By Fitch Solutions
- We believe that Asia holds high potential for green hydrogen production and consumption, which will be gradually capitalised on this decade.
- Australia and Mainland China are outperformers in our Green Hydrogen Suitability Index, scoring above other regional and global peers due to strong renewables sectors and pipeline of projects.
- We highlight that hydrogen developments in Asia are increasing as well, with markets such as India and Singapore capitalising on their potential to be key players in the global hydrogen trade.
- Amid elevated natural gas prices catalysing green hydrogen growth, challenges remain for Asia in the form of hydrogen transportation as markets remain separated by large bodies of water, requiring investments in shipping infrastructure and innovative shipping methods for connectivity.
We believe that Asia holds high potential for green hydrogen production and consumption, which will be gradually capitalised on this decade. In our Green Hydrogen Suitability Index, which measures a market’s attractiveness for green hydrogen investment, Asia’s average score ranks second out of all the regions we cover, falling behind the North America and Western Europe region. The region has a mix of markets with strongly performing Risks or Rewards profiles, signalling that there will be key exporting and importing green hydrogen markets. The pipeline of green hydrogen projects in Asia has also strengthened over the past year, increasing from 35.4GW in the last report to 65.6GW as of January 2023 in our Key Projects Database (KPD). This expansion of the pipeline mainly lies in Australia, with 54 out of 80 projects being located in the market. However, only nine out of 80 projects have reached the construction stages, totalling about 2.9GW in capacity. We believe this is a result of the high capital required for such projects which increases the risk of projects progressing, especially projects termed as ‘megaprojects’ or ‘green hydrogen hubs’. In our KPD, the average project value of Asia’s green hydrogen projects that have a capacity of 1.0GW or more is about USD3.0bn. Additionally, a lack of certification standards and the opaqueness of offtake and buyer agreements in the region present challenges for more investment given the high risk associated. Asia has yet to reach a mature green hydrogen market to regulate and promote transparency in the hydrogen trade, which will be essential to unlocking further growth and financing for the green hydrogen sector.
Australia and Mainland China are outperformers in our Green Hydrogen Suitability Index, scoring above other regional and global peers due to strong renewables sectors and pipeline of projects. Currently, Australia ranks first in Asia’s Green Hydrogen Suitability Index. This reflects the low risks that the market has when developing green hydrogen production capabilities, supported by the renewables sector’s diverse competitive landscape, low financial barriers, and limited legal risks for businesses. Additionally, our Country Risk team expects the market to have one of the least economic and political risks in Asia, supporting its business environment. The pipeline of solar and wind power projects for Australia is also strengthening following the government’s commitment toward a low-carbon energy transition and tying renewable power projects to hydrogen production. This includes plans for hydrogen production facilities, such as the AUD454mn Regional Hydrogen Hubs program, reviewing regulatory frameworks for hydrogen development, and the development of an industry standard of hydrogen production across Australia.
However, for the medium to long term, China will nudge past Australia’s performance as support for green hydrogen in the market strengthens. In March 2022, the National Development and Reform Commission and the National Energy Administration announced the market’s first long-term hydrogen plan for 2021-2035. This includes a target to produce 100,000 to 200,000 tonnes of green hydrogen by 2025. We highlighted that there are 14 provinces in China have announced various subsidy schemes and policy support for hydrogen, and 20 cities have announced plans to develop hydrogen clusters. The market’s capital, Beijing, revealed intentions to offer CNY30mn (USD4.4mn) worth of subsidies for projects involved in advanced hydrogen production, storage and transportation, and hydrogen refuelling. Supporting future growth of green hydrogen production is its strongly growing renewables sector. China has the world’s largest renewables sector, ending 2022 with a net installed renewables capacity of about 1,195GW, inclusive of hydropower. This will increase to 1,682GW in 2026 and then about 2,375GW in 2031, the latter of which is almost double that of its 2022’s renewables capacity. Having such a large base to feed renewable electricity to the green hydrogen production industry will present rewards for developers in the sector. We believe this strong growth of renewables in China will be the main contributor to the market’s strong performance to edge past Australia. Additionally, our Autos team notes that China will be the region’s largest hydrogen fuel cell vehicle market, as the economy is the first to introduce strong purchase and development incentives. This reflects the potential for a huge appetite for low-carbon hydrogen for future demand cases.
