Renewable Energy M&A: AES Corp enters green hydrogen sector through ~$4bn partnership with Air Products in Texas

The companies will invest ~$4 billion to build, own and operate a green hydrogen production facility in Texas, which will be powered by 1.4 GW of onshore wind and solar assets. The facility will have an output capacity of 73,000 metric tons per annum (TPA), making it one of the largest green hydrogen projects in the United States. Commercial operations are expected to begin in 2027. The produced hydrogen will support the rising demand for zero-carbon intensity fuels in the mobility and industrial segments. Air Products and AES will jointly and equally own the renewable energy and electrolyzer assets, with Air Products serving as the exclusive off-taker and marketer of the green hydrogen under a 30-year contract. AES will build more than 1 GW of new solar and wind assets to power the electrolyzer and other operations at the facility.

The collaboration marks the largest green hydrogen-focussed deal in the United States since 2017 and is representative of the boom expected in the country’s clean hydrogen space following the passage of the Inflation Reduction Act (IRA). In a recent interview with CNBC, a high-ranking executive in Goldman Sach’s commodity equity business unit stated that the IRA, through the introduction of a production tax credit introduced for clean hydrogen, would make its production through electrolysis (green hydrogen) and in conjunction with carbon capture facilities (blue hydrogen) more profitable at scale. The IRA provides for a tax credit as high as $3/kg of hydrogen, provided it is synthesized from renewable or nuclear energy. Given that the average cost of green hydrogen currently stands at $5.5-6/kg, the bill improves the economics of production significantly. 

Another major driver for investments in this space is the increasing use cases for clean fuel. According to a recently released report by the Hydrogen Council, a global CEO-led think tank committed to maturing the clean hydrogen industry, industrial applications - which currently drive the majority of the demand - will account for just 15% of the demand by 2050. Meanwhile, mobility applications in heavy-duty road transport, rail, marine, and aviation will dominate the demand for hydrogen. Air Products seeks to leverage its existing customer base, coupled with its midstream and downstream infrastructure on the US’s Gulf Coast (which includes a 700-mile-long hydrogen pipeline), to establish a synergistic collaboration with AES, which has a vast portfolio of clean energy assets in the country. Enerdatics believes that going forward, JVs between renewable energy developers and hydrogen technology specialists will drive deal volume in the space, as more companies seek to tap this high-growth market.

The above analysis is proprietary to Enerdatics’ energy analytics team, based on the current understanding of the available data. The information is subject to change and should not be taken to constitute professional advice or a recommendation.

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