The world’s first clean hydrogen-focused investment fund, HydrogenOne Capital, which is aiming to raise an initial £250m ($345m) this month ahead of its listing on the London Stock Exchange, will at first concentrate on green hydrogen production, co-founder JJ Traynor tells Recharge.
“In the early stages of the fund it’s going to be all about green [hydrogen]… we’ve sized our fundraise to be able to invest in 20-100MW projects, which are what’s on the table today. But keep in mind those are phase-one projects and many of those sites will scale up over time to 500MW or even to gigawatt-scale,” he says.
“The demand pull that we’re seeing today is actually the clean-up of the grey hydrogen [produced from unabated fossil fuels] sector, so that’s the industrial gas space — that’s a $175bn a year industry.”
The managing partner says that the fund will have a “multi-asset approach”, investing in both listed and privately owned companies, as well as private projects.
“We expect private allocation to be 90% of the fund over time. And in terms of where we see the best value or shareholders today, it’s in the supply chains and it’s in the hydrogen supply projects.”
Traynor says that while green hydrogen will be the early focus of the fund, it is “very firmly monitoring” blue H2 produced from natural gas with carbon capture and storage, as well as waste-to-hydrogen, which he describes as “one that’s very much worth keeping an eye on”.
“[If] you look at the IEA [net-zero roadmap], 10% of the primary energy mix in 2050 is coming from clean hydrogen off an almost zero baseline today,” he says. “To get to that level of hydrogen in the mix, you need all forms of clean hydrogen.”
“We see the rapid growth that is under way in the clean hydrogen sector and the diversity of investment opportunities that there are within that sector,” says Traynor. “All of that, and the complexity of the sector, commands a specialist approach. And we think the best way to add value for the investor is to be the experts on the clean hydrogen industry… rather than [taking] a more diversified approach. We think investors would prefer to back a specialist fund.
“We need to scale up this fund over time to hold our corner in this rapidly growing market.”
The former Shell executive vice-president, who launched the company in partnership with Richard Hulf, a former Artemis fund manager and ExxonMobil engineer, says that the new company currently has four green hydrogen projects and 12 private companies in its initial sights, with 20 listed companies “on the radar”.
“Out of the 36 in total there are electrolyser manufacturers, fuel-cell manufacturers, there are project developer companies and there are green hydrogen supply projects,” he says.
“The midstream and downstream parts of the sector are in scope for us, so hydrogen distribution, hydrogen storage, and then some of the applications — the power sector would be one example.”
Traynor believes green hydrogen will be produced at scale using excess renewable energy, then piped to dedicated power plants that would burn that H2 to produce grid-scale baseload electricity.
“Over time, as clean hydrogen supply grows, we expect to see it blended in natural-gas grids, and being used in the power generation sector, building-scale heating, in building-scale electricity and in heavy transport, so trucks, trains, ships, possibly planes,” Traynor says.
“We see synthetic fuel for jets as something further down the tracks, something to monitor, but for us, front and centre, it’s hydrogen in the power sector and it’s building-scale heating.”
Green v blue
Traynor seems to be uncomfortable about making a distinction between green and blue hydrogen.
“To be honest with you, I think there’s a slightly polarised argument on the different forms of clean hydrogen supply, and this is really the incumbents in different parts of the industry banging their own drums. We’ve gone for ‘clean hydrogen’ because we want to avoid greenhouse gas emissions.”
He says that in the coming years, there may not even be a choice to buy green or blue H2.
“Down the tracks, five, ten, 15 years in the future, as a customer, you’re going to buy clean hydrogen off a grid, you’re going to buy it out of a storage facility,” Traynor explains. “And that hydrogen is going to be a blend of clean hydrogen that’s come from a variety of supply sources in the same way as today you buy a blend of Brent crude that has come from multiple oil fields in the North Sea basin.”
The carbon emitted in the process of producing this clean hydrogen would be revealed through certification, he says, adding that HydrogenOne sees H2 trading as a future investment opportunity.
The fund has been very clear that it will not make investments in fossil-fuel companies, even if some of them are investing heavily in clean hydrogen.
“To give an example, you could buy shares in Shell or Equinor, and those companies have big hydrogen strategies and good possibilities with those, but we’ve excluded the production of fossil fuels from our mandate,” Traynor explains.
“We will clearly accept funding from fossil-fuel companies,” he adds, pointing to the £25m cornerstone investment from fossil-fuel player Ineos. “But we’re investing the money in avoided emissions.
“If we raise the £250m, and we deploy that capital into clean hydrogen, that’s avoided greenhouse gas emissions of five million tonnes. And really, this is all about energy transition at scale.”
