From Fossil Fuels to Green Hydrogen: Funding the Shift Towards Clean Energy

Overview

‍

There are several issues today with fossil fuels - air pollution, the dependence on non-renewables, and the destruction of the environment as we go about acquiring energy sources, like crude oil, natural gas, or coal. From the electricity that lights our homes to the cars we drive to work, modern life is built on fossil fuels. Approximately 5700 million metric tons of CO2 are released into the atmosphere every year from human activities, and due to this, there has been a universal call to the innovation of alternative energy sources.

From that standpoint, hydrogen has several characteristics that make it the ideal candidate for fuel: it is light, can be stored, and does not generate pollutant emissions by itself. Green Hydrogen is the key example of this, as it is made through the process of electrolysis powered by renewable energy such as solar or wind energy. This involves using an electrical current to break down the water molecule into oxygen and hydrogen, with the only by-product of this process being water vapor, making it completely CO2 emission-free. This coupled with the fact that there is no depletion of natural resources makes it far more sustainable than the use of fossil fuels.

‍

Funding Initiatives in Green Hydrogen

‍

Governments across the world are taking initiatives to promote the production of Green Hydrogen. The Indian government has also launched the National Green Hydrogen mission which aims to make India energy independent by 2047 and achieve carbon neutrality by 2070 with a total financial outlay of $2.4 billion.

‍

Large Conglomerates – Driving Investments in India

‍

At present, the majority of the funding is going towards setting up the infrastructure to produce GH2. Alternative Investment Firm Brookfield has recently committed a $1B investment in Avaada Group, one of the leading green energy and renewable energy company in India, to fund its Green Hydrogen and Green Ammonia ventures in India, whereas major Indian conglomerates like Reliance Industries and Adani Enterprises have both committed to large scale Green Hydrogen projects starting from 2025. Reliance Industries aims to reduce the production cost of green hydrogen to under $1/kg by the end of this decade while the Adani Group aspires to be among the biggest producers of green hydrogen in the world. The reason we’re seeing most of the interest coming from large corporations is due to the cost involved with setting up a plant. Recently, IOC commissioned a $240M plant that has an annual output of 7000 tons of GH2, showcasing how steep the capital expenditures can be.

‍

‍

PE and VC Inflows into the Space

‍

In 2022, PE/VC funding in Hydrogen related companies has spiked to $5.7 billion dollars globally, which is 3.5x the value from 2014, showing the deep-seated interest from investors to enter this space. While most of the funding is going towards Independent Power Producers (IPP) projects, there is also major traction within the rest of the ecosystem, with many companies coming up that are enhancing the GH2 supply chain. Recently, startups have started exploring AI-based data intelligence platforms specifically for Green Hydrogen producers, whereas others are making major headway in developing electrolyzers that look to reduce operating expenditures.

‍

This also aligns with the soaring inflow of capital by PE/VCs into sustainable investing, which is expected to reach $125 billion by 2026, growing at a 5-year CAGR of 46%. The factors encouraging this steep rise are not only government policies but also consumer demand for socially responsible behavior and the growth of cleantech and green initiatives. Investors have begun to recognize the need to invest in businesses that have not only good but also sustainable returns.

currently on the cusp of a global shift, as all these

‍

Our Short-Term Outlook for GH2

‍

We believe that there will continue to be a focus on infrastructure projects, especially when they come with the utilization of existing solar and wind energy sources. One of the reasons we’re seeing an influx of predominantly larger players in the space is due to how capital-intensive GH2 projects are. While India has the advantage of low cost, the cost of green hydrogen in the country is expected to fall to about one-fourth of global levels and India could become the lowest-cost producer in the world. However, the transition to green hydrogen may take some time. There will need to be considerable investment in these projects for the other companies within the value system to gain more traction, be it in electrolyzers, data analytics, or distribution chains, as only once the foundation is laid is when the awareness rises for the other segments within the ecosystem.

‍

Today, less than 1% of the energy consumed worldwide is derived from Green Hydrogen. We believe that we are on the cusp of a global shift currently, as all these aforementioned variables will play into each other and grow the landscape into a major source of renewable energy globally.

‍

‍

How Merisis Can Help - Contact Us

‍

The Transportation sector has seen a renewed focus post the pandemic as it highlighted the relevance of logistics and supply chains. The sector has seen significant growth in recent years in the number of emerging start-ups, interest from investors, and policy push from the government. The sector has also seen the most impact from the increased clean tech focused funding as electrification emerged as a key theme.  

‍

The Transportation & CleanTech vertical at Merisis advises companies across various sub-sectors and facilitates their funding and M&A plans leveraging our deep connections in the ecosystem. Merisis has worked with category creators across this vertical and has strong relationships with a diverse set of Indian and global investors, which allows us to add value to our clients by finding the right partner. Read more

‍

Write to us on tmc@merisis.in