Higher returns and equivalent risks compared to generalist value add infrastructure funds

 

New investors often perceive the hydrogen market as too nascent or risky for infrastructure investments. At Foresight Group, we see this differently and believe the market offers superior returns for the level of investment risk. Global policy is now firmly in place, accelerating the development of new projects and driving industrial demand for green hydrogen. For instance, the EU has introduced binding targets for major potential RFNBO offtake industries through RED III and RefuelEU, increasing the willingness to pay and mandating industries to source significant volumes of hydrogen. Offtakers are actively seeking robust projects that can deliver low-carbon hydrogen in the short term to comply with global regulations.

These demand mandates are not only boosting developments but also de-risking projects, making them attractive for traditional project financing. At Foresight, we carefully select projects with the fundamentals of modern, robust, and defensive infrastructure investments, featuring contracted long-term revenues, minimal technological risks, strong political support, and significant environmental impact. We firmly believe that hydrogen and its derivative projects offer superior returns compared to diversified value-add funds, with comparable risk levels in markets, project delivery and execution. By investing in our hydrogen-focused fund, investors gain access to a sector poised for growth, backed by dedicated expertise and positioned to capitalize on global shifts towards sustainable energy.

"A complex environment requires a specialised team that diversified funds cannot offer. Hydrogen projects involve numerous stakeholders who require attention and support from engaged investors." 

Foresight, Investment Manager, Joe Davis 

 

Offtakers

 

Hydrogen offtakers consist of both existing customers in the hydrogen industry and new users of hydrogen. Understanding the demands of new customers unfamiliar with long-term energy contracts is crucial to finding common ground and signing agreements that adhere to de-risked infrastructure principles, leading to bankable projects.

Foresight has a successful track record in signing offtake agreements in the hydrogen space, with two contracts executed with road transport players in Germany and two contracts in advanced stages of negotiations with a German gas supplier and a British glass maker, respectively. We bring to our portfolio companies extensive experience in contract negotiations, as well as strategic and legal support.

The ability to connect and use existing network in the industry is key to support portfolio companies and projects. Investment managers with dedicated teams and strategic focus in this market will certainly have greater success than generalist investors.

Suppliers

 

Equipment and materials are key focus points in hydrogen projects. A green hydrogen project typically requires electrolysers, power supply systems, compressors, potentially a storage facility, and other technical equipment. Reliable suppliers in the industry are highly coveted. Foresight’s development of numerous projects positions us advantageously in negotiations, as we are perceived as a somewhat strategic industry player. Our hydrogen team has visited the production sites of many electrolyser manufacturers and has direct access to their senior sales teams.

The Foresight team, through the width of its portfolio can have preferential terms with suppliers which results in less delays, better risk mitigation and ultimately higher returns than smaller hydrogen players.

Power and Gas Distribution/Transmission Service Operators

 

Unlike renewable energy, hydrogen also plays a role in the gas industry. It is crucial to have teams with oil and gas backgrounds to understand the engineering specificities and technical requirements of hydrogen projects. As hydrogen is transformed across the value chain, a deep understanding of the risks and technologies involved can significantly influence investment decisions.

At Foresight, our large portfolio team includes professionals with chemical engineering backgrounds, oil and gas experience, and extensive hydrogen expertise. We believe having a specialised and well-resourced dedicated team provides a competitive edge in both in assessing opportunities but also in assisting portfolio companies. Funds with only renewable energy teams or expertise will have more difficulty to grasp the intricacies of gas handling and production.

O&Ms and EPCs

 

The Engineering, Procurement and Construction (EPC) and Operations and Maintenance (O&M) of Foresight’s hydrogen projects are managed by the main developer (usually the investee) or external, experienced engineering firms. Our hydrogen investment and portfolio teams review and confirm the scope of technical workstreams conducted by the technical support.

Our Asset Management team, supported by our advisors, brings construction experience across a range of assets and employs precise gateway systems to minimize risks. While we do not directly operate hydrogen assets, our extensive asset management experience across various technologies and sectors enables us to guide and negotiate O&M contracts and select providers effectively. We collaborate closely with partners who have expertise in this area.

Our hydrogen team’s industry background and expertise enable us to carefully select providers and advisors, leveraging existing relationships and Foresight’s scale to negotiate competitive rates and secure full focus from service providers.

Power and Water Providers

 

Power and water supplies are critical considerations in hydrogen projects. A reliable and sustainable supply of renewable electricity from power providers is essential. Additionally, water providers must ensure a consistent and clean supply of water, as purity and availability directly impact the efficiency and viability of hydrogen production.

The integration and cooperation between power and water providers enable the creation of a robust infrastructure, supporting large-scale green hydrogen production and significantly contributing to the reduction of carbon emissions and the advancement of clean energy solutions.

Foresight holds a significant advantage in this context due to our deep understanding of renewable energy markets,
technologies, and regulatory environments.

Overview 

 

Hydrogen infrastructure focussed funds are ideal vehicles for investors seeking exposure in impactful low carbon infrastructure strategies as it provides higher returns than traditional general value add funds with comparable risk levels. Investing with a specialized manager like Foresight in hydrogen offers other benefits that generalist investors cannot match. Our focused expertise and in-depth knowledge enable us to navigate the hydrogen sector successfully.

We can identify promising opportunities early, anticipate industry trends, and mitigate risks more effectively. Foresight’s specialisation allows us to build strong industry relationships, stay updated on the latest developments, and tailor investment strategies to capitalize on the hydrogen economy’s rapid growth. Our targeted approach positions Foresight to achieve superior returns and drive impactful infrastructure investments in the evolving hydrogen market. 

 

Visit foresight.group/hydrogen for more information.