To support the analysis of Chapter 2, a three-step approach was followed, including:
Desk-based research to identify and pre-select a subset of risk mitigation instruments;
An investor survey to identify trends and collect insights from stakeholders active in that sector;
Case studies of large-scale hydrogen projects and of economic, de-risking and financing instruments.
The desk-based research consisted in collecting examples of instruments from academic papers and grey literature. The review focussed primarily on clean hydrogen-related reports, but due to the lack of evidence, it was extended to comparable sectors, such as offshore wind and Liquefied Natural Gas (LNG). To select these comparable sectors, the methodologies of credit rating agencies were reviewed to verify the similarities and differences of the risk and credit profile of assets in these sectors. Then, a broader set of publications and databases was explored, as clean energy and LNG are more mature sectors than clean hydrogen (see Table A A.1). Through this screening, more than 50 instruments were identified. To shorten this “long list”, evidence on the use and effectiveness of identified instruments was collected, and the list of instruments was further screened against expert interviews, notably those carried out in 2022 and 2023 to prepare previous OECD reports on hydrogen financing and case studies (see Annex C).
|
Organisation |
Publications/Database |
|---|---|
|
African Development Bank |
Initiative for Risk mitigation in Africa (IRMA) |
|
Asian Infrastructure Investment Bank |
Financing Clean Hydrogen in Asia and beyond |
|
Cities Climate Finance Leadership Alliance (CCFLA) |
Financial Instruments Toolkit |
|
Clean Energy Ministerial |
Database |
|
Climate Policy Initiative |
A Map of Risk Mitigation Instruments for Clean Investment |
|
Deloitte |
Financing the Green energy Investment |
|
European Investment Bank |
Unlocking the hydrogen economy stimulating investment across the hydrogen value chain |
|
Green Hydrogen Organization (GH2) |
Hydrogen financing brief Getting the right blend |
|
Inter-American Development Bank (IDB) |
MDBs Risk Mitigation Instruments for Infrastructure Investment |
|
International Energy Agency (IEA) |
Reducing the Cost of Capital |
|
International Transport Forum (ITF) |
Mobilizing Private Investment in Infrastructure: Investment De-risking and Uncertainty |
|
IPP Journal |
Database |
|
Organisation for Economic Co-operation and Development (OECD) |
De-Risking Institutional Investment in Green infrastructure |
|
S&P Global |
Capital IQ |
|
Swiss RE institution |
De-risking the hydrogen economy Bridging the protection gap |
|
United Nations Development Programme (UNDP) |
Derisking Renewable Energy Investment |
|
United Nations Industrial Development Organization (UNIDO) |
Mapping of financial and technical assistance of clean hydrogen for developing countries |
|
World Resources Institute (WRI) |
Moving the Fulcrum A Primer on Public Climate Financing Instruments Used to Leverage Private Capital |
Note: The list is not exhaustive. For instance, the reviewed work include additional research papers such as (Steckel and Jakob, 2018[1]), (Craen, 2023[2]), or (Taghizadeh-Hesary et al., 2022[3])
The investor survey on “Risk mitigation instruments for clean hydrogen financing” developed for this report was carried out by the OECD between June and July 2024. A total of 41 respondents took part in the survey, primarily from organisations providing risk mitigation instruments. Among them, seven are from industrial corporations, five each from governments and bilateral development banks, four from investment funds, two each from private banks, multilateral development banks and export credit agencies. Other respondents come from diverse organisations, including consulting firms, technical assistance providers, international organisations and research organisations or think tanks.
The investor survey: (i) identifies which finance providers are implementing or could implement (some of) these instruments; (ii) helps to understand and prioritise the risk mitigation instruments that can trigger investment decision from private capital providers, depending on their investor profile and risk appetite. The survey is divided into 3 parts:
Part 1 focuses on the profile of respondents. It is key to analyse the relevance and understand the rationale behind responses, especially when survey data are distributed unevenly depending on respondents’ profile.
Part 2 examines the current landscape of risks and perceived cost of capital for clean hydrogen projects, building on the previous work from (Lee and Saygin, 2023[4]) and (OECD/The World Bank, 2024[5]). It also asks respondents to evaluate the effectiveness of the 13 selected instruments from the desk-based research against key risk factors that drive the high cost of financing of clean hydrogen projects in EMDEs. In addition, it explores the potential use of credit default swaps for financing clean hydrogen projects, particularly in emerging and developing economies.
