We recently caught up with Mark to learn about his 15-year career journey and the financial aspect of green hydrogen project development.
You recently transitioned from Generate Capital to NovoHydrogen, where you spent seven years investing in renewable energy projects. What attracted you to the green hydrogen sector and to NovoHydrogen specifically?
Mark Purser: After years on the investor side of renewable energy development, I wanted to be closer to the folks who were actually building green infrastructure, specifically in the hydrogen sector, which is one of the most promising and least established sectors within clean infrastructure. It’s not often in a career that you get the opportunity to work in a sector that’s at this stage with this much promise, so I felt super lucky to come across this opportunity. Making connections with Matt [McMonagle] and the strong team he built was a huge factor for me. I think Novo’s unique approach of being customer-focused is really differentiated and key to being successful here. It was a no-brainer for me in the end, and it’s been a great decision so far.
Can you describe your role as Head of Finance at NovoHydrogen?
Purser: In general, there are two parts to the role: One is building and running the internal finance function—accounting and financial planning and analysis (FP&A), taxes and audit, etc. And the other is raising capital. Part of that is corporate capital raising, but Modern Energy’s recent investment in NovoHydrogen gives us a lot of runway, so that is now a relatively small part of my job at the moment. The bigger part of my capital-raising work is focused on raising project finance.
As with any developer in the space, we’re building large, capital-intensive projects that require different types of investors to come in at different points of development in order to get the projects built. There’s a lot of work to get all the right investors comfortable, and contracts in place, and this is where I spend most of my time.
How does your previous experience in the energy transition infrastructure and project finance sectors influence your current role at NovoHydrogen?
Purser: Development can be a little bit of the “Wild West.” There are a lot of folks who have a good pitch but don’t have bankable projects. It’s not always obvious when that’s the case.
Because I’ve had to do a lot of project screening in past roles myself, I have a good sense of what investors care about, what they’re going to be focused on, and what they’re going to ask. And that helps us tailor a pitch that is going to resonate with them.
The term “bankability” is used a lot in project development. What does that mean?
Purser: Bankability in project finance refers to the level of risk that conventional, institutional, project lenders consider acceptable in financing a project. These projects are usually large and capital-intensive, relying on long-term contracted cash flows from customers who have signed 10 to 20-year take-or-pay contracts. “Bankable” projects are those where the risk profile is primarily a function of the quality of those customer contracts, and not things like technology or the ability of an equipment vendor to honor a warranty.
Lots of people working in project finance today are looking to make the transition from other adjacent sectors to renewable energy. Do you have any advice?
Purser: The short answer is that project finance skills are transferable. To be successful in project finance in general, you must have an orientation towards understanding downside risk. Anyone with sound, basic financial aptitude probably has most of the technical skills they need—although tax equity is its own beast. Otherwise, the core skillset is understanding what things could go wrong in a project and how you protect against those outcomes when they do.
If someone has a project finance background, would you recommend that they start on the investor side, or could they jump directly into a developer role?
Purser: That’s an interesting question, and I could see it both ways. I think there’s a lot of value in both perspectives. You gain a lot of benefits as an investor, coming from the developer seat, but the opposite is also true. Starting out on the investor side, you see more deals—so more reps—and you may get more rigorous financial training at an investment firm. As a developer, you’re only going to see your own deals, but you’ll gain a deeper understanding of each one and project risk will be less abstract.
What’s a common misconception about financing these projects?
Purser: The biggest misconception is that green hydrogen is uneconomic. To the contrary, green hydrogen is economic for many of our customers today. This piece surprises many investors. The value proposition for our customers is strong, and the ability to lock in real savings for 10 to 20 years is compelling.
Unless you’re a refinery or fertilizer producer with your own gray hydrogen production on-site, most customers are paying a lot more that $1 per kilogram for hydrogen, which is target price of the DOE Hydrogen Shot. And so, for everybody else, we can deliver very compelling savings. That’s the central focus of our conversations with customers.
Could you explain how a Hydrogen Purchase Agreement (HPA) operates and how it offers benefits in terms of costs and reliability to customers?
Purser: The HPA is the hydrogen analog of a solar PPA. It’s a long-term, take-or-pay contract with a customer, typically 10 to 20 years. That’s the customer saying that if you deliver hydrogen at these volumes, meeting a certain spec, we will promise to pay X dollars per kilogram for the length of this contract, which is going to be 10 to 20 years. So for the length of an HPA, a customer is going to be locking in a fixed price and minimum volume of clean hydrogen. Our customers, many of whom are industrials who operate in competitive, low-margin industries, are very cost-focused and risk-averse; they pay a premium for certainty. That’s what a long-term HPA provides.
There is a current narrative that “clean hydrogen has a demand problem.” Specifically, it’s been reported that some developers are only focused on working with existing users of hydrogen to switch to greener sources. Is this the case?
Purser: I don’t think there’s a lack of demand; if anything, there’s an information problem.
Customers may not know what their options are with respect to green hydrogen. There aren’t many trusted developers in the space who can explain these options and have the credibility to deliver. Many of our customer engagements are focused on education, and once we start to build trust the buy-in happens quickly because the value becomes apparent to them.
What financial tailwinds are helpful to green hydrogen deployment in the United States? What financial headwinds might be affecting green hydrogen deployment in the United States?
Purser: The Inflation Reduction Act (IRA) is by far the most significant tailwind, no question. That’s a material incentive. It’s structured in a way where projects and investors can actually use it. It’s clear how to use it and access it. In addition to that, there are other incentive programs that help as well. For example, the Low Carbon Fuel Standard (LCFS) in California is spurring hydrogen transportation investment, and other states are beginning to follow this model. Another tailwind is the amount of project capital available in the market. High quality projects should have no shortage of capital available once they’ve secured commercial contracts and permits.
Headwinds include building knowledge and trust among customers that economic green hydrogen is an option. But we believe a few wins around getting our first projects online will go a long way to remedying this issue because once you have a track record and you show it can be done, then you really open possibilities in terms of who you can work with on every side of the deal.
What is NovoHydrogen’s position on Treasury’s hourly matching requirement? Does it make it too hard for the industry, as some have posited? Or will the new rules spur innovation?
Purser: Yes, it will spur innovation. And yes, it’s a high bar to meet. But the whole goal here is to create a non-polluting, clean form of hydrogen, not just to make hydrogen by any means necessary. You can do projects today that are economic with hourly matching. I’m not totally unsympathetic to the view that the industry needs more time to mature, and developers should have more flexibility on things like hourly matching in the near-term. But at Novo we took the approach from the start to develop projects in anticipation of strict Treasury rules on the IRA including hourly matching, and our projects can comply today. That’s a good thing, and there’s no time to waste. Let’s just do it now.
