Is hydrogen about to take off? Equity is plentiful, projects numerous, technology ramping up, but bankability is still at early stage.


A year after the launch of the first pure-play dedicated hydrogen equity fund, we anticipate that large-scale hydrogen projects will get closer to lending decisions in the next six to 18 months. By Louis-Aynard de Clermont Tonnerre, Global Head of Power, Utilities & Infrastructure at Societe Generale

When Paris-based Hy24 was set up in October 2021 (where Societe Generale acted as exclusive adviser), it was the world’s largest fund initiative purely focused on clean hydrogen infrastructure investment. Other funds have followed since, but Hy24 remains arguably the first mover and most influential investor, with a unique mix of hydrogen and financial expertise at investment team level. With fund raising continuing, Hy24 is on its way to complete its fund closing very soon.  Equity investors are clearly acknowledging the investment potential of clean hydrogen for decarbonizing heavy industry (oil refining, steel, cement, aluminum, …), mobility, energy and real estate, as well as the aviation and maritime transport sectors.  Equity is, therefore, plentiful and available for deployment.

Growing projects momentum

The momentum behind clean hydrogen is growing, as is clearly illustrated by a Hydrogen Council survey (where Societe Generale is a supporting member), which reported a total of 680 announced large-scale projects, of which 534 will be partially deployed by 2030, representing investments in the range of $500bn.  While there is no shortage of projects, the challenge lies more with the ability to sort and qualify those projects based on their economic merits and development stage.  The projects are being developed either by large corporate strategic sponsors or newly established pure-play hydrogen developers.  A new breed of developers is emerging, like those in the renewables sector 20 years ago, who focus on the electrolysis link of the value chain and need to raise equity to fund their growth and projects’ development. These developers raise equity either from public markets or from private investors.  

There are two types of projects. Firstly, there are domestic projects with hydrogen production being close to the end users (industry, mobility, …) and the renewable electricity generally supplied through long-term power purchase agreements (PPAs) signed with renewable producers.  Secondly, there are the large-scale giga production projects being developed in countries where renewable electricity is highly cost competitive and abundant (Australia, Middle East, North Africa, Latin America etc). Massive in scale, those projects include renewable electricity generation equipment, electrolysis, desalination and other plant. They may also include the construction of storage, pipe and port infrastructures needed for export markets (Europe, Japan, South Korea etc.). These projects are usually planned under several phases, requiring billions of funding for each. 

Technology ramp-up

Substantial expected growth in hydrogen demand is driving the need for electrolyzer production and storage equipment. Consequently, technology manufacturers have embarked on the construction of giga electrolysis factories. Public support is also playing a key role in kickstarting the technology part of the ecosystem.  As such, last June, the European Commission approved up to €5.4bn of grants to support 41 important projects of common European Interest in the hydrogen value chain (Hy2Tech).   

Bankability still at early stage

For the hydrogen economy to scale up, though, equity will not be enough. In a similar way to how the LNG or renewable energy sectors developed, equity must be paired with bank debt or project finance debt: only a mix of these two sources of capital can mobilize the quantity of funding that large-scale hydrogen projects require and the returns that investors expect.  Consequently, the job of investors like Hy24 and banks like Societe Generale is to assess the projects’ risks, stage of development and suitability for both equity and bank funding.  While many projects will be bankable, others will not.  Challenges still need to be addressed, including the long-term access of green electricity at competitive pricing, the level of government incentives and the offtake agreements.  Indeed, structuring and securing a long-term offtake with strong commercial conditions and creditworthy counterparties remains critical to the bankability of hydrogen projects.  Today’s energy crisis compounds the challenges, increasing the competition for renewable energy access and driving up power prices. On the positive side, the European Commission just granted €5.2billion in public support for projects focused on the usage side of the value chain (Hy2Use) and recently announced the creation of a European Hydrogen Bank, with €3bn to invest.  

While bankability is still at an early stage, lenders are becoming more able to assess the risks of hydrogen (economics, offtake, technology, regulatory, construction...). We believe that the project financing of large-scale hydrogen projects will accelerate in 2023 and become more standardized over time, thus enabling a faster development of the hydrogen economy.   

Becoming the hydrogen bank

At Societe Generale, we are bringing together the collective expertise and knowledge of our equity, project finance and engineering experts to help our clients from across the hydrogen value chain who are transitioning their businesses for a low-carbon future. We have already assembled a unique transactions track record in both equity and debt advisory in the emerging hydrogen sector.  We aim at becoming the hydrogen bank for our core clients -- whether corporate, financial or infrastructure funds – and assist them in the design and implementation of their hydrogen strategy, covering both their equity and financing needs through an integrated and seamless go-to-market approach.