April 4, 2023

Green Hydrogen Investment: The EU vs the US

The interest and excitement around green hydrogen has been growing and so far, Europe has been leading the way.
Green Hydrogen Investment: The EU vs the US

The interest and excitement around green hydrogen has been growing and so far, Europe has been leading the way. However, it seems more recently, following the funding outlined in the US Inflation Reduction Act, the US could be beginning to do a better job of empowering this new industry.  

The EU recently revealed their answer to this competition, but which incentives will be more effective in providing the necessary support to implement green hydrogen on a wider scale?

European Hydrogen Bank

Brussels officials have unveiled plans for a European Hydrogen Bank, aiming to increase the supply of renewable hydrogen through an auction process that connects buyers and sellers. The bank seeks to subsidize the higher costs of producing carbon-free gas, which is more expensive than its fossil fuel alternatives. This move comes after concerns that generous subsidies in the US Inflation Reduction Act may draw investments away from Europe's green energy hotspots. However, it remains to be seen whether this effort will be sufficient to compete with the US's investment initiatives.

Initially the new hydrogen bank is to be funded with €800 million, however the issue currently seems to lie in the clarity, or lack thereof, in how these subsidies are distributed and how applicable they are for each individual case. Currently there are a combination of incentives including hydrogen project specific funding, grants for its related infrastructure such as fuelling stations and also a remaining €270 billion of EU Covid-19 relief funds which went unused and can now be reallocated to clean energy projects.

This is then in combination with each of the EU’s individual support packages that are currently in place, leading to several different processes businesses will have to investigate in order to acquire the total amount of aid that is on offer to them, and this where the current system falls down in comparison to its alternative.

Green Hydrogen’s Progress

Simplicity seems to be the clear difference currently, with the IRA offering a clear-cut figure of a production tax credit of up $3 per kilo of clean hydrogen, dependant on the carbon intensity. With this assistance in place, Bank of America estimates that green hydrogen could be competing with its grey alternative as soon as 2025; without the subsidies that are currently being established, the EU would expect this to hit these levels of green hydrogen around 2030. Currently Europe’s higher energy costs are not helping the situation either, with Bank of America’s analysts also suggesting that the EU may need to subsidize higher operating costs to put themselves on an equal playing field with the US.

Potential Export Market

One benefit befalling European hydrogen producers following increasing integration of green hydrogen in the US would be the increase in opportunities to export its product, with the US planning to only produce half of its future demand for clean hydrogen, with imports making up the rest. The US isn’t the only one with targets and ambitions, with the EU having their own figures they hope to achieve, including their target of having 20 million mt/year of available green hydrogen by 2030.

It seems apparent that a more streamlined process needs to be established regarding the many EU subsidies that are currently on offer although with the establishment of the European Hydrogen Bank, it looks like steps are being taken in the right direction. With both regions clearly focused on successfully implementing green hydrogen into their transition towards clean energy, many options will be available to investors, however currently it does not seem like the decision will be an easy one to make.

Green Hydrogen Opportunities

Novus Executives are pleased to partner with a highly anticipated clean hydrogen fund in Zurich, Switzerland. The fund has a long term buy and hold strategy typically targeting minority stake holdings in the $50-200m bracket.

If you would like to discuss the position, please feel free to reach out to me at Lewis Stanley [email protected].

April 4, 2023
Reading Time
10 mins
Lewis is an Associate at Novus Executives who joined after graduating with First-Class Honours studying business management. Lewis focuses on the infrastructure market in France and Spain, from core assets through to value-add propositions, typically placing individuals between analyst and associate levels in suitable positions within investment banks, private equity & debt funds, consultancy firms and advisory boutiques.
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