Securing the Bankability of Hydrogen
Project finance is a complex process. Financiers conduct comprehensive due diligence and want a holistic view of the risks of a hydrogen project. Technical risks and financial exposures, mainly due to business interruption, are most acute in new projects seeking to innovate. This is why hydrogen — and renewables projects more generally — can struggle. The equipment and technology are still largely untested in real-world conditions.
Beyond the business risks, lenders need to understand the entire stakeholder picture, which includes governments, sponsors, suppliers, contractors and any other influential parties that could prompt a change in circumstances. This also includes understanding the challenges in each stage of the project, such as project development, model design, negotiation, signing, project management and control, which can be spread out over years.
Tax equity investors face various tax risks that can jeopardize their expected returns. These risks may arise from issues such as the investment structure not being upheld, the projects failing to qualify for anticipated tax benefits — potentially due to changes in the qualified basis — or the loss of tax advantages through recapture.
Tax insurance serves as a strategic tool to mitigate these uncertainties, providing a safety net that enhances the stability of financing for hydrogen projects. By offering protection against these risks, tax insurance can help investors gain greater confidence in their investments, ultimately fostering a more secure and attractive environment for funding hydrogen initiatives.