Part 3 aims to explore on the most appropriate combination of de-risking instruments that could be provided jointly for large-scale clean hydrogen projects, depending on the country credit ratings, ranging from AAA to B.
The case studies gathered and presented in this report cover (i) selected large-scale clean hydrogen projects that have reached or are likely to reach Final Investment Decision; (ii) economic, de-risking and financing instruments being deployed to support the development of the clean hydrogen market. They complement previous ones collected on hydrogen projects and on the financing of industrial decarbonisation (see Annex C). The case studies have been selected from EMDEs wherever possible, or from developed economies, when the learnings could also benefit EMDEs. Consolidated insights and lessons learnt are incorporated in the main text of this paper. The case studies are available in Annex D.
The case studies have been identified through preliminary desk research, followed by interviews with experts from the organisations implementing the instruments and developing the projects. Each case study has been reviewed and vetted by the relevant organisations. The case studies aim to show the diversity of clean hydrogen projects under feasibility or development, and the availability of a wide range of instruments. The selection of the final set of case studies is based on the quality of documentation and information provided, the maturity of the instruments and projects, and the possibility to draw lessons from them. It also illustrates the diversity of conditions, depending on the country or region where the case studies apply. Therefore, the case studies provide concrete examples of how the risks to finance clean hydrogen can be overcome in various contexts.
The project case studies follow the following outline:
Basic description: project status, positioning in the hydrogen value chain, key numbers (e.g. hydrogen production volume, investment amount);
Project rationale: targeted markets, job creation, trade opportunities;
Governance: industrial consortium, public-private partnership;
Business Model: LCOH, economic viability vs. existing processes, viability barriers;
Enabling market conditions: if measures such as feed-in tariffs, contract for difference, tax relief, offtake agreements, have been put in place to enable the project;
Financing: public or private financing; participation of development finance institutions; equity/debt ratio; risk-taking and seniority of debt;
Other lessons learnt (optional): additional caveat or opportunity that could provide value to countries or companies engaging in similar projects.
The instrument case studies follow the following outline:
Instrument – theoretical concept: actors involved, financial and contractual flows, key advantages and challenges to implement the instrument;
Supported project(s) description: overall envelope and number of projects supported, country, industry subsector, size of investment, governance and implementation of the solution;
Impact of the solution on the project(s): advantages vs conventional financing; impact on business model or access to finance; explanation of how improving the enabling conditions can complement the economic, financial or de-risking solution;
Lessons learnt and replicability: effectiveness of implementation, mobilisation of private capital, disbursement of funds in case of de-risking instrument, conditions for replicability.
The lessons learnt from the case studies are grouped and summarised below. The key learnings are structured around the following categories:
De-risking and financing instruments for capital mobilisation
Public support and economic instruments for timely FID
Impact on project financing structure
Improving enabling conditions via partnerships
Implementation insights
Conditions for replicability and scale-up
[2] Craen, S. (2023), Financing a world scale hydrogen export project, https://www.oxfordenergy.org/wpcms/wp-content/uploads/2023/01/Financing-a-world-scale-hydrogen-export-project-ET-21.pdf.
[4] Lee, M. and D. Saygin (2023), “Financing cost impacts on cost competitiveness of green hydrogen in emerging and developing economies”, OECD Environment Working Papers, No. 227, OECD Publishing, Paris, https://doi.org/10.1787/15b16fc3-en.
[5] OECD/The World Bank (2024), Scaling Hydrogen Financing for Development, OECD Publishing, Paris, https://doi.org/10.1787/0287b22e-en.
[1] Steckel, J. and M. Jakob (2018), “The role of financing cost and de-risking strategies for clean energy investment”, International Economics, Vol. 155, pp. 19-28, https://doi.org/10.1016/j.inteco.2018.02.003.
[3] Taghizadeh-Hesary, F. et al. (2022), “Green finance and the economic feasibility of hydrogen projects”, International Journal of Hydrogen Energy, Vol. 47/58, pp. 24511-24522, https://doi.org/10.1016/j.ijhydene.2022.01.111.