Financing cost impacts on cost competitiveness of green hydrogen in emerging and developing economies

Moongyung Lee and Deger Saygin

No 227, OECD Environment Working Papers from OECD Publishing

Abstract: Green hydrogen, produced from water and renewable power through the electrolysis process, can play a crucial role in the low-carbon transition to achieve the net-zero emission targets. Currently, the production cost of green hydrogen is not competitive when compared to hydrogen produced from natural gas. High capital costs are a major factor constraining its cost-competitiveness. This working paper utilises financial market data to address the knowledge gap concerning the range of Weighted Average Cost of Capital (WACC) for green hydrogen projects. It also conducts a survey among investors and financiers to identify key risk factors contributing to the high WACC. The key risks that have been identified include offtaker risks, lack of credible offtakers, price uncertainty of green hydrogen, and the absence of hydrogen trading markets. These risks are closely connected to the available risk mitigation strategies and tools. The paper summarises key risk mitigation strategies identified through case studies of lighthouse green hydrogen projects that have either reached or are nearly point of reaching financial investment decisions.

Keywords: cost competitiveness of green hydrogen; cost of capital; green hydrogen; industry decarbonisation; levelised cost of hydrogen (search for similar items in EconPapers)
JEL-codes: L20 O14 O25 Q42 Q48 (search for similar items in EconPapers)
Date: 2023-11-29
New Economics Papers: this item is included in nep-cfn, nep-ene, nep-env, nep-ppm and nep-reg
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:oec:envaaa:227-en

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