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Green hydrogen and a low-carbon economy

Rod Morrison
Rod Morrison
Editor, Project Finance International, Refinitiv

Rod Morrison analyses the prospects for a low-carbon economy powered by blue and green hydrogen, with projects underway across the globe.

This article was originally published in PFI, 23 March 2021

  1. The hydrogen project boom is really taking shape. Large scale projects are being announced across the globe almost daily.
  2. Hydrogen is seen as a way to shift the transition to a carbon-free economy into a much higher gear.
  3. Many of the announcements, however, are for the future so what are we to make of the present? There are a number of interesting projects emerging in the nearer term that could get the financing ball rolling.

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I was struck this week by an article in the Indian press about plans by Indian renewables developer Acme Solar to develop a US$2.5bn green hydrogen and ammonia project with the Oman Company for the Development of the Special Economic Zone (Tatweer) at Duqm.

It was a reminder of how India has sourced its fertiliser from the Gulf in pre-energy transition days.

Indian state-backed companies financed fertiliser schemes in both Oman and Jordan, the Oman-India Fertiliser Company (Omifco) scheme from 2002 and the Jordan-India Fertiliser Company (JIFCO) from 2011.

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India and Oman, in particular, have close ties. The projects world is different these days, but those ties still remain. Acme Solar is not a state-owned entity seeking to secure fertiliser, instead it has built up the largest solar portfolio, 3GW, at home and is now looking overseas.

It chose Oman for its first large-scale green ammonia commercial project due to its “strategic location, the support received from the government bodies and high solar irradiation in the country”.

Green hydrogen mega-projects

Green hydrogen is produced by splitting water into hydrogen and oxygen using an electrolyser and is powered by electricity generated from clean energy sources such as wind and solar. Hydrogen is mixed with nitrogen to form ammonia.

The scheme will produce 2,200 tonnes of ammonia a day. Acme is already developing a pilot scheme in Rajasthan.

Like many of the hydrogen announcements, projects such as the Duqm proposal seem ambitious – particularly when US$2.5bn is involved. Mega-projects take some time to put together. Omifco took years even though it had the backing of the two sovereign states involved. But at the same time, projects with a set defined industrial logic seem to be the ones to follow right now.

Up on Teesside in the UK, another name from the project finance past, BP has just announced its H2Teesside.

The plant will be the UK’s largest hydrogen plant by 2030 with a capacity of up to 1GW of blue hydrogen, about one-fifth of the UK’s target of 5GW of hydrogen capacity by the end of the decade.

Blue hydrogen is produced by converting natural gas into hydrogen and storing the CO2 emissions from its production. Indeed, a lot can happen between now and 2030, or indeed 2027, when construction is due to start. It is difficult to see how this project will not morph into something else by then.

Start of the beginning

H2Teesside will be linked with Net Zero Teesside (NZT), the planned carbon capture and storage (CCUS) cluster project.

Uses for the hydrogen could be heating residential homes in the region or transport. Not fully defined then.

I have the latest government thinking on the business model for NZT and the linked Humberside CCUS cluster. There are plenty of gaps to be filled and plenty of open questions about funding gaps. Great then that all this work is beginning, but this is the start of the beginning.

Latin American boom

Down in Rio, Australia’s Fortescue Metals through affiliate Fortescue Future Industries (FFI) and Brazilian company Prumo Logistica through affiliate Porto do Acu Operacoes have signed a memorandum of understanding (MoU) to assess the opportunity to develop hydrogen-based green industrial projects at the port.

Porto do Acu is another familiar name in project finance circles with its 3GW LNG to power project, the first 1.3GW phase of which was financed in 2018 by a team led by Prumo Logistica, BP and Siemens,

This particular project envisages construction of a 300MW capacity green hydrogen plant capable of producing 250,000 metric tonnes of green ammonia per year. The MoU lays the groundwork for onsite solar developments and offshore wind projects in the states of Rio de Janeiro and Espirito Santo. Project finance will be utilised. Once again the definition of this scheme seems pretty clear.

Latin America seems to be a hub for hydrogen schemes right now – Chile in particular is making a big push.

The International Energy Agency (IEA) wrote that as demand for low-carbon hydrogen rises around the world, this is an opportunity for Latin America to export the fuel at perhaps the most attractive costs in the world due to the high solar irradiation and strong winds across the continent.

But that new global market for hydrogen as a gas still needs to emerge.

At least with ammonia the market is already there. On the other side of the Atlantic, another region that is well placed is Latin America’s cousins in Spain and Portugal. Cheap Iberian solar could serve Europe’s hydrogen needs, but only once those needs become apparent.

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