Moody’s has published a report looking at the potential role for hydrogen in the push for net-zero economies, and the hurdles facing development and commercialisation of the energy source on a large scale.
- Moodys’ has published a report warning that despite investment appetite for the sector, significant implementation risks remain around green hydrogen.
- Investment in green hydrogen continues to accelerate but there are huge barriers in terms of infrastructure investment and the cost of electrolysers.
- It’s possible that green hydrogen networks are a mixture of hope and hype, but run the risk of distracting focus from critical short term reductions in emissions.
According to Moody’s analysis, green hydrogen can help achieve net-zero carbon economies given its potential as clean fuel for power generation and as a decarbonisation tool for carbon-intensive sectors, where electrification is not a viable alternative.
Green hydrogen’s potential lies in decarbonisation of carbon-intensive sectors and as clean fuel for power generation. Carbon-intensive sectors are eager to adopt hydrogen into their production cycles to meet increasingly tightening emission standards.
Power companies, chemicals and steel sectors as well as short-distance maritime and aviation and long-haul, heavy-duty transport have the highest hydrogen adoption potential.
Turning hydrogen green comes with a lot of questions
However, substantial hurdles will constrain the development and commercialisation of green hydrogen at scale over the medium term. At the moment the majority of hydrogen is generated from natural gas and without effective CCS, cannot help achieve decarbonisation goals.
There are also serious challenges to the widespread scaling up of a green hydrogen ecosystem. Issues include a potential lack of available renewable energy and hydrogen, as well as low technological readiness. High production, distribution and storage costs are also likely to severely limit large-scale production and commercialisation of green hydrogen, especially without the guarantee of continued government support.
At the same time while low-carbon blue hydrogen, which uses carbon capture, could contribute to global carbon transition but it won’t reduce hydrocarbon reliance. Continued reliance on hydrocarbons will leave issuers in carbon-intensive industries vulnerable to any acceleration in the global decarbonisation agenda, a long-term credit negative.
Investment and interest in the potential for hydrogen in the energy transition must consider both the source, the associated emissions and the long term impacts of path dependency.
Understanding the hydrogen rainbow
Linking green hydrogen to credit ratings
Moody’s analysis suggests that green carbon will likely only mitigate the negative credit impact of global decarbonisation. However, the long-term nature of net-zero plans engenders significant implementation risks.
This could potentially push back green hydrogen projects’ target dates, which would mute the positive credit impact they might have on issuers’ credit profile.