Hydrogen based economy

1. Making Hydrogen Bankable Asset
Hydrogen Technology Expo – 2023
NEW DELHI
Presentation By J Krishna Sankar
Eastern Powers and Systems Pvt. Ltd.
Palasah Urja Hydrogen LLP

2.  MY SINCERE THANKS TO MISSION ENERGY FOUNDATION
FOR THIS WONDERFUL CONCLAVE

3. Success Story
 AVAADA
 GREENKO
 ACME
 NEOM
 ADNOC
 ENEL
 NTPC

4. About Eastern Power &
Palasah Urja Hydrogen LLP
 Eastern Powers
Project Development in RE Space: Agrivoltaics & Utility
scale projects with focus on REPower for gNH3 plants
 PALASAH URJA
Main focus on Developing Pilot Plants for GREEN AMMONIA of
capacity 20,000 TPA in four states of GUJARAT, RAJASTHAN,
ODISHA & ANDHRA/TAMIL NADU

5. Introduction
 gH2/gNH3 projects need bankable offtake schemes, with
fertilizer, refining and mobility projects, offering the
promising first movers.
 Existing use cases for hydrogen—which today rely almost
exclusively on grey hydrogen—will be among the first
green or blue hydrogen opportunities to be financeable
 For all the buzz surrounding green and blue hydrogen, few
low-carbon hydrogen project financing deals have been
closed.

6. Present Scenario - 1
 First of all is Ammonia for all it’s known applications, the most
bankable one being the end use in the fertilizer industry.
 A market already exists for ammonia, and several green
ammonia projects have been proposed or are in early stages of
development.

7. Present Scenario – 2&3
 Petroleum refining is second area where bankable early
green or blue hydrogen projects are likely to emerge.
Refineries are among the largest users of hydrogen as a
fuel stock
 A third area showing early promise is fuel for specialty
vehicles. Fuel cells are used in specialty vehicles such as
forklifts and by energy consumers to complement
electricity from the grid, to smooth energy costs and to
ensure reliability.

8. Offtake structures - 1
 The emerging use case that has generated the most publicity is
heavy transport. Fuel cells have advantages over batteries for
powering heavy transport: hydrogen refuelling is generally much
quicker than recharging batteries, and fuel cells are lighter than
batteries.
 In the mobility sector, public transport projects present the
most compelling model for project financing. The amount of
hydrogen needed and the locations for refuelling buses and
trains are predetermined.

9. Offtake structures - 2
 Hydrogen for long-haul trucking is a more difficult model to
finance because it will rely on a more dispersed refuelling
network. Project financing, could happen once infrastructure
plans have been established with government support
 Electricity generation is another nascent use case. Existing
offtake structures can be readily applied to hydrogen in the
power sector. In areas with high renewables penetration,
hydrogen projects may be particularly appealing as a way to
avoid curtailment of renewable electricity plants and to
supplement intermittent power generation.
 Definitely compete with PSP

10. Offtake structures - 3
 Hydrogen for industrial processes holds promise because
major, creditworthy manufacturers of industrial products
such as fertilizer, steel, cement or concrete could be
counterparties in bankable offtake arrangements.
 Project developers could develop multi-project facilities
combining large renewable generation projects and
electrolysers onsite or near major industrial producers or
clusters of industrial producers.

11. Offtake structures - 4
 Mining companies often operate in environments where
other energy sources may be expensive, carbon-intensive
and subject to disruption, making them another important
potential category of, off taker. Several pilot projects to
power heavy-duty mining vehicles are underway.
 Hydrogen also has potential as a replacement for natural
gas for residential and commercial heating. In this
market, prices are generally based on the spot market,
making offtake structures more difficult to finance for
early-stage hydrogen projects.

12. Financing risks - 1
 The gold standard for project financing is a long-term, fixed-
price offtake contract with a utility or other public or quasi-
public purchaser.
 The power and public transportation sectors may provide the
best early opportunities for hydrogen project developers to
sign such contracts.
 Corporate counterparty credit risk will be most significant
where the electrolyser is located onsite or adjacent to the
customer that the hydrogen project is designed to serve.
 Financiers will also be focused on technology risk. given the
limited track records in electrolyser deployment, financiers
will carefully examine manufacturer and EPC warranties.

13. Financing risks - 2
 While some very large companies have entered the sector
and partnerships are being announced at an accelerating
pace, several of the principal technology suppliers in the
market do not have very large balance sheets.
 Major maintenance reserves may be required by lenders,
and manufacturer warranties may need to be backed by
insurance or other financial instruments to provide credit
support.
 Such security will likely be expensive for first-mover
projects.

14. Multi-project risk issues - 1
 An electrolyser used to make green hydrogen is of no use
without a sufficient source of water and renewable energy
as feedstock, a way to store and transport the output, and
an off taker to buy and use the output.
 Lenders to any part of the chain will have to ensure that
all the linked elements will be developed as intended and
on time to ensure debt repayment.

15. Multi-project risk issues - 2
 At the same time, to find financing under a project
finance model, hydrogen projects will have to
demonstrate a sufficiently discrete revenue stream
against which financing can be raised, with a collateral
package comprised of assets in which the special-purpose
entity owning the project has an indivisible ownership
 End-to-end financing will be most appealing. An example
of a relatively self-contained project is an electrolyser
together with a fleet of buses that will use the hydrogen
fuel produced.

