GVNL Perspective Online | Fueling green hydrogen: how to secure project financing
Hyung-Ja de Zeeuw has witnessed the rise of green hydrogen from close by. It set a personal transition in motion: from credit analyst to hydrogen specialist at Rabobank in 2019. “Optimism was high. For making transport and the chemical sector more sustainable, green hydrogen seemed to be the perfect solution.” A few years later, De Zeeuw saw a turning point. “Prices for raw materials and energy rose sharply. As a result, the costs of producing green hydrogen also increased significantly.”
Carrot and stick
We are now in a typical chicken-and-egg discussion, De Zeeuw notes. Producers start to move when there are buyers, and buyers only commit when there is an affordable supply. “This deadlock appears to be most effectively broken at the end user level. If the end user is willing to pay a little extra for a sustainable product made with green hydrogen, this will have an effect throughout the entire chain.” Subsidies improve affordability.
In addition, a stick is also being used to scale up green hydrogen. And that stick carries the European flag. “Regulation such as RED III, which requires the blending of renewable fuels, works in principle. But each Member State implements it differently. This causes delays and creates uncertainty for companies.”
“Look for an investor who shares your long-term vision and your mindset”
The role of banks
There is still a willingness to invest in new green hydrogen projects. “Private equity mainly plays a role in companies’ start-up capital. They are willing to take higher risks. Banks do not do that. We provide loans to finance projects, often together with several banks in order to spread the risk, on the condition that sufficient equity is included. There is almost always also a successful subsidy application. But the most important point is that we only finance profitable business cases with sufficiently reliable cash flows.”
De Zeeuw would like to provide some additional explanation about project financing. “Project finance is different from, for example, corporate finance. In that case, we look at a company with a variety of activities and assets, as well as a sound financial track record. In project finance, that track record is absent and the financing has to be repaid from the project’s future cash flows, while the project often has only one activity, such as hydrogen production. Long-term offtake contracts are therefore needed. If that buyer is also still in the development phase, the bank is also exposed to the risk of that project succeeding. This so-called project-on-project risk creates another chicken-and-egg discussion.”
If a hydrogen project forms part of an industrial cluster or works closely with a major industrial company, this provides more certainty, according to De Zeeuw. Abo Rassa agrees. Rassa is an adviser at the Financing Desk of Topsector Energie, where he supports green hydrogen entrepreneurs with financing issues. “The point with green hydrogen is that it is an entirely new market. Large-scale supply and demand are still lacking. But if you work together with existing clusters, ecosystems or major parties, you bypass that problem and benefit from existing knowledge and physical infrastructure, as well as the experience they already have in working with hydrogen.”
Tips for entrepreneurs
Doing business with major players is a game in itself, however, Rassa warns. “Start making financial arrangements as early as possible and make sure you do not become too dependent on one party. Keep several options open, so that you are not cornered or incorporated into the large company too early.”
Through his work at the Financing Desk, Rassa knows what entrepreneurs need to have in place. “You need stamina and a great deal of flexibility, because you are innovating on several fronts at once: with your product, with production, with the chain, and with sales and marketing. Look for an investor who shares your long-term vision and your mindset.”
Need financing? The Financing Desk of Topsector Energie can help by:
- Een-op-eenadvies met Abo Rassa: ontdek welk type investering of investeerder het beste bij jou past en scherp je propositie aan.
- Masterclass financiering: krijg inzicht in het investeringslandschap en de financieringsmogelijkheden.
- Innovatiemakelaarsregeling: vraag deze subsidie aan om een expert in te huren die jou begeleidt en coacht bij een specifiek vraagstuk, zoals het ontwikkelen van een businessplan, bedrijfsstrategie of advies over patenten.
- De Energy Investor Day: viermaal per jaar krijgen geselecteerde start-ups in de energietransitie de kans te pitchen voor potentiële investeerders.
- De European Energy Investor Day voor scale-ups: geef je op en wie weet word jij uitgenodigd.
- One-to-one advice with Abo Rassa: discover which type of investment or investor suits you best and sharpen your proposition.
- Financing masterclass: gain insight into the investment landscape and financing opportunities.
- Innovation brokers scheme: apply for this subsidy to hire an expert who can guide and coach you on a specific issue, such as developing a business plan, business strategy or advice on patents.
- The Energy Investor Day: four times a year, selected start-ups in the energy transition are given the opportunity to pitch to potential investors.
- The European Energy Investor Day for scale-ups: sign up and you may be invited.
“In project finance, the financing has to be repaid from the project’s future cash flows”
This article was originally published in the GVNL Perspective magazine. With GVNL Perspective, we highlight how the hydrogen transition is evolving: from ambition to implementation. In this online series, we share articles from the first GVNL Perspective magazine, featuring expert insights, inspiring stories from pioneers, and examples of innovation that demonstrate how the Netherlands is gradually turning the promise of green hydrogen into reality, driven by a shared determination to move forward.