Financing Green Hydrogen: Fueling the UAE’s Sustainable Energy Future
Climate, Energy & Utilities Focus
Ashish BangaSenior Associate - Consultant,Banking & Finance
The UAE, a pioneering nation in climate action, has made significant strides in clean energy adoption, underscoring its leadership in the global energy transition. As the first GCC country to ratify the Paris Agreement, the UAE has consistently pushed forward ambitious climate initiatives. In 2022, the country made history by announcing the region's first Net Zero by 2050 strategic initiative. This bold plan aligns with the Paris Agreement’s objectives, targeting near-zero greenhouse gas emissions by mid-century. The UAE plans to mitigate any remaining emissions through advanced carbon removal technologies and nature-based solutions, firmly establishing itself as a leader in sustainable development.
Central to these efforts is the UAE Energy Strategy 2050, which envisions a diverse energy mix with clean energy sources contributing 50% of the nation's electricity generation. At the heart of this plan is green hydrogen, a critical enabler in achieving the UAE’s ambitious goals.
Green hydrogen is emerging as a cornerstone of the UAE’s comprehensive energy strategy, playing a pivotal role in the country’s drive to achieve net-zero carbon emissions by 2050. The launch of the National Hydrogen Strategy in July 2023 was a milestone in the UAE's energy diversification efforts. Green hydrogen, which can be produced using renewable energy sources such as solar and wind, offers a sustainable alternative to fossil fuels.
The UAE aims to become a global leader in low-emission hydrogen production by 2031. The strategy outlines key actions such as developing robust supply chains, creating hydrogen hubs, and establishing a national research and development centre. These efforts will not only accelerate the production of green hydrogen but also stimulate demand through the development of hydrogen “oases,” where production and end-use applications are co-located. By clustering production in designated zones, the UAE can optimize development costs and remove infrastructure barriers, driving commercial opportunities to scale the technology.
The UAE’s geographic and economic advantages make it an ideal location for the production of green hydrogen. With abundant solar energy, vast natural gas reserves, and a strategic global position, the country is well-placed to build a resilient hydrogen supply chain. The UAE’s high levels of solar irradiance offer ample potential to scale green hydrogen production via electrolysis, a process powered by renewable energy that separates hydrogen from water.
Additionally, natural gas reserves provide the UAE with the opportunity to produce blue hydrogen, a transitional solution while green hydrogen capacity is being developed. In blue hydrogen production, carbon emissions are captured and stored, reducing the environmental impact of hydrogen derived from natural gas.
The UAE has already embarked on several key infrastructure projects that will support its hydrogen ambitions. The major scaling up of solar power projects at Al Dhafra, Noor Abu Dhabi and Dubai’s Mohammed bin Rashid Al Maktoum Solar Park provide the foundation for the green hydrogen production process. These efforts demonstrate the UAE’s commitment to leveraging its natural resources to support a clean energy transition.
The UAE’s extensive experience in the oil and gas sector, coupled with its established offtake agreements and energy infrastructure, positions the country to capture a significant share of the growing global hydrogen market. With well-connected ports such as Zayed Port, Mina Rashed, Jebel Ali Port, and Khor Fakkan Container Terminal and access to, and existing customer base in, key markets in Africa, Asia, and Europe, the UAE is strategically positioned to export hydrogen and its derivatives, such as ammonia and methanol.
The UAE is advancing numerous projects aimed at establishing itself as a global hub for green hydrogen production. These projects are integral to the country’s journey toward net-zero emissions. Notable initiatives include:
Green Hydrogen to Sustainable Aviation Fuel (SAF) Collaboration: Abu Dhabi’s Masdar and TotalEnergies are working together to explore the commercial viability of producing SAF from green hydrogen and methanol. This initiative, aimed at decarbonizing the aviation and maritime sectors, underscores the UAE’s commitment to reducing emissions in traditionally hard-to-abate industries. A successful demonstration of converting methanol to SAF during COP28 in 2023 illustrated the potential for green hydrogen in decarbonizing aviation.
TAQA’s Participation in the North Sea Hydrogen Project: Abu Dhabi National Energy Company (TAQA) has joined the PosHYdon project in the Dutch North Sea, which integrates hydrogen production with existing offshore energy infrastructure. This groundbreaking project highlights the UAE’s willingness to invest in international hydrogen ventures, which experience can facilitate the development of the UAE’s domestic market.
