Tan Ai Chin
KUCHING (June 9): OCBC Bank (Malaysia) Berhad (OCBC Malaysia), a leading financial institution pioneering multiple award-winning sustainable financing solutions, has positioned itself to contribute to the development of green hydrogen, taking cognisance of the challenges faced by the industry which is still in its nascent stage.
In an interview with The Borneo Post, OCBC Malaysia head of investment banking and managing director Tan Ai Chin highlighted that despite green hydrogen being the missing ingredient in the decarbonisation of hard-to-abate industries, the commercial viability of a holistic green hydrogen ecosystem remains a major hurdle to drive greater adoption of clean energy.
Tan explained the current production cost for green hydrogen is significantly higher than that of grey or blue hydrogen. Because of the high costs, the issue now is how will demand be able to match up to pay for the cost-based price to meet the required return of the project promoters.
Challenges faced in promoting green hydrogen energy include the complexities in storage, transportation and the efficiency and capacity of electrolysers production to meet the demand given the multitude of large scale projects that has been planned all over the world, she said.
“As financiers, we have to look at the entire value chain in the development of green hydrogen to structure holistic project financing solution. Investments into related infrastructure facilities including renewable energy plant being a key feedstock for production of green hydrogen, other types of chemical production plant for green hydrogen derivatives such as ammonia and methanol, as well as the pipelines, storage and transportation facilities taking into consideration the highly inflammable nature of hydrogen, are also critical to facilitate a fully integrated solutions to end users.”
Tan said given the prevailing project risks including lack of visibility on demand, unclear regulation and the supply chain constraint, we noticed that the required capital is not flowing in at the scale needed which resulted in much lower number of projects having reached commercial operations vis a vis the numerous mega headlines of such projects being announced by various countries.
Furthermore, Tan said ‘boxing’ and identifying derisking mechanisms to manage the various risks involved in the development of green hydrogen amongst a group of financiers including export credit agencies, multilateral and development financial institutions and commercial lenders are necessary to facilitate a comprehensive financing package.
Building upon this, she added: “One of the main concerns for the financiers, which involves technology risk, can be effectively mitigated by encouraging direct participation from technology providers as mezzanine/hybrid equity partners. This strategic involvement ensures that they have a ‘skin in the game’, ensuring these technology providers are not just paid for the delivery of the equipment but they are paid along the way once the project reaches its completion and commercial operation. Construction of such projects on a turnkey basis by a reputable and creditworthy contractor with a proven track record are also essential to mitigate the project delivery risk.”
Tan also emphasised that financial institutions are not only conscious of their responsibility to meet environmental, social, and governance (ESG) requirements but also recognise the need for external consultants to assess whether the projects financed align with emissions targets and international criteria for a genuinely “carbon-free” business. She further highlighted the regulatory oversight governing their operations and their commitment to address and eliminate greenwashing risks.
Tan stressed that holistic infrastructure development, facilitative policy framework from government and creating robust demand ecosystem are vital in the development of green hydrogen value chain to promote economies of scale in production.
“In terms of projects that have been announced so far, most of them are supported via public private partnerships structure whereby the government is there to provide the policies needed and the infrastructure required. Some of the government support measures included investment production tax credit and demand side incentives amongst others.
“I strongly believe that learning from the solar, wind and hydro power plant projects, the renewable energy industry went through the same evolution when still at its nascent stage and it takes time for the industry to reach its mature stage before the production costs can go down to make it commercially viable.
“The Sarawak government is obviously at the forefront in initiating and facilitating such projects through collaborations and the big mega projects are actually embarked on with reputable and financially strong conglomerates from Japan and South Korea.”
For example, she listed out the H2ornbill and H2biscus hydrogen projects which are being undertaken in partnership between SEDC Energy and a few renowned Japanese and Korean conglomerates.
“We truly salute the efforts taken by the Sarawak government under the astute leadership of Premier Datuk Patinggi Tan Sri Abang Johari Tun Openg to facilitate all these groundbreaking and innovative ways on how to meet a net zero future.”
She said Sarawak is blessed with abundant stable natural resources such as water, solar, wind, and biomass that could facilitate hydrogen production at a lower cost than many other countries in the region.
“The role of OCBC Bank is to leverage on our extensive network to bring all these parties together to form a consortium of lenders to look at financing these projects in a holistic manner.
“So, in a way, for green hydrogen to take off at a large scale and to make it business as usual like what is happening to the solar and wind plants, all components of the value chain need to work together from infrastructure to storage and transportation as well as technological advancements, so that the bottleneck issues can be removed.”
Thus, Tan said OCBC Group’s active involvement in the Asia Pacific Green Hydrogen Conference and Exhibition 2024 (APGH 2024) underscores the bank’s commitment to “Do Well by Doing Good”.
“We thrive to leverage on our financial expertise to foster collaborative effort with all stakeholders for a coordinated climate action approach to facilitate a robust renewable energy ecosystem in Sarawak and the region,” she said.
OCBC Bank (Malaysia) Berhad is the exclusive financial institution partner for the upcoming APGH2024 to be held in Borneo Convention Centre Kuching (BCCK) from June 10 to 12.