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Saudi Arabia's Neom Witness Growth In Green Hydrogen Project | |
| Sumita Pawar |
According to the Q1 financial update of co-developer Air Products, Saudi Arabia’s flagship Neom green hydrogen project has seen its cost rise from the original estimate of $5 billion to $8.5 billion.
Inflation, spare parts, upfront fees for land, and $1bn of interest on loans have all contributed to the $3.5bn budget increase, said the US industrial gases company, which is developing the project in the desert of northwest Saudi Arabia with partners ACWA Power, the Saudi renewables developer, and Neom.
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According to the report, the Neom green hydrogen mega-project will harness massive green power capacity at the ambitious 170 km-long glass-fronted megastructure city that will house one million people.
Inflation since 2020 accounts for nearly $500 million of the increase in cost, while the other $3 billion is spread between additional costs, including project financing and "scope to make the project more self-sufficient and lower operating costs," said the company.
The green hydrogen project is expected to use 4 GW of wind, solar, and battery storage to produce 1.2 million metric tonnes of green ammonia per year from 2.2 GW of electrolysers.
While the project itself is making progress with construction ongoing, it will have to contend with additional costs from the original $5 billion budget announced in 2020 to a staggering $8.5 billion, as highlighted in the report.
Breaking down the $3.5bn price hike, Air Products attributes $500m to inflation, $1.8bn to "project financing costs, upfront fees, interest during construction, additional joint venture costs, spares, land, etc.," and $1.2bn to "additional scope to make the project more self-sufficient and lower operating costs."
This means that the project partners now want to provide themselves with services such as transmission lines and other infrastructure costs, according to an Air Products call with analysts.
"This increases the capital cost, but it decreases the operating cost, and we decided that was a better trade-off," Air Products CEO Seifi Ghasem was quoted by Recharge News.
"However, the main point was to ensure that the project was not dependent on other people and that we had everything we needed to run the project."
He added, "Now, the other item that I’m sure will be the subject of questions from people is the $1.8 billion for project financing costs. "That is a big number."
According to the report, Ghasemi attributed $1 billion to interest alone, pointing to the new Neom H2 project strategy of borrowing the majority of the money through project financing, reducing the cash contributions of the partners.
He added that "a few hundred million dollars" are spent on paying upfront for land rights instead of leasing for 50 years and unspecified costs for spare parts. "Usually you buy the spares as you go forward; we decided to buy all the sales upfront and finance it."
"That is the beauty of finance, that you can have the flexibility of bringing forward a lot of your costs that will save your operating costs in the future."
During the call with analysts, Ghasemi said that the price of the ammonia from the Neom project had stayed the same and that it would be sold at the price originally agreed upon in 2020.
Recharge News also quoted the company’s chief operating officer, Samir Serhan, as saying that the Neom green hydrogen project might be able to increase production compared to its previous estimates of 1.2 billion metric tonnes per year, concluding the report.