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Monday, October 2, 2023

Launch Partners

Credit risk for green hydrogen assets potentially higher than thermal, says Fitch report

Credit risks of project-financed green hydrogen assets are similar to or potentially greater than those of thermal power for stand-alone assets, Fitch Ratings said in a report. The potentially higher credit risk for green hydrogen projects may result in less competitive financing pricing compared to thermal projects.

While still underdeveloped, Fitch expects to rate an increasing number of transactions in the green hydrogen sector in the coming few years.

Due to the infancy of the market and the limited number of peer hydrogen projects, Fitch’s ratings methodology for such projects will be more reliant on experts’ opinion on the budgeted or contracted operating costs for the project.

Fitch will consider key operating metrics including the efficiency and rate of hydrogen production, the plant availability, its ability to respond to intermittent power and the hydrogen purity levels in its rating criteria.

“We would expect to rate stand-alone green hydrogen projects under the Master Infrastructure & Project Finance Rating Criteria and apply principles of relevant parts of sector-specific criteria, such as the Thermal Power Project Rating Criteria, and, where a project is combined with and depends on a renewable generator, the Renewable Energy Project Rating Criteria,” the rating agency said.

Factoring into the potentially higher credit risk is also the difference between the completion risk profiles of green hydrogen projects versus thermal projects.

With the ongoing renewable energy agenda particularly in the GCC driven by ambitious transition policies including Saudi Arabia’s Vision 2030, we are seeing a growing amount of green hydrogen projects in the region.

Notably, the NEOM Green Hydrogen Project, which is a joint venture between ACWA Power, Air Products and NEOM, reached a financial close for a total investment cost of US$8.5 billion on the 22nd May 2023. The syndicated financing, including an undisclosed Islamic component, was initially announced in February this year.

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