Hydrogen: future proofing the ecological transition?

12/11/2020

To face the challenges of the energy transition, supporting the development of solutions linked to decarbonated hydrogen is a political priority that requires massive investments. A viewpoint by Olivier Musset, Global Head of the Energy Group and Louis-Aynard de Clermont Tonnerre, Head of Power, Utilities & Infrastructure Industry Group at Societe Generale.

In order to achieve their carbon neutrality goal by 2050, many countries are choosing the development of clean hydrogen as the cornerstone of their energy transition and their fight against global warming. 

It is true that hydrogen is already being used on a large scale, particularly in the refining and chemical industries. But it is mainly produced from fossil fuels and therefore generates a lot of CO2. Hydrogen is referred to as "grey" in this case. The challenge is therefore to decarbonize this “grey” hydrogen, i.e. that neither the production nor the use of hydrogen emits CO2. There are two ways of doing this: either from renewable energies (wind turbines, solar panels) through an electrolysis process – this is "green" hydrogen; or from gas steam-reforming by capturing the CO2 produced and sequestering it in depleted oil or gas wells. The hydrogen thus obtained is called "blue". From there, "blue" and "green" hydrogen have the advantage of decarbonizing a multitude of “hard-to-abate” sectors. This is the case, for example, in the transport sector, particularly for heavy duty vehicles (buses, planes, trucks, river shuttles, container ships, trains) or those requiring a long autonomy. It can also be used as a substitute for coal, gas or oil in cement works and steel industry. Or allow the long-term storage of renewable electricity.

By 2050, clean hydrogen could thus meet 18%(1)  of global energy demand and reduce greenhouse gas emissions by 6 Gt(2)  per year, i.e. 13%(3)  of global emissions.

Governmental impulse

But producing clean hydrogen today, especially "green" hydrogen, remains very expensive and therefore not competitive. This explains why there are virtually no large-scale projects requiring significant funding initiated to date. A situation comparable of that of renewable energies in the 1990s. Public authorities had to invest heavily to bring down the cost of renewables, which took more than twenty years. However, only projects of significant size can make the clean hydrogen sector competitive. But it takes time to get off the ground. The intervention of the authorities and political decision-makers is therefore essential to provide, through precise support plans for all the players in the sector (production, storage, transport and end-use), a conducive framework to the implementation of these different industrial eco-systems. In this respect, it is interesting to note that all post-Covid economic recovery plans allocate substantial budgets to the development of hydrogen, a sign of recognition of its decarbonising role. With the desire to set an industrial dynamic in motion. 
Thus, France plans to dedicate 7(4)  billion euros by 2030 (including 2 billion from 2021-2022), Germany 9(5)  billion euros and Spain 8.9(6)  billion euros. The European Commission estimated required investments raging from 180 to 470(7)  billion euros between now and 2050. To achieve this, the European executive have created the "Clean Hydrogen Alliance", in order to create a complete hydrogen value chain in Europe.

Sustainable structuring

It remains to be seen how these envelopes will subsequently be deployed between the different projects and at which pace. While ensuring that the interests of all stakeholders are aligned.

Banks will therefore have a role both in advising and financing the real economy to make these projects a reality. By joining the Hydrogen Council, and particularly the Investor Group, Societe Generale reaffirms its commitment as a player in the energy transition. It also shows that it is convinced of the potential of hydrogen to create carbon-free value chains, and wishes to play an active role in the development of these solutions, following the example of its pioneering role in offshore wind (fixed and floating) and solar energy.

We intend to put the experience of our innovation, advisory, financing, debt and equity structuring franchises to work for this energy of the future. For example, we help manufacturers to better understand what conditions would be required for their projects to be bankable in a sustainable way over the long term and attractive to equity investors. The projects are diverse and our latest analysis focused on financing large fleets of hydrogen-powered trucks. This is why we are involved at a very early stage in discussions with project promoters on both financing and capital issues. But our added value also lies with the States by responding to their requests for the best configurations for the deployment of public financial support.

We are fully committed to supporting our customers' energy transition in all its forms, and are convinced that the development of hydrogen will play a key role in decarbonizing the economy.

 


[1] “Hydrogen Scaling Up”, Hydrogen Council – November 2017

[2] “Hydrogen Scaling Up”, Hydrogen Council – November 2017

[3] “Hydrogen Scaling Up”, Hydrogen Council – November 2017

[4] “Stratégie nationale pour le développement de l’hydrogène décarboné en France » French Government, September 2020

[5] “The National Hydrogen Strategy” German Federal Government, July 2020

[6] Source: Reuters

[7] A hydrogen strategy for a climate-neutral Europe”, European Commission, July 2020

 

Louis-Aynard de Clermont Tonnerre Managing Director - Head of Power, Utilities & Infrastructure Societe Generale Corporate and Investment Banking
Olivier Musset Global Head of Energy Societe Generale Corporate and Investment Banking
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