Europe's Hydrogen Energy Transition—Transportation Challenges

Energy, Infrastructure, Project Finance

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As it can be generated from low-carbon sources, and does not release greenhouse gases, hydrogen is considered to have a big potential in combating climate change. While hydrogen has many industrial applications and in infrastructure, this commentary focuses on the issues surrounding the transportation of hydrogen itself. Despite the higher costs and limited scalability of transporting hydrogen over short distances through trucks, we note that such infrastructure can be developed. The infrastructure for transportation of hydrogen across oceans can also be feasibly developed, with conversion into ammonia being one of the most attractive means. The challenge lies in the intermediate-distance travel for which pipelines is the viable option. Significant challenges exist due to the limited availability of dedicated hydrogen pipelines and the repurposing required for using existing natural gas pipelines.

Infrastructure developers are expected to have new investment opportunities in the development of pipelines, conversion systems, import/export and storage terminals developed for ammonia and other elements of the hydrogen infrastructure. The infrastructure availability, development and maintenance requirements, and mitigation of environmental risks, will be important considerations when we assess the credit risk of such new projects.

Hydrogen, as an energy carrier, could allow long distance transportation of renewable energy, after technological and transportation challenges are addressed and overall economics become attractive. Uncontracted renewable energy projects could have a more global market access, altering their competitive landscape and promoting greater utilization of renewable energy. Since these are long-term developments, and several challenges remain, the credit impact on existing renewable energy projects is expected to be minimal.

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