Green Hydrogen: An Emerging Asset Class for Decarbonisation in Asia Pacific
Green Hydrogen is defined as hydrogen produced by the electrolysis of water using electricity generated from renewable energy sources.
Green hydrogen is gaining traction as a significant solution for decarbonisation, particularly in the transportation and the industrial sector, and largely driven by policy efforts. We've seen large-scale green hydrogen production projects emerging across various sectors like transportation, energy storage, and industrial applications, including the opening of a pioneering hydrogen refueling station and the first hydrogen-powered double-decker bus commenced passenger services in Hong Kong.
As of 2022, the global hydrogen market was valued at USD155 billion and was expected to grow at an average CAGR of 9.3% between 2023 and 2030, showcasing its substantial potential for various applications, including energy storage, industrial decarbonisation, power generation, heating, cooking, remote area energy provision, and chemical feedstock utilisation. Chemical sectors such as ammonia, methanol and oil refining, and also steel, have the highest potential to adopt green hydrogen and account for over half of the demand estimated to reach a net-zero world.
During a closed-door “Meet The Expert” session, we had the privilege of hearing first hand insights from Templewater, an asset management firm, specialising in developing high-quality businesses into sustainable entities. The firm shed light on the transformative role of green hydrogen, particularly in transportation, emphasising its ability to revolutionise existing paradigms through innovative hydrogen fuel cell technology.
Policy Landscape and Market Dynamics
Countries like Australia, Japan, Korea and China have implemented progressive policies and subsidies to foster the growth of the sector. Europe has introduced a carbon border mechanism to regulate emissions from imports. The United States focuses on upstream subsidies, while China adopts a more downstream approach, such as providing subsidies to vehicle users during hydrogen refueling. Closer to home, Hong Kong also recently announced its strategy to increase adoption of hydrogen energy in the city, with planned legislative and safety standards around the storage, transport, and certification of hydrogen fuel being put in place by 2027.
With policy support in place, Asia Pacific is witnessing a growing interest in green hydrogen as a sustainable energy storage solution. The region has seen an emergence of large-scale green hydrogen production projects for the use in various sectors, including transportation, energy storage and industrial applications. China leads the global hydrogen market with an output of 33 million tons (using fossil fuels to produce, but that will be discussed later) with the goal to have a fleet of 50,000 hydrogen-fueled vehicles by 2025.
Passenger fuel cell vehicles (FCV) sales remain low with 5,700 units sold globally in the first half of 2023 compared to increasing sales of battery electric vehicles (BEVs), 3.1 million of which were sold in the second quarter of 2023 alone, according to BNEF. At the same time, suppliers are estimated to have shipped 1.7-2.1GW of electrolysers for green hydrogen in 2023, which corresponds to an average annual doubling since 2020.2 It is expected that with an increased supply of green hydrogen the sales of FCVs and other use cases will scale up.
Templewater’s Calculated Transition to Green Hydrogen
Templewater began its foray into the green economy after the acquisition of Bravo Transport, the largest bus operator on Hong Kong Island with plans to replace the 2,000 double decker diesel fleet with zero-emission buses in response to the Hong Kong Government’s call to achieve carbon neutrality in Hong Kong by 2050. Despite batteries being an option for powering electric buses, they pose real challenges like charging downtime, operational efficiency issues, mileage and passenger capacity limitations.
Being aware of the difficulties to import buses from overseas due to Hong Kong’s demanding terrain and climate, Templewater discovered the need for a customised solution. The firm began to investigate hydrogen fuel cell technology as a potential direct substitute for diesel buses. Through collaboration with a supplier, they effectively developed and tested Hong Kong's inaugural hydrogen fuel cell bus, built a refueling station and supported the government to establish regulations for hydrogen bus operations. Templewater and Bravo Transport launched Hong Kong’s first hydrogen refueling station in November 2023. Hong Kong’s first hydrogen double-decker bus began passenger service in February 2024. The second hydrogen refueling station based in Hong Kong Island is currently being planned. Upon completion, the facility will be able to supply about 500kg of hydrogen per day, which is sufficient for the operation of 10-12 hydrogen buses for one day. As per Citybus, refuelling took about 10 minutes and allowed the bus to travel up to 400km (249 miles).
“Beyond hydrogen use cases in mobility, we also see strong growth in energy storage, carbon capture, utilisation, and storage (CCUS) as key pathways to decarbonisation.” Shared by Dr. Yufeng Wan, Partner and Head of Impact Investing at Templewater.
Considerations in Overcoming Barriers to Adoption
With green hydrogen technologies still in the early stages of deployment, there are uncertainties regarding long-term viability and scalability.
