News of the dry financial close on Neom's US$8.5bn green hydrogen project in Saudi Arabia comes as a welcome boost to the embryonic sector. The multi-billion pound project-financed transaction should set the template for the next batch of deals. However, while the scheme has been around for three years it has still sprinted way ahead of its rivals, and in Olympian terms has lapped the field twice. The rest of the field has plenty of catching up to do and indeed, at the starting blocks there are plenty of frayed nerves.
The Neom scheme, in project finance credit terms, is backed heavily by the Air Products wrap both in terms of construction and offtake. There has been a lot of attention on the offtake wrap, given that a global green hydrogen market has yet to be established, but as much attention should be paid to the construction wrap.
Not only will the project produce 4GW of solar and wind capacity with storage capacity built in, the scheme also involves the production of 650 tonnes of hydrogen per day by electrolysis using ThyssenKrupp technology; the production of nitrogen by air separation using Air Products technology; and the production of the 1.2m tonnes of green ammonia per year using Haldor Topsoe technology. The nitrogen is added to the hydrogen to make liquid ammonia. This will be exported around the world by Air Products via LPG ships and turned back into hydrogen.
With supply chains the way they are, hopefully Air Products can knock it all into shape as it will be responsible for integrating the full value chain. Big sponsors and suppliers such as Air Products and ThyssenKrupp should be relied upon to deliver the goods but right now there are signs on the ground that others are experiencing significant growing pains – which could have consequences for the sector as a whole.
Sheffield, UK-based ITM Power is supplying the largest polymer electrolyte membrane (PEM) electrolyser in the world with Linde to RWE for its green hydrogen project at Lingen in Germany with two 100MW contracts. The contract is exciting. The scheme will see the "first deployment of the 10MW standard module skids for large-scale installations utilising state of the art modular extraction platform MEP 30 bar electrolyser stacks", according to ITM's recent results.
Unfortunately the next sentence in the results states "we do not expect the project to contribute to our margin", although shareholders will be please to know "these two projects will represent a key milestone on ITM Power's journey towards high volume manufacturing of an industrialised product".
ITM Power is a leader in the global electrolyser field but it recently recorded a half-year Ebitda loss of £54.1m, on revenues of £2m, which is expected to grow to £85m to £95m at year-end. ITM reports the global green hydrogen market has actually slowed down due to high power prices and inflation. This is just as well as this is giving it some breathing space to deliver. Its problems stem from ITM moving from a research and development (R&D) culture to a volume manufacturing company.
"Most issues today arise from immature engineering processes, which materialise during manufacturing and lead to project delays and cost overruns," it said. " As one key priority we will change the way we engineer our products and control design changes." Sounds like a plan, although with an embryonic technology it might be harder to put into practice. The firm has scrapped its 5GW annual capacity target by 2025 and is now aiming for 1.5GW per annum by 2023
New York state-based Plug Power has been around since 1997, a little longer than ITM, and says it is the leader in the green hydrogen economy. Its Q4 revenues jumped to US$221m in 2022 compared with US$161m in Q4 2021 but the Q4 margin was minus 36%. Still, this was better than the minus 54% in Q4 2021.
"Given supply chain issues, new product scaling, and new manufacturing facility ramping, the company experienced higher than average scrap, and unfavourable absorption costs in the quarter," the company said. As with ITM scaling up is an issue.
"At Plug, we place a high priority on the advantage of large-scale manufacturing, which we believe will accelerate our business growth and drive profitability. While some may doubt the company's capacity to achieve all these tasks simultaneously, we have confidence that our 4,000 global employees and partnerships can make it possible," said president and CEO Andrew J Marsh.
Building a new industry will inevitably involve growing pains. But for hydrogen there is the extra issue that both the technology and the marketing piece are finding their feet at the same time. The certainty of demand for green hydrogen is not yet there. The prospects appear great but production costs and economic value are still being worked through. If a well established industry such as offshore wind is having its ramp-up troubles, those for hydrogen will be even more acute.
