ENGIE is walking an enthusiastic yet pragmatic line when it comes to green hydrogen. Following the burst of interest in green hydrogen seen several years ago, with companies and governments setting ambitious targets, the industry is now running into high costs, limited investments and the lack of offtake commitments, albeit with some notable successes in the midst of this. Faced with the new realities, Engie is slowing down but not reversing course: It has postponed its green hydrogen ambitions by five years and adopted a strategy of developing smaller-scale projects as a realistic starting point, says the company’s head of strategy for flexible generation in Asia, Middle East and Africa, Stephan Gobert.
“There’s a lot of enthusiasm by default when there’s new technology, new potential, so a lot of countries have announced big numbers where we all [major hydrogen players] have worked on those opportunities,” Gobert told Energy Intelligence on the sidelines of the Abu Dhabi Sustainability Week Hydrogen Summit last week. There is also a “reality check” leading countries and companies to slow down or reduce their targets, mainly because of the difficulty financing those ambitions. Engie’s target of 4 gigawatts of green hydrogen production capacity has been maintained — but pushed to 2035 — because “we believe it’s going to happen, and it’s important for the energy transition.”
Like many companies decarbonizing their portfolios, Engie has a net-zero target by 2045, and it has also set corresponding renewable hydrogen targets including 1 terawatt hour of hydrogen storage by 2030 in addition to the 2035 4 GW capacity target.
FID and Offtake Reality Checks
Conversations around hydrogen, especially green hydrogen, have stalled around the issue of funding and offtake, as a number of projects or initiatives also seem to struggle to get funding and reach final investment decisions (FIDs).
The problem is essentially that a market is needed for lenders to inject money. And at such an early stage, long-term offtake deals are almost nonexistent. “It is very difficult to reach FID on those projects. They are so big that you need to call for lenders,” Gobert explains, adding that, of course, lenders will then expect returns. “Because these are investments over a long period of time, the commitment from the offtakers is needed, and the market is not there yet,” he said.
Gobert also highlighted that offtakers such as steel manufacturers or ammonia producers are price sensitive industries that may not be willing or able to absorb the high costs of moving from fossil fuels to green molecules.
But the picture is not all gloomy. Hydrogen Council CEO Ivana Jemelkova told the summit that “hydrogen is happening,” while pointing to council data from the last four years showing a sevenfold increase in committed capital to hydrogen around the world, with most of this presumably going to low-carbon varieties. Looking forward, Jemelkova emphasized that demand will be critical, as well as “efficient regulation and infrastructure.”
Starting Small
Engie has approached the obstacles by developing smaller scale projects that could gradually expand. Oman state firm Hydrom is taking a comparable approach with its upcoming third green hydrogen auction planned in the first quarter of this year. Speaking to Energy Intelligence at Hydrom’s inaugural “gH2 Investor Day” in Muscat last December, CEO Abdulaziz al-Shidhani said the third-round offering would be “tweaked” to address issues raised by companies that decided not to participate in, or withdrew from, the previous auctions.
Al-Shidhani explained Hydrom would now be testing two models — large-scale projects or mid-size blocks — to cater to various market players with differing needs. The company will also look at downstream auctions to offer land for green hydrogen offtake industries.
Engie — one of many international companies that had taken part in Oman’s previous auctions — is following the approach of starting on the smaller side before possibly expanding down the road, Gobert said. Taking the Saudi Arabia-based Neom green hydrogen project as an example, Gobert explains that while FID was reached for the entire project — largely thanks to its 25-year offtake agreement with partner Air Products — scaling over time is part of their strategy as well. “In our case, maybe we can finance the first phase and then move on to the scale-up,” Gobert added.
Another solution would be to find offtakers willing to pay because they — or a major customer even further downstream — already have a market. For example, automakers and electronics companies looking to buy greener materials, such as steel made with green hydrogen instead of fossil fuels, can handle the costs with a limited impact on the end-user. “The impact on the car that is made of green steel is only a couple of hundreds of euros,” Gobert said.
A more dramatic solution would be to impose a tax on those who are “polluting for free,” which would presumably include a carbon price or similar measure. But the Mideast Gulf region may not be ready for this. “When you are in the oil and gas hub of the world, it is challenging to impose this on the local industry, because they are here because they have access to affordable energy,” Gobert explained. But “at some point it will happen” to achieve deeper decarbonization out to 2050.
Source: Energy Intelligence
