Why financing green hydrogen offtake contracts is a challenge?

Why financing green hydrogen offtake contracts is a challenge?

Lack of regulatory clarity on the definition of green hydrogen, complexities in structuring contracts due to multiple off-takers and nascent financial support mechanisms in different jurisdictions are top hurdles to financing offtake contracts for green hydrogen and derivatives, according to an expert panel speaking at a webinar organised by Project Finance International (PFI).

Allan Baker, Head of Energy & Group EMEA, Societe Generale, said these and other challenges would moderate the pace of developments and permit only a select number of projects to go ahead, while others wait until the market establishes to take FID (Final Investment Decision).

He said banks have not been very forthcoming to finance projects on the back of the carbon tax due to the "volatile and political nature" of those mechanisms.

He stated that the oversubscription of NEOM's non-recourse financing indicates huge liquidity chasing very few realistic projects.

"Several developers come to us with this 'build it, and the off-takers will come' approach. It's very difficult to finance major infrastructure projects on the back of a forward-looking market development story, but we are seeing things moving relatively quickly for projects with domestic supply," he noted.

He said in Germany, Korea, Japan, and the UK, governments have decided to provide subsidies