Dorian de Kermadec: "At BBVA we see a real appetite from the financial sector to invest in hydrogen assets"

Green hydrogen is one of the key pieces in the descarbonization puzzle.  Although the development of this clean technology presents some challenges, its advantages make it one of the pillars of the energy sector's transformation.

BBVA sees hydrogen as an opportunity for the energy transition, the reindustrialization of Spain, and, therefore, for the creation of green jobs in sectors such as engineering, construction, infrastructure operation and maintenance, and the training of qualified professionals. According to a study by ManpowerGroup and Moeve, jobs in this sector could exceed 116,000 in this decade.  We talk about green hydrogen and the role BBVA is playing in promoting its deployment with BBVA's Managing Director of Low Carbon Advisory, Dorian de Kermadec.

Q. Some experts question whether hydrogen projects are sufficiently mature. Is it profitable for banks to finance green hydrogen projects?

A. At BBVA, we are very aware of the challenges facing green hydrogen  due to the work we do every day with clients to make their projects bankable. We know that this requires significant effort given the complexity of these industrial projects and their pioneering nature, and that the sector refers to them as ‘First-of-a-Kind’ (FOAK) projects.

For BBVA, green hydrogen is—in the short term—more than a financing opportunity; it is a chance to offer 360º financial advice tailored to each project: our role is to accompany clients to make their projects bankable, meaning that they can be financed with public aid, equity, and—at the end of the road—debt. This is how we see projects become bankable, with the most advanced ones already making investment decisions. Therefore, we believe that green hydrogen is poised to become a real opportunity for banks to channel significant volumes of debt.

Q. What are the pros of hydrogen projects for a financial institution like BBVA?

A. BBVA is committed to sustainability as a driver of growth and the energy transition as a whole. In particular, the bank has made a firm commitment to cleantech, which has resulted in a specific cross-cutting cleantech initiative in the advisory and structured finance areas of our investment banking business, where specialists with more technical and industrial profiles have been recruited to assist clients in all aspects of their projects.

"At BBVA, we see a real appetite from the sector to invest in hydrogen assets"

Having these profiles with more specialized knowledge is something that sponsors of hydrogen projects value highly when choosing a financial advisor. Another advantage is our presence both in Spain and internationally, which gives us direct access to many projects with a strong local character.

Q. What about the challenges?

A. The main challenge lies in the difficulty of understanding the degree of maturity of each project. Given this complexity, BBVA places great importance on the preliminary analysis of each initiative that comes our way. Our approach is clear: we prioritize collaborations with projects that, with our support, will be able to reach commercial operation.

Other challenges include the high price of green hydrogen, which limits the appetite of off-takers; a constantly evolving European regulatory framework, which is being transposed into national law at a slow pace; the contractual arrangements that need to be devised; and the inherent complexity of projects that often involve several technologies (renewable generation, electrolysis, carbon captura and transport, production of e-ammonia or e-methanol, eFuels, etc.), which require highly sophisticated structures to be financeable. At BBVA, we face these challenges on a daily basis and work to find solutions and break down, one by one, the barriers that still hinder the financing of projects.

Q. Is it difficult to get them off the ground due to a lack of finance?

A. At BBVA, we see a real appetite from the sector (banks, institutional investors, industrialists) to invest in hydrogen assets.  Therefore, I would not say that a lack of financing is holding back the success of these projects.  There is no doubt that capital is eager to get involved.  However, the immaturity of the sector is limiting the ability of projects to secure financing.

Q. What projects related to green hydrogen has BBVA taken part in?

A. BBVA firmly believes in the role of hydrogen in the energy transition, and the major business opportunity it represents for countries like Spain. As a bank, we have positioned ourselves in several pioneering green hydrogen projects in Spain, thanks to the momentum created by the launch of a cleantech franchise, covering both advisory and structured financing.  Proof of this is that in April this year, the closing of the financing for Basque Hydrogen was announced, the first project finance loan in Spain—and in the whole of southern Europe—for an electrolytic hydrogen plant located in the port of Bilbao.  The hydrogen will be used to produce synthetic fuels (e-fuels). In this transaction, BBVA acted as advisor to the sponsor and also as debt coordinator. In this transaction, BBVA acted as advisor to the sponsor and also as debt coordinator.

"BBVA is also an investor in some of the most cutting-edge and innovative climate action funds"

We have also invested €10 million in Hy24, the world's largest clean hydrogen infrastructure fund, which is dedicated to financing the entire hydrogen value chain. In addition, BBVA is positioning itself in the hydrogen ecosystem and will have direct access to the standout projects and deals in this field. Through this fund, Hy24 could mobilize more than €20 billion in investment for hydrogen projects.

BBVA is also an investor in some of the most cutting-edge and innovative climate action funds, with the aim of obtaining financial returns, participating in disruptive projects, and developing knowledge to better advise companies affected by these new technologies that will need financing. To date, BBVA has invested more than €300 million in decarbonization funds: Decarbonization Partners, Lowercarbon, Suma Capital, Just Climate, Hy24, and Fifth Wall, including a strategic alliance with KKR.

In addition, our cleantech franchise has an international presence, with teams in Madrid, London, Paris, Houston, and New York, offering global advisory and structured financing services for our clients' innovative projects.