require for this emerging industry is also essential, particularly in light of the Just Transition agenda.
How is the World Bank making a difference?
Together with developing nations, the World Bank Group is accelerating green hydrogen projects from the pilot stage to industrial scale. They provide technical assistance to foster enabling policy, regulatory, and financial frameworks in order to accomplish this; create innovative financing that encourages resources for climate finance and concessions; mobilize private capital by integrating risk mitigation and credit enhancement tools; and impart knowledge in order to create local green jobs to aid in a fair transition.
The World Bank program in Latin America and the Caribbean, which has the cleanest energy mix in the world and abundant, low-cost renewable energy potential, is one example of our work.
The World Bank Group is promoting the use of green hydrogen as energy storage and establishing green hydrogen as a fuel in a number of countries, including Chile, Colombia, Costa Rica, Panama, and Brazil. Through the Partnership for Market
Readiness, they are focusing on the creation of carbon pricing, the development of mechanisms for certifying green hydrogen throughout the value chain, and the design of green hydrogen financing facilities. The countries' plans to use green hydrogen to decarbonize their economies and facilitate a fair energy transition are completely in line with the program in the region.
In the end, making these adjustments would contribute to green, resilient, and inclusive growth by increasing competitiveness, opening up new markets, creating local green jobs, and attracting even more private sector investment.
Moving forward, the few pioneering projects that have made it to a successful commercial and financial close and are now in operation have tested the parameters of financing, established bankable project structures, and created documentation packages that can be used by commercial-scale projects that are in the process of being prepared around the world.
The green hydrogen projects uniquely positioned to support governments in EMDEs in their efforts to develop green hydrogen projects as part of their goals for the energy transition by providing transaction advisory services and technical assistance.
