Not enough green hydrogen projects are achieving financial close.
That was the main thrust of an analysis piece we wrote in December. This makes it all the more important when major green hydrogen projects secure all the investment they need – and one such very large close happened last week.
On 1st March, ACWA Power announced that the consortium it is part of has secured the $8.5bn funding needed for the NEOM Green Hydrogen Project in Saudi Arabia.
ACWA is developing this project in a joint venture with chemicals group Air Products and Saudi Arabia’s NEOM Company, which is building a $500bn futuristic smart city powered by renewable energy in its home country. NEOM owns a 33.4% stake in the joint venture, with ACWA and Air Products each holding 33.3% stakes.
There are plenty of reasons to watch this development closely.
First, it is set to be the world’s largest utility-scale commercial green hydrogen plant powered entirely by renewables when it is commissioned, which is due in 2026.
The hydrogen production is to be paired with 4GW of wind, solar and battery storage. This will power production of 600 tonnes of clean hydrogen each day that will be converted into up to 1.2million tonnes of green ammonia annually; and the production of nitrogen too.
Second, the industry is looking closely at green fuel off-take structures, as we discussed in the second meeting of our members-only Leadership Council for power-to-X last month. You can click here for a rundown of what we discussed at that meeting.
NEOM is an example of developers pursuing the strategy of becoming their own off-taker: Air Products has agreed a 30-year off-take contract for the green ammonia produced, and is then planning to sell it for use in the green transport sector globally. This is a sensible strategy as it is far easier to ship green ammonia globally than to transport pure green hydrogen. NEOM could be important in establishing the green ammonia market.
And third, this $8.5bn financial close shows that there is major interest from the global investment community in green hydrogen projects, especially for developments that are underpinned by state funding. No doubt the presence of the Saudi Arabian government as a major investor for this project will have given confidence to others.
NEOM Green Hydrogen Company secured a Saudi operating licence for its hydrogen production operations last month. This is seen as an important project to help the Saudi Arabian government achieve Vision 2030, which is the oil-rich Middle Eastern country’s strategic plan to reduce its oil dependence and diversify its economy.
But the government’s backing goes beyond that, as this close includes major tranches of investment from Saudi sovereign wealth. The financing is made up of:
- $1.5bn from Saudi Arabia’s National Development Fund
- $1.25bn from the Saudi Industrial Development Fund
- The remaining funds from a banks and financiers including Alinma, Apicorp, Credit Agricole, DZ Bank, First Abu Dhabi, HSBC, JP Morgan, KfW, Korea Development Bank, Mizuho, MUFG, Norinchukin, Riyad Bank, Saudi Fransi, Saudi National, Standard Chartered and Sumitomo Mitsui.
The immediate financial benefits of this deal will go beyond its developers too. The close will be a boost for contractors and suppliers at the project, which include the electrolyser manufacturer Thyssenkrupp Nucera; green ammonia producer Haldor Topsoe; and hydrogen compression technology provider Baker Hughes.
Air Products is also set to deploy its own air separation technology for nitrogen production at the project, which makes it a ‘triple threat’ of developer, manufacturer and off-taker. Yes, we know ‘triple threat’ is a term more often used for performers like Hugh Jackman – they sing, dance and act – but it is appropriate here: the nascent green hydrogen sector needs these multi-faceted companies if it is going to accelerate towards commercial maturity.
There is actually a fourth good reason to watch this development as well.
Andrew Lovato, global head of hydrogen at ACWA Power, said the firm wants to replicate the model in other countries. If NEOM is successful in Saudi Arabia then this will surely accelerate the rollout of similar projects and help the sector to commercial maturity.
NEOM Green Hydrogen Project may only be one development, but it is a significant one. Financial closes of $8.5bn do not come along every day in this sector, though large closes will become more frequent. Indeed, they will have to if the sector is going to thrive.