Green Hydrogen in Steel Production: Masdar and Emirates Steel Arkan have launched a green hydrogen project aimed at decarbonizing steel production, one of the most challenging sectors to decarbonize.
Hydrogen Facility at Mohammed bin Rashid Al Maktoum Solar Park: In collaboration with Expo 2020 Dubai and Siemens Energy, DEWA has implemented a green hydrogen facility that produces 400 kilograms of green hydrogen q.d.
The development of green hydrogen infrastructure in the UAE, much like other energy projects, hinges on a combination of government funding, private sector investment, and international collaboration. The UAE government has dedicated substantial resources to its National Hydrogen Strategy, which is closely aligned with both the UAE Energy Strategy 2050 and the Dubai Clean Energy Strategy. Originally focused on promoting renewable energy, these frameworks have been updated to reflect the country's ambitious net-zero targets and its commitments under the Paris Agreement.
Partnerships between the public and private sectors have been instrumental in advancing renewable energy projects in the UAE, and this collaborative model is expected to play a similarly crucial role in the hydrogen industry. Existing partnerships between organizations like Masdar and Siemens Energy, TAQA and PosHYdon, and Emirates Steel Arkan and Masdar serve as examples of how joint efforts can drive forward hydrogen production and supply.
Recognizing the global nature of the hydrogen economy, the UAE has also pursued international cooperation to scale up green hydrogen production and facilitate the export of hydrogen derivatives, such as ammonia, kerosene, and methanol. Bilateral agreements with countries including Japan, South Korea, Germany, and the United States emphasize trade synergies, joint research, and technical studies, creating pathways for foreign investment and establishing a solid foundation for the international hydrogen market.
However, financing green hydrogen initiatives comes with its own set of challenges, particularly the high upfront costs and extended payback periods associated with infrastructure like electrolyzers and renewable energy plants. Sustainable financing tools, such as green bonds, sukuks, and sustainability-linked bonds and sukuks, will be used to assist in paying for these costs but it remains challenging to implement new projects.
Despite the UAE's significant progress in renewable energy, financing and scaling green hydrogen projects present several critical challenges. Large infrastructure projects, including the construction of electrolyzers and renewable energy plants, demand considerable financial resources. Additionally, the evolving nature of hydrogen technology introduces further uncertainty, complicating investment decisions.
Electrolyzer technology, essential for green hydrogen production, is still in its early stages of optimization. Costs are projected to decline over time but the uncertainty around the timeline complicates financial planning in the present, which we have seen hamper certain proposed projects in the UAE. Accelerating technological advancements through investment in research and development (R&D), scaling production where it is economic to do so, and continuing international collaboration are part of the solution to lower costs to the market overall and improve investor confidence.
The storage and transportation of hydrogen, given its low energy density, also require specialized and capital-intensive infrastructure. Hydrogen transport pipelines, along with compression or liquefaction methods for storage, are a separate cost to production facilities. Ensuring the safe handling and transportation of hydrogen is a critical concern due to its highly flammable properties. Accordingly, investments in hydrogen-specific infrastructure, advanced storage technologies, and transport solutions would be an essential consideration to overcome cost and safety issues. The development of stringent safety standards and the adoption of advanced safety technologies will be essential to ensuring the secure management of hydrogen storage and transportation. In this regard the Supreme Council for Financial and Economic Affairs, the authority responsible for setting the public policies and approving the governing strategies of the financial, investment, economic, petroleum, and natural resources affairs in Abu Dhabi in coordination with the Abu Dhabi Department of Energy, launched policy framework for low-carbon hydrogen in the Emirate of Abu Dhabi.
The UAE's is committed to green hydrogen being one of the pillars of its energy transition strategy. However, the successful implementation of green hydrogen projects will hinge on overcoming significant financial, technological, and infrastructural challenges. Many of these issues are being faced by other jurisdictions. The UAE’s natural environment and ability to scale solar projects, track record in deploying public-private partnerships in the energy sector and its existing customer base means it is well-positioned to overcome these risks, attract investment and place it at the forefront of the global green hydrogen revolution.
For further information,please contact Ashish Banga.
Published in December 2024