16. Multi-project issues - 3
 Financiers trying to evaluate and manage multi-project
risk can look to knowledge developed through structuring
other complex projects containing multiple elements.
 LNG-to-power projects, the regasification, port
infrastructure, pipeline and power plant components may
be financed with the same debt package, or separate
special-purpose vehicles may be established for the
separate financing of the power plant and the
regasification facility.

17. Multi-project issues - 4
 Another useful analogy is to the financing of mining-
related infrastructure.
 A mining company may choose to develop a mine and
related infrastructure (e.g. rail, port, power, water and
communication-related infrastructure) under a single or
related EPC contract, to be financed as a package.
 Each Infrastructure may be financed separately,
developed through a public-private partnership or shared
with other mining companies in the same region.

18. 3 Ways to accelerate financing for
clean hydrogen projects
 Projects led by credible industrial sponsors and
developers
 Investments into parent companies, with
optionality for project-level co-investment
 Contracts for difference guaranteed by the
Government [CfD]

19. Projects led by credible industrial sponsors
and developers - 1
 Financiers want to invest and there is an increasing
appetite for financing clean hydrogen projects, but there
remains a lack of understanding as to the fundamentals of
these projects.
 What is a hydrogen project and how do they operate?
 What technology should I choose, and how reliable are the
manufacturers and suppliers of the technology?
 Are companies that are more vertically integrated (e.g.
owns or manufactures their own electrolysers) more
attractive?

20. Projects led by credible industrial sponsors
and developers - 2
 Therefore, the “developer model” is becoming a front-
running approach to hydrogen financing: don’t pick a winning
technology, but instead, pick a credible industrial sponsor or
developer for investments.
 At this initial stage of commercialisation, the credibility and
creditworthiness of the sponsors involved are critical.
 Investors and financial institutions can rely on a sponsor’s
knowledge of the industry, ways to mitigate technology risks,
and ability to identify off-takers and ship the end product.

21. Projects led by credible industrial
sponsors and developers - 3
 An example of such a model can be seen with H2 Energy, a
developer based in Switzerland that has been working on
renewable hydrogen projects since 2014.
 Investors in H2 Energy can gain exposure to the
burgeoning sector while relying on the company’s
expertise, and extensive network of strategic partners and
co-investors for projects across Europe. Helps investors
develop their own internal capabilities to take on more
complex investments in the future.

22. Investments into parent companies, with
optionality for project-level co-investment
 While the macro-economic context has decreased the overall
market appetite for risky investments, capital is still flowing
to clean hydrogen
 For larger investments into the sector, preference for a similar
approach to the above (projects led by credible industrial
sponsors and developers) has emerged, with many investors
favouring investments into at the parent company level.
 These investments are typically structured as preferred equity
or convertible bonds and come with pre-agreed rights to co-
invest at the asset level simultaneously or at a later point.

23. Investments into parent companies, with
optionality for project-level co-investment
 Prebaking the ability to co-invest at the asset level as the
portfolio of projects develops gives investors further
flexibility while also securing access to a pipeline of high-
quality projects, helping investors balance between first-
mover risk and reward
 This can be seen in the strategic partnership between
Fortescue Future Industries (FFI) and Tree Energy Solutions
(TES). The €130 million investment by FFI comprised of an
equity stake in TES, as well as a direct investment into the
construction of the TES Green Energy Hub and terminal in
Wilhelmshaven, Germany.

24. Contracts for difference
 Uncertainty around a hydrogen project’s future revenues,
due to the non-existence of a liquid market for clean
hydrogen today, remains a big hurdle to bankability.
 Financial institutions prefer long-term, credible, offtake
contracts as a starting point
 This is where the public sector can step in to underwrite
these risks. Long-tenor contracts for difference (CFDs)
have been an effective tool used by governments to help
bridge the green premium that exists between low- or
no-emission products and their grey or brown
alternatives.
 In Europe, this approach was included in the
2022 RePowerEU Plan.

25. Creating a market - 1
 Government support will be essential to get the green
hydrogen market off the ground. Support for electrolyser
deployment will be necessary but likely insufficient by itself
for the development of a hydrogen market.
 The demand side of the equation is less clear for the hydrogen
market than it was for renewables at the beginning of the wind
and solar revolution.
 Governments have begun to tackle the need for the creation of
a market by providing support to projects using green hydrogen
in industry and elsewhere.

26.  Governments will also need to play a role in the development
of hydrogen transportation infrastructure, both through
economic incentives applicable to the transportation of
hydrogen by pipeline, truck and ship.
 To support hydrogen uptake and electrification in industry,
the European Commission is expected to roll out carbon CFDs,
enabling a full switch of the existing hydrogen production
from natural gas to renewables and the transition to
hydrogen-based production processes in industrial sectors
such as steel production.
Creating a market - 2

27. Green financing wave
 The wave of green and ESG-linked liquidity that has
overtaken the power industry has largely passed by the
heavy transport, mining and industrial production sectors.
Financiers and project developers targeting these sectors
will be well positioned to catch this wave.
 Hydrogen as an asset class defies current classifications in
most banks.
 As early hydrogen projects are financed, developers and
financiers will need to consider the credit story to tell about
each project, including on which desk it should land within a
financial institution.

28. WHERE THE MARKET IS HEADING TODAY
$ 3 PER KG PTC/ITC CREDIT OFFERED BY THE US GOVERNMENT FOR
GREEN HYDROGEN MANUFACTURED IN USA
There is a bee-line shift from across the globe to USA

29. Thank You……
Mr.J Krishna Sankar
9820085077, 81697 00427
cmd@easternpowers.com,
sankar@palasahllp.in
sankar1706@icloud.com