BAKU, Azerbaijan, May 19. The credit risks associated with project-financed green hydrogen assets are currently comparable to or potentially greater than those of standalone thermal power assets, Trend reports with reference to Fitch Ratings.
“The green hydrogen market is still in its early stages, and as the industry develops, Fitch Ratings will assess and incorporate technology and process advancements into their ratings.
Green hydrogen is expected to play a crucial role in achieving net-zero emissions, particularly in sectors where decarbonization would otherwise be challenging. While there are limited precedents for project-financed transactions in this sector, Fitch Ratings anticipates an increasing number of rated transactions in the coming years. IRENA's 2022 report projected that, under its 1.5C climate change scenario by 2050, up to 12 percent of final energy will be supplied through hydrogen and its derivative products. This would require a significant build-out of approximately 350GW of electrolyzer capacity by 2030, compared to the approximately 0.5GW installed as of 2021,” reads the report released by Fitch Ratings.
Fitch Ratings notes that different green hydrogen projects may have varying completion risk profiles.
“The complexity of infrastructure construction will depend on the specific use of the output product, such as electricity production, long-term storage, or feedstock production. Green hydrogen projects also involve a broader range of balance of plant components compared to solar, wind, or thermal power plants. The complexity and integration risk will significantly impact the completion risk assessment for each rating.
The availability of alternative contractors to complete a project will be crucial in determining whether it can be rated above the incumbent contractor. Due to the market's immaturity, independent experts' opinions regarding replaceability will carry significant weight. Additionally, the success of assets in the sector will rely heavily on project parties, including original equipment manufacturers, who will play a key role in operating, maintaining, and providing equipment warranties due to their expertise,” the report says.
Fitch Ratings says for standalone green hydrogen projects that use proven technology, credit risks related to operational, supply, and revenue factors are similar to those of thermal power assets.
“In cases where there is a combination of contracted and merchant exposure, Fitch Ratings would employ an approach aligned with other power transactions. This may involve considering an average between the merchant and contracted levels of metrics, weighted by the relative proportions of contracted and merchant revenues, or by cash flow if more appropriate,” the report says.
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