Navigating Technological Hurdles: Overcoming technological barriers remains crucial as green hydrogen technologies evolve. Further advancements in building more reliable and efficient electrolysis components are needed for scalability, while developing dependable hydrogen storage technologies presents a significant integration obstacle.
Addressing Infrastructure Needs: The expansion of green hydrogen infrastructure poses substantial challenges in investment and development. Building a robust network of production facilities, storage, and distribution pipelines demands significant capital and long-term planning. Establishing hydrogen refueling stations requires careful coordination and regulatory support for accessibility.
Tackling Economic Barriers: High production costs and lack of economies of scale hinder widespread adoption. While technological advancements may reduce costs over time, initial investments in infrastructure and electrolyser deployment remain substantial. Rising interest rates have substantially increased the cost of capital of these investments. Uncertainties surrounding future hydrogen pricing and market dynamics impact project viability.
Ensuring Sustainable Supply Chains: Sustainable sourcing of raw materials and reducing environmental impacts are pressing concerns. Ethical extraction of resources like rare earth metals requires transparent supply chain practices. Minimising the carbon footprint of transportation and storage infrastructure is vital for sustainability.
Navigating Regulatory Complexity: Regulatory frameworks governing green hydrogen vary, adding complexity to industry development. Inconsistencies in incentives and policies may hinder investment, operator procurements and project implementation, necessitating greater alignment among policymakers. Establishing clear standards for safety, quality, and interoperability fosters market acceptance.
Stakeholder Engagement: It is important to engage with all stakeholders, including local communities, environmental organisations, and regulatory bodies, as early in green hydrogen projects as possible. Proactive and transparent stakeholder engagement can build trust, address concerns early on, and ensure smooth project implementation.
Despite these considerations, the potential for green hydrogen as an impact investment along the production supply chain and deployment remains significant. As technology advances, economies of scale are achieved, and supportive policies are implemented. This in turn means that production costs are expected to decrease, making green hydrogen more competitive in the above mentioned sectors. In line with this, Templewater launched an impact investment fund to support opportunities in hydrogen, energy storage, and CCUS, identified as areas of high growth and impact. Meanwhile Audacy Ventures, an APAC-based company, has realised the potential in Energy Tech early stage investments, including themes such as hydrogen, sustainable aviation and maritime fuels, carbon capture, and battery recycling.
“The barriers to the adoption of green hydrogen also offer opportunities to make an impactful investment into new electrolyser technologies, renewable energy projects, e-fuels, and other applications of green hydrogen. Our belief is that investors can capture significant value by investing in companies at Seed- to Series B-stages and support them in their expansion into APAC. We foresee not just the increase in green hydrogen usage in APAC but also the increase of other technologies, such as sustainable fuels, battery recycling, and carbon capture to reduce emissions in APAC," shares Frederik Hetsch, Ph.D. and Head of Science at Audacy Ventures Limited.
Addressing Greenwashing Concerns
Green hydrogen is considered a clean and sustainable energy source as it produces no direct emissions when used. However, as mentioned above, there are various ways to harness green hydrogen. Some significantly less sustainable than others. Factors to consider may include carbon footprint, water usage, supply chain sustainability, and stakeholder engagement. Therefore, for any investment the impact should be measured with a lifecycle analysis.
Asia Pacific’s Financial Position
Overall, green hydrogen presents a compelling opportunity for Asia Pacific to address its environmental challenges, whilst fostering sustainable economic development and technological advancement. Asia Pacific, including Hong Kong, is at the forefront of green hydrogen development, influenced by progressive policies and emerging projects. Notably, Singapore has started the construction of a 600MW hydrogen-ready power plant that is expected to be finished by the first half of 2026. Hong Kong also announced plans to install public hydrogen filling stations across the city by 2027, to support pilot and demonstration hydrogen energy projects, such as the abovementioned hydrogen double-decker bus from Citybus.
As countries and industries strive to decarbonise and transition to sustainable energy sources, the demand for green hydrogen is anticipated to increase. The overall shift towards sustainable energy sources is a multifaceted effort in which green hydrogen plays one part to reduce carbon emissions and transition towards cleaner and more sustainable energy systems. Impact investors who position themselves early in the green hydrogen sector could benefit from the long-term investment outlook.
If you would like to learn more about green hydrogen, send us an email to info@sustainablefinance.hk.
Thank you to contributors:
Francesco Staedler, Director of Impact Funds & Ventures, Sustainable Finance Initiative
Dr. Yufeng Wan, Partner and Head of Impact Investing, Templewater
Frederik Hetsch, Ph.D. and Head of Science, Audacy Ventures Limited
and Research: Daniella Lopez
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