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

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  • Moongyung Lee
  • Deger Saygin

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.

Suggested Citation

  • Moongyung Lee & Deger Saygin, 2023. "Financing cost impacts on cost competitiveness of green hydrogen in emerging and developing economies," OECD Environment Working Papers 227, OECD Publishing.
    • Handle: RePEc:oec:envaaa:227-en
    DOI: 10.1787/15b16fc3-en
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    More about this item

    Keywords

    cost competitiveness of green hydrogen; cost of capital; green hydrogen; industry decarbonisation; levelised cost of hydrogen;
    All these keywords.

    JEL classification:

    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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