Green hydrogen projects often face a financing problem before construction even begins: developers can spend millions of dollars on engineering, environmental studies, permits and commercial agreements without knowing whether the project will ever reach financial close. That makes the early stage too risky for conventional lenders and many institutional investors, creating what is often called the “valley of death” between a promising idea and a bankable project. Climate Investor Three (CI3) is designed to bridge that gap by combining concessional public finance with private capital. Managed by Climate Fund Managers, the fund has raised about US$182 million for its South African hydrogen strategy, with support from institutions including the European Commission and other development-finance partners. The mechanism is relatively simple: use the money that can tolerate the most risk first. CI3’s Development Tranche provides early-stage capital for technical and engineering work, environmental and social assessments, permits, regulatory approvals and commercial structuring. This is the stage at which a project may still fail, making commercial investors reluctant to commit significant amounts of money. By funding this work before final investment decision, CI3 can move a project from an idea into something that has been technically assessed, permitted and commercially structured enough for larger investors to consider.
Once a project reaches financial close, the financing structure changes. CI3 can participate through equity alongside commercial investors to help fund construction and operations. The public or concessional money is therefore not necessarily intended to finance the entire project; its more important function is to change the risk profile of the project so that private capital becomes willing to enter. Pension funds, insurers, banks and other institutional investors can come in later, when some of the uncertainty around technology, permits, environmental impacts and commercial arrangements has already been removed.
The Green eFuels Producers project at South Africa’s Vaal Special Economic Zone provides a concrete example. CI3, through SA-H2 Fund, has committed up to US$4 million in development funding for engineering, environmental assessments, permitting and commercial structuring. If the project reaches final investment decision, CI3 has the right to participate in up to US$26 million of equity, with financial close targeted for the second half of 2027 and operations expected from 2029. The structure means the fund is willing to take exposure when the project is still being developed, while preserving the ability to invest more heavily once the project becomes commercially viable.
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That is the broader purpose of blended finance in the hydrogen sector: to move risk to investors who are better equipped to carry it at each stage. Public and concessional capital absorbs some of the uncertainty that commercial investors cannot justify taking at the development stage; once that uncertainty is reduced, private capital can finance the much larger construction and operating requirements. If the model works, a relatively small amount of catalytic public money can unlock substantially larger pools of commercial investment and turn green hydrogen projects from announcements into assets capable of reaching construction.
