Canadian giants eye green hydrogen deals
The purchase by CPP Investments of a majority stake in Dutch developer Power2X is the latest example of a large Canadian firm making inroads in the green hydrogen sector. We analyse some of their biggest deals.
- CPP Investments has bought a majority stake in developer Power2X
- The companies said this would unlock €130m for Power2X projects
- Brookfield and CDPQ have also been active in the hydrogen sector
This month, Canadian pension fund giant CPP Investments bought a majority stake in Dutch green hydrogen developer Power2X. The deal marks CPP’s entry into the green hydrogen sector and shows Canadian interest in the technology is growing.
CPP Investments and Power2X said their tie-up would unlock €130m investment in projects to help establish Power2X as a developer, owner and operator in Europe.
The company’s biggest projects are the €1bn 500MW MadoquaPower2X in Portugal, which Power2X is developing with Copenhagen Infrastructure Partners and Madoqua Renewables; and the €1bn ErasmoPower2X scheme it is developing with Soto Solar in Spain, which is set to be linked to a 1.2GW solar farm.
Bruce Hogg, managing director and head of sustainable energies at CPPIB, said the deal would support the growth of green fuels that could help with the decarbonisation of industry: “Investing in Power2X is fully aligned with our ambition to play a leading role in the energy transition,” he said when the deal was announced.
Investing in a company with development expertise also gives CPPIB flexibility as the green hydrogen sector continues to evolve. But it is not the first large Canadian firm to put money into green hydrogen.
In May, Indian developer Avaada Group said it had secured $1.07bn investment from Canada’s Brookfield Renewable as part of a $1.3bn raise to support its expansion in India’s emerging green hydrogen market; and last year Caisse de dépôt et placement du Québec (CDPQ) invested in German firm Hy2gen in a €200m funding round.
Closer to home, Canadian investors Alberta Investment Management Corporation, Manulife and Ontario Teachers’ Pension Plan are backing the huge Green Hydrogen Storage Facility project that ACES Delta is developing in US state Utah.
And green hydrogen is one of the target sectors for the C$15bn ($11.3bn) Canada Growth Fund, which the country’s government set up this year to help commercialise technologies that would help Canada to achieve net zero carbon emissions. The fund is being managed by pension fund giant PSP Investments.
This fund shows that Canada’s green hydrogen ambitions are not limited to big-name players doing deals overseas. The country is also looking to become a destination for green hydrogen investment, with some success so far. For example, in May, South Korean firm SK Ecoplant announced it would invest in the C$4.5bn ($3.4bn) Nujio Qonik green hydrogen project by World Energy GH2 in Newfoundland & Labrador.
One of the biggest challenges for green hydrogen developers is to take their projects to financial close, so will welcome policies aimed at fostering investment. Any influx of cash-rich investors with renewables experience can only help to commercialise green hydrogen and related technologies. But Canada’s approach is not without its critics.
Risky and untested
Canadian pension fund watchdog Shift Action for Pension Wealth & Planet Health has argued that pension fund managers are putting their investors, and the energy transition, at risk by focusing too much on technologies such as green hydrogen.
Adam Scott, executive director at SAPWP, called the Canada Growth Fund’s focus on “higher risk investments” in “over-hyped” technologies “strange”. He argued that green hydrogen and carbon capture were “risky, unproven technologies that, at best, drive incremental emissions reductions while ignoring the need to rapidly transition away from oil and gas”. Green hydrogen developers may disagree with this scathing assessment, but it will be down to individual fund managers to decide how much exposure they want to new technologies compared to established asset classes.
For the green hydrogen sector, even a tiny fraction of Canadian pension fund money would be a major boost for the sector. Canada’s ten largest pension fund managers have assets of more than C$2trn ($1.5trn) under management, and many of them are already investing in renewables generation projects including offshore wind. It makes sense for them to invest in technologies that can further boost the energy transition.
With the sector crying out for investors that can help take projects to financial close, the emergence of Canadian pension fund investors is a reason for hope.