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World Bank Report Highlights Challenges and Opportunities in Scaling Clean Hydrogen

A new World Bank report, "Leveraging De-Risking Instruments and International Co-ordination to Catalyse Investment in Clean Hydrogen," underscores the significant challenges facing the global clean hydrogen industry, particularly the low rate of project finalization.

As per the report, despite numerous announced projects, less than 10% have reached final investment decisions. To achieve 20 Mt of annual clean hydrogen production by 2030, emerging markets and developing economies (EMDEs) will require an average annual investment of USD 100 billion across the entire value chain, encompassing renewable electricity generation, hydrogen production, storage, transport, and conversion.

The report identifies six major risk categories impacting clean hydrogen projects:

• Offtake uncertainty
• Political and regulatory risks
• Insufficient enabling infrastructure
• Technology risks
• Macroeconomic risks

The report emphasizes the crucial role of de-risking instruments in attracting private capital. Key instruments identified include:

• Contracts for Difference: To mitigate price volatility and ensure stable returns.
• Offtake Guarantees: To secure long-term demand for hydrogen.
• Foreign Currency Guarantees: To mitigate currency exchange risks.
• Political Risk Insurance: To protect investors from unforeseen political and regulatory changes.
• Contractor's All-Risk Insurance: To cover project-related risks such as construction delays and unforeseen circumstances.
• Performance Guarantees: To ensure project delivery and performance.

The report stresses the importance of international collaboration to scale clean hydrogen financing. This includes:

• Fostering international collaboration on research and development to accelerate technological advancements.
• Developing and implementing effective de-risking mechanisms at the international level.
• Providing financial assistance and concessional financing to support project development.
• Enhancing the capacity of developing countries to develop and implement clean hydrogen projects.
• Promoting supportive policies and regulatory frameworks that encourage private sector investment.

The World Bank report provides valuable insights into the challenges and opportunities in scaling clean hydrogen. By effectively addressing the identified risks and fostering international cooperation, policymakers and stakeholders can unlock private capital and accelerate the development of a sustainable and equitable clean hydrogen economy.