Asset owners see potential in hydrogen energy
For the rest of this decade and beyond, much of the demand for new electricity will come from the rapidly developing countries in Asia and Africa. The scaling up of renewable energy systems in countries such as China, for example, will have a tangible impact in lowering the cost of energy.
Investors in alternative energy are excited about the push towards decarbonisation, and particularly the green hydrogen economy, with one describing it as “the holy grail” for the sector.
Paul Sandhu, formerly head of multi-asset quants at BNP Paribas Asset Management in Hong Kong, is now a venture capital investor with a portfolio of hydrogen-based companies. “Hydrogen is very much in focus, because it is a very energy-dense molecule,” he told AsianInvestor.
Currently, much of the hydrogen fuel supply in China for example, is blue hydrogen — derived from natural gas — which is cheaper to generate, but not as 'clean' as green hydrogen, which is generated from renewable energy.
In his previous roles as a public markets investor, the issue for Sandhu was access to the right companies in the alternative energy space.
“I couldn’t find any hydrogen names that made any sense to me, because the ones that were there had (valuation) multiples that were way too high. The underlying technology just wasn’t available to substantiate such an exponential growth curve for hydrogen.”
Because of its voluminous nature, one of the biggest gaps in the hydrogen market is storage. Sandhu is backing a company that turns gaseous hydrogen into liquid. “It’s a 1:900 transformation in terms of volume.” Two offshoot companies, for R&D and manufacturing, are going through fundraising at the moment.
NEXT FRONTIER
Across the Asia Pacific region, institutional investors are exploring alternative energy opportunities. New Zealand Super is gearing up its sustainability strategy with a focus on renewable generation, decarbonisation and climate-transforming industries.
It is already actively collaborating with climate-tech specialists and is also looking closely at the potential of hydrogen as an alternative fuel.
The Singapore-based climate and sustainability investment company GenZero, launched by Temasek in 2022, is also focusing attention on alternative energy. Its particular interest is the next generation of biofuels that could be the future of a sustainable aviation fuel market.
GenZero is backing a project with Singapore Airlines to test sustainable aviation fuel (SAF), using biofuel derived from renewable waste blended with refined jet fuel, at ExxonMobil's facilities in Singapore.
This week the firm announced its participation in a $50 million funding round for CleanJoule, a U.S. startup focused on the production of more cost-effective SAF.
In a public statement, Frederick Teo, chief executive officer of GenZero said: “Decarbonising aviation requires solutions that can be adopted at scale. CleanJoule’s fuel technology relies on widely available feedstock – agricultural waste – to produce a sustainable biofuel that could be cost-effective at scale with better fuel economy.”
Teo believes that these investments and experiments in alternative energy hold the key to the global decarbonisation effort. It represents the next big step in the energy transition and "the holy grail for many people".
The issue of using feedstock may yet prove controversial, as the production of SAF includes the use of palm oil. Speaking at the Sustainable Aviation Fuels Investment Summit in Detroit this week, Singapore’s Transport Minister, S. Iswaran said there is abundant SAF feedstock in the Asia-Pacific region, but it may not be acceptable in certain parts of the world, due to perceived higher environmental risks.
“We think it is most important to establish a scientifically driven process to validate the sustainability of feedstock,” said Iswaran.
THE CHINA ADVANTAGE
Asia has a lot going on in the alternative energy arena, said Sandhu, particularly in Singapore, Hong Kong and Australia. One of the biggest producers of renewable energy tech in the world is still China.
“China really has the edge in things like photo-electric cells and electrolysers. China has the ability to invoke an energy transition mantra, and it’s actually quite advanced in that.”
US cleantech businesses still rely on Chinese technology, so Sandhu is interested to see how this plays out in the latest stand-off between the US and China, over trade, the Ukraine war and Taiwan.
“It’s interesting because right before the Ukraine situation, there was a lot of focus on China being an enemy. If you look at the solar and wind farms, they are still using tech developed in China, so I wonder if the stand-off with China will result in another slowdown, especially in the US with regards to the energy transition.”
The mobilisation of investment capital will be a key factor, said Sandhu.
“The energy transition is going to start from the private markets and move to the public markets. It has to be successful from the private company perspective, because there are just not enough private companies developing technology to support the energy transition.
“Those companies are going to invoke everything they can from a cost efficiency perspective. That means accepting that the technology will come from China at half the cost. That’s one of the biggest risks and could be a deterrent to innovation.”