We highlight that hydrogen developments in other Asian markets are increasing as well, with markets such as India and Singapore capitalising on their potential to be key players in the global hydrogen trade. Apart from Australia and Mainland China being key green hydrogen markets, we highlight key developments in government commitment and financing for green hydrogen capabilities. Prominently, we highlight India and Singapore as key players in Asia’s green hydrogen development.
- India: On January 4 2023, the Union Cabinet approved the National Green Hydrogen Mission with an outlay of about USD2.4bn. This follows the launch of its National Hydrogen Mission in August 2021 and its mandate for green hydrogen use for refinery and petroleum plants in February 2022. Close to 90% of this financing will be used for its Strategic Interventions for Green Hydrogen Transition (SIGHT) programme, while the rest for pilot projects, research and development, and other supporting work. The government aims to have this mission aid its ambitions to be energy independent by 2047 and carbon net-zero by 2070. This commitment to developing its green hydrogen production and trade capabilities will be essential in providing tailwinds to the private sector efforts in ramping up their green hydrogen projects. We highlight that major Indian companies, such as Adani Group, Reliance Industries, NTPC Limited, and GAIL Limited have announced plans for green hydrogen facilities and hubs.
- Singapore: On October 25 2022, Singapore announced its National Hydrogen Strategy which affirms the market’s commitment to establishing a low-carbon hydrogen supply chain. By utilising its position as a key trading hub, Singapore plans to develop frameworks for the certification of low-carbon hydrogen imports. We believe that the hydrogen industry requires such a framework to boost investor and hydrogen offtaker confidence in the hydrogen market. Additionally, to accelerate hydrogen capabilities in Singapore, the government stated that it will commit SGD129mn (USD98mn) to hydrogen projects under the Low Carbon Energy Research Project (LCER). However, as nascent as the green hydrogen industry is at the moment, we currently believe that Singapore will not see any large-scale hydrogen projects come online this decade. Furthermore, given that the LCER was developed to support R&D projects, there might only be pilot projects that spin out from this programme.
Amid elevated natural gas prices catalysing green hydrogen growth, challenges remain for Asia in the form of hydrogen transportation as markets remain separated by large bodies of water, requiring investments in shipping infrastructure and innovative shipping methods for connectivity. As elevated natural gas prices persist, prominently liquified natural gas, we expect that green hydrogen could become increasingly cost-competitive for markets with a domestically available green hydrogen supply. This will be catalysing trend for markets that rely heavily on natural gas, such as Singapore, to pursue natural gas and hydrogen co-firing technologies, though we highlight that shipping remains key to unlocking stronger growth as it will connect major green hydrogen-producing markets with demand centres. In Asia, we expect Japan and South Korea to be large demand markets for green hydrogen. However, these markets are isolated from potential key green hydrogen producers, such as Australia and India, by long distances across water bodies. Unlike Europe, where markets are well connected over land, giving rise to the exploration of hydrogen transport through pipelines and rail, Asia is limited to freight shipping. As a result, investment in port infrastructure is required to advance the green hydrogen trade in Asia.
However, we hold the view that this will only support the development of international green hydrogen trade in the medium- and long-term future. Additionally, the use of hydrogen carriers, be it liquified hydrogen, ammonia, or methylcyclohexane, the process of obtaining pure hydrogen gas from these carriers is energy-intensive, subjecting the recipient market to more electricity use. While Asian markets can capitalise on the mature ammonia supply chain for hydrogen shipping, the cracking of ammonia to obtain hydrogen is also a nascent process that is yet scalable. Therefore, for Asia to establish itself as the world’s leading region for green hydrogen production and use, we believe more investment into hydrogen shipping is required to connect key demand centres to production markets.
This article has been sourced from Fitch Solutions and can be accessed here