INTERVIEW | Which sectors will be the first to switch to green hydrogen — despite the premium?




Hydrogen-focused investment manager Hy24 anticipates more subsidies will be needed to drive industries like oil refining to use renewable H2


Which offtakers will be willing to pay for hydrogen at current prices? This is the question facing almost all green H2 project developers, with project finance often hinging on long-term agreements to buy volumes at a fixed price, even though these are likely to be extremely expensive in the short term.


But Amir Sharifi, the chief investment officer of Paris-based hydrogen-focused fund Hy24, tells Hydrogen Insight that the first likely offtakers for renewable H2 will actually be for downstream products — such as green steel or e-fuels — regardless of the price.


Citing the swathe of recent offtake deals for green hydrogen-derived steel from Swedish start-up H2 Green Steel, in which Hy24 co-led a €1.5bn private placement in September, Sharifi adds that “ultimately, a few euros more on the price of hydrogen [now] doesn’t really have a big impact on the price of a car”.


He estimates that the extra cost of renewable H2 for green steel would only drive up the final vehicle price — which would already be worth more than €30,000 — by a few hundred euros.


And Sharifi expects a similar story for synthetic e-fuels produced from renewable hydrogen and captured carbon dioxide.


“In the case of e-fuels... you will not be using 100% e-fuels day one, it will be a blend,” he says, estimating that a 50% mark-up on e-fuels at a blend of 10% in conventional fuels would only lead to a 5% increase in overall fuel prices.


The first batch of synthetic gasoline produced from renewable hydrogen and captured CO2 at the Haru Oni plant in Chile was estimated by a third-party climate research institute to have cost €50 per litre — 100 times more than fossil gasoline — although a sharp fall in price is expected with economies of scale.


Hy24 recently invested in French e-fuels developer Elyse Energy, which is focused on producing synthetic aviation fuels from 2027 — although no estimations on the premium over incumbent fuels have been disclosed.


Sharifi says that while EU regulations are starting to push existing users of grey hydrogen to switch to green H2, “there the [cost] gap is more difficult to swallow” as the volumes of the high-cost green option are much, much larger.


He notes that e-fuels for maritime and aviation, in particular, are both being driven by the threat of fines if aircraft and vessels do not use sufficient synthetic fuels by 2030, while the grey-to-green switch has seen far more of a carrot than stick approach.


“With the case of RefuelEU Aviation and [FuelEU] maritime, it’s an obligation, so there’s a penalty down the line. Somehow, they need to find a solution, and of course the penalty is the economical factor that ultimately will draw the line,” Sharifi says.


Meanwhile, steel faces the phase-out of free allowances in the EU Emissions Trading System, as well as the Carbon Border Adjustment Mechanism kicking in, from 2026, effectively putting an extra cost on high-carbon production methods.


Member states in the EU are also required to transpose the new Renewable Energy Directive — which sets a 42% renewable hydrogen mandate for current industrial users of H2 for 2030 — into national policy and regulations by spring 2025, which could put new penalties in place for industries that don’t make the switch.


However, while Sharifi points out that “the more stringent the regulation in terms of obligations, the more powerful it is” for driving offtake, strict penalties on not using green hydrogen are “not always feasible” when the cost of switching is so high — which may require more direct government cash to cover the gap with cheap fossil fuels before offtake agreements can be signed.


“A number of support schemes which may be able to provide the extra incentives in the form of CfDs or fixed premiums are being discussed at EU[-level] and in a number of member states, but they’re not fully in place yet... and that’s why it takes a bit of time for projects to fully mature,” Sharifi notes.


“Furthermore, their exact design and size, which in many cases is still unclear, will determine whether offtakers feel sufficiently comfortable to make the switch.”


While integrated projects, where hydrogen acts as a feedstock for a product that can be blended into the value chain, might be the quickest wins in the short term, Sharifi anticipates that switching European industries such as steel to run on H2 will hinge on imported volumes.


“If you want to have a project [to start] in 2025 to supply green steel, I think you can have it integrated, and that’s what’s happening in Sweden right now. But if you want to supply H2 to the entire EU steel industry, at large scale... imports from overseas and cross-border H2 trade between EU countries is a critical part of the equation.”


However, some analysts have suggested that it would make more economic sense to produce “green” iron in countries where renewable hydrogen is cheap and then export that metal, rather than exporting the molecule itself to steel makers in Europe.


H2 Green Steel is already in the midst of a feasibility study with Brazilian mining firm Vale on establishing integrated hydrogen-to-green-iron plants in Brazil and North America.


However, to meet demand for green hydrogen from European industries into the next decade, Sharifi admits that costs will have to be driven down from where they are today — and this will likely involve gigawatt-scale development of H2 projects outside of Europe, such as those being developed by Intercontinental Energy, in which Hy24 jointly invested $115m with Singaporean sovereign wealth fund GIC.


“In the longer term for many applications, what’s going to be crucial is to get access to the cheapest possible green hydrogen molecule, and that goes alongside the capability to produce power not only at the cheapest price, but the highest load factor possible,” he says, noting that areas with high resource potential, such as in Australia and Oman, have previously seen relatively little renewables development due to their distance from demand centres and lack of grid transmission.


He points to “quick permitting processes” for the vast tracks of greenfield land as another factor behind which locations will produce the lowest-cost renewable H2.


But ultimately, while cheap power is a key consideration, “in the short term, you need to design projects where you have a very clear view of what is going to be your client”, Sharifi says.


Meanwhile, developers announcing facilities without a clear path for how they will transport volumes to a client — effectively hinging on a hydrogen gas grid being in place — are unlikely to be able to move their project towards final investment decision before the end of this decade.


“It doesn’t mean that those projects which are being deployed or developed without a very clear view will not succeed. It's just that it might take a bit more time for them to be realised,” Sharifi adds.


He raises the 40-project portfolio of Enagás Renovable — in which Hy24 has a 30% stake — as an example, with one in operation in Mallorca (albeit beset by technical problems), some ready for a final investment decision in the coming years, and others scheduled for development in the second half of the decade.


“The reason why we have such a high number of projects in a single company is because we have access to the Spanish solar and wind and grid combination, where you can access power at a cheap price, and also because Enagás Renovable as a developer has been present in the industrial basins from the very start, thanks to the relationship that [national gas grid operator] Enagás has in the ecosystem.


“That has enabled them to discuss directly with the offtakers, and have the offtakers around the table, from day one.”




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