RIYADH: ACWA Power, the energy producer backed by Saudi Arabia’s sovereign wealth fund, sees big opportunities in the hydrogen market but the company isn’t planning to add another hydrogen project to its portfolio for some time until its venture with NEOM and Air Products is at an advanced level, its CEO said.
“The world is projecting a massive green hydrogen market ahead of us, so the market is there for us – we don’t need to worry about the market,” Paddy Padmanathan said in an interview with Arab News last week.
“For us it’s about making sure we deliver the first project to give us the confidence and then the capabilities and capacity to then start replicating it,” he said.
Air Products, in conjunction with ACWA Power and NEOM, signed an agreement last year for a $5 billion venture to produce 650 tons per day of green hydrogen by heating water using renewable energy, as well as 1.2 million tons per year of green ammonia for exporting the hydrogen to the global market. The project, which will be built in NEOM, is scheduled to be onstream in 2025.
“There is a lot of work that is going on by the three partners in order to prepare the site, get on with the engineering, and develop the design. Because it’s the first project of its kind we really want to spend the time to optimize it,” he said.
The venture has already appointed advisers, including Lazard, for the financial planning, and there are numerous other technical advisers, Padamanthan said.
Lazard, which advised Saudi oil giant Aramco on its initial public offering in 2019, approached banks early this year to sound out their appetite for the project, Reuters previously reported, citing sources familiar with the matter.
Acwa Power went into the hydrogen project at NEOM for three main reasons, said Padamanthan. First, its ability to reduce the cost of energy used in the project. Second, the advantage it gets from selling power on a long-term basis, and finally, its expertise in building complex projects from scratch.
"Over 60 percent plus or minus of the cost of producing green hydrogen using electrolysis is the cost of electricity, so... we have learned how to deliver competitive renewable energy, both solar and wind," he added.
Securing long-term offtake contracts for its power is a core principle in Acwa's business model, something it will keep in its NEOM's project. "So as we go forward with the hydrogen venture we are looking for that long offtake contract," he said.
ACWA, an equal partner with NEOM and Air Products, will focus on the production of energy to feed it into the electrolyze to produce hydrogen, while Air Products will handle the production of hydrogen and convert it to liquid ammonia ready for customers at loading points. Through this strategy, ACWA is transferring the market risk to Air Products, he added. Market risk is therefore transferred from ACWA to Air Products.
Despite all this interest in hydrogen, ACWA's CEO thinks hydrogen still needs time to become a major source of energy on a global scale.
"Let's not overplay hydrogen. The fact of the matter is that hydrogen is in its early days," he said.
Hydrogen can lower the emissions from the industrial sector which is responsible for roughly 40 percent of all global emissions, but this can happen if we can make hydrogen cost competitive, and "then if we can find storage solutions. The world needs to develop that for hydrogen, and then transportation solutions," he said, adding that there is loss of efficiency when transporting hydrogen, which requires shipping it in the form of ammonia to the final user.