Increasing capital deployment will increase US investments in green hydrogen

Green hydrogen is anticipated to be one of the main beneficiaries of this financial excess in the upcoming years due to the high oil prices that allowed traditional energy businesses to store huge quantities of capital that are now being absorbed into the cleantech industry.

After several years of cost-cutting caused by the epidemic, oil and gas company profits recovered last year. According to data from S&P Global Market Intelligence, free cash flows among North American corporations increased by more than 600% between 2020 and 2022, from $32.8 billion to over $236 billion.

It was opportune timing for this capital expansion. The US’s Inflation Reduction Act opened up a lot of funding for clean tech incentives in August 2022, which encouraged businesses to invest progressively more money in the sector over the rest of the year—from $12.6 billion in September to $122.4 billion in November.

According to Peter Gardett, executive director of climate and clean tech at S&P Global Commodity Analytics, when these two developments are considered together, there is a sizeable amount of money in the financial sector that can be used to improve clean technology.

And through 2023, this momentum has continued.

At an early CERAWeek 2023 presentation, Gardett noted, “To be able to observe this increase in deployment up to $120 billion in November, that’s remarkable.” “I am aware that this is a continuing agreement. As this money moves from allocators to investors to companies in the first weeks of 2023, we’ve noticed an even faster pace of capital deployment. It’s already starting to lead to new deals, and in 2023, I predict a deluge of that kind of activity.”

Investment draw-in

All clean technology sectors are being helped by a rising flood of investments, although some are expected to gain more than others. According to Conway Irwin, director of the Financial and Capital Markets department at S&P Global Commodity Insights, which industries will succeed depends on how exposed their particular technologies are to supply chain limitations and other barriers to project development.

Because of its low capex, simple installation, and recent supply chain capacity increases, solar is anticipated to profit the most from this capital flow among the more developed clean tech sectors.

The significant hydrogen incentives in the IRA are primarily to blame for the deluge of investment that green hydrogen is expected to attract. But before the hydrogen market can truly take off as a commercial force, it must first navigate a number of difficulties.

Many really high-profile and ambitious project announcements in the [green hydrogen] industry have been made as a result of all these decarbonization efforts, government targets, and subsidies, according to Irwin. “Even though those are supported by accurate forecasting and steady revenue streams, the market itself is still somewhat uncharted territory. What will be done with the green hydrogen? How will it arrive there? And how would the pricing actually look? They are still in development.”

Hydrogen does, however, have one edge over more established clean tech industries like solar, wind, and battery storage—China has not yet taken control of the green hydrogen industry’s supply chain.

With the new incentives in the US and EU, western markets won’t have to play catch-up to achieve self-sufficiency and might even take up some significant real estate in the green hydrogen supply chain, much like China does in the solar and battery supply chains, according to Irwin.

Furthermore, because of the tax incentives the IRA established, which provide up to $3/kg of clean hydrogen produced, green hydrogen produced in some parts of the US is anticipated to be more cost-effective than that produced in mainland China.

According to Platts, a division of S&P Global Commodity Insights, the US Gulf Coast now produces the most competitive green hydrogen in North America. Green hydrogen produced using PEM electrolysis was valued at $2.55/kg (including capex) as of February 15 while green hydrogen created using alkaline electrolysis was valued at $1.75/kg.

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