Good afternoon, ladies and gentlemen, and welcome to the HydrogenOne Capital Growth plc half-year results investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged. They can be submitted at any time via the Q&A tab that's just situated on the right-hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so, and these will be available via your Investor Meet company dashboard. Before we begin, I would like to submit the following poll, and I would now like to hand you over to the management team from HydrogenOne Capital Growth plc. JJ, Richard, good afternoon.
Well, good afternoon, everybody. Thanks for joining, Hydrogen One's first half results presentation. I'm J.J. Traynor, joined by Richard Hulf.
Hi
... Managing Partners of HydrogenOne, and we're looking forward to talking to you this afternoon about the exciting things that are happening in this sector and what we're doing to add value for our shareholders in clean hydrogen. The disclaimer statement. The agenda for the call, I'm gonna take you through the results, the valuations, and give you an update on the ESG side. And then hand over to Richard, who'll take you through the portfolio and give you some financial information on the performance of the underlying businesses, which I hope you'll find interesting. In summary, pleased to see the NAV per share rising 3.5%, just over GBP 1 a share.
NAV now sitting at GBP 130 million, just around GBP 130 million. What's driving that? The portfolio, giving, delivering strong organic growth. The private positions in the company, which is the majority of our investments, their revenues are now sitting at GBP 52 million on a 100% basis, which is an increase of 170%, year-over-year. So strong momentum, strong organic momentum in the underlying portfolio. We made GBP 8 million of investments in the first half, three follow-ons into existing positions and one new investment, totaling GBP 8 million in the first six months of the year.
In terms of the valuations, and I'll say more about this in a moment, our holding values for portfolio companies are typically at a 30% or more discount to listed hydrogen names, and we think that's a good place to be in terms of a prudent valuation. It does leave plenty of upside for our investors as we get eventually to the exits from these businesses. On the ESG side, we've introduced six-month reporting for key ESG metrics, 134,000 tons of avoided GHGs since we launched the fund in 2021. And then on the environment overall, we continue to see strong and improving industry fundamentals in clean hydrogen and a sharp increase in sector investment, despite the rather difficult macroeconomic environment around us all.
A quick refresh on the clean hydrogen industry. I mean, what are we investing in? The chart here on the left is a schematic of a green hydrogen project, which takes renewable electricity, so from wind or solar, and then uses that electricity to turn water into hydrogen and oxygen using electrolysis. That hydrogen can be stored over a considerable period of time, or moved, and/or moved to end customers. The hydrogen is an energy carrier, and it's a storage medium for that renewable power. In terms of the end use of that hydrogen, it can either be used as a gas.
You can see the example there, top right, a refinery, the petrochemicals complex that's using hydrogen gas, or that hydrogen can be converted back into electricity using fuel cell, and that electricity can then move heavy objects like trucks and trains and buses and airplanes and ships and so on. So these two very different applications of the hydrogen that's being made here. You're doing all of that to replace fossil fuels in the energy mix, and you're doing that, of course, to reduce greenhouse gas emissions, to mitigate climate change, and improve air quality. In terms of the industry landscape, the chart on the screen there is a deal tracker that we've put together since we came up with Hydrogen One in 2020.
What that's showing since 2020 is $26 billion of investment, fresh investment into this sector, and a strong increase this year compared to 2022, where the numbers are up 380%, to $16 billion. And you can see the deals that are driving that on the right-hand side. IPO in Germany and two big new green hydrogen projects, one in the Middle East, and a green steel project in Scandinavia. On the ground, we're seeing very strong momentum in industry activity in this theme. There are about 800 MW of green hydrogen projects on stream around the world today, typically small projects. And then, but coming along behind that... There's 4 GW. Behind that, there's 4 GW, so point eight of a gigawatt going to 4 GW.
Four gigawatts of green hydrogen under construction, after the final investment decision, and then behind that 4 gigawatts, there's a further 8 gigawatts in advanced design, and we have direct interests in some of those projects. Most of that activity is in the European Union or the Middle East, and increasingly the United States. An awful lot is happening in this sector around the world. Turning to our results for the first half, to get into the numbers in a bit more detail. NAV growth for the half was driven by improving valuations in multiple private positions, and these numbers include a negative impact of 7 pence per share as a result of rising discount rates. As the discount rate increases, of course, the valuation goes down.
There's a negative 7 pence baked into the numbers that you can see there, at an overall increase of 3.5%. The share price, in contrast, has remained under pressure, and I'm sure you may have some questions on that, and we're seeing this in many listed funds, not just HydrogenOne. Really as a result of risk-off market and rising interest rates, and that does lead to a bifurcation of growing NAV in HydrogenOne and a widening discount of the share price, so it's of the NAV. In terms of the cash position, we have GBP 9 million of cash at the end of the first half, and further liquidity from around GBP 3 million of listed hydrogen names.
Overall, around GBP 12 million of uncommitted liquidity overall, which we think is a good cash position for the fund to be in the current macroeconomic climate. In terms of the moving parts in these figures, the left-hand side of the chart shows the NAV movements in the first half on a pence per share basis. What you can see there is a rise in valuations in private positions, with a small offset from listed names. Listed names are around 3% of the portfolio currently. You know, the net of those two movements is an increase in NAV of just over 6 pence per share, resulting in a 3.5% NAV growth across the period.
On a longer-term basis, on the right-hand side, our NAV per share has been rising steadily since the mid-2021 IPO. Really, that organic growth coming through in the portfolio companies. Now, turning to investments. During the first half, we made four investments, which you can see on the screen there, a total of GBP 8 million. So follow-on investments in NanoSun, in Sunfire, and Cranfield Aerospace. And then the fourth investment there, Thierbach, that's a new position for us. A green hydrogen production facility that's in detailed design in Germany, and that's being managed on HydrogenOne's behalf by HH2E, which is one of our existing portfolio companies. Let me make some comments on the valuation methodology and where we are with the carrying values.
This is an area that's seen quite a lot of interest, for listed funds in the market generally. The company uses a consistent approach to portfolio valuation, centered on discounted cash flows and using the IPEV guidelines, so internationally recognized guidelines for private equity. The valuation of the entire private portfolio is reviewed and approved by the board on a quarterly basis. The whole portfolio is reviewed on a quarterly basis by the board, by the AIFM, and annually by our auditor, KPMG. Private portfolio is valued either using a DCF method, so discounted cash flow method, or price of recent investment, the so-called PORI.
And typically, when you invest, you carry the value at that PORI, and then you migrate it to DCF over several quarters. Portfolio average discount rate, you know, for the period ending June 2023, was 13.7%, so relatively high, and that's tracking up to the interest rate cycle. And these discount rates are built up on a company-by-company basis, a portfolio company by portfolio company basis, using the appropriate market metrics and domicile for each of those investments. The DCF valuations are also benchmarked against listed peer groups, listed peer group companies, and that again is reflected in our valuation process.
So overall, this is a detailed, robust, and I have to say, quite a challenging process, which we think should give our investors confidence in the numbers that we're disclosing in our quarterly updates. In terms of where we are in the valuations, the chart on the left there shows the different elements there. Just around 80% of the portfolio is now held at DCF, with 17%, or so, in a combination of PORI, price of recent investments in DCF, so it's migrating, if you like, from the middle bar to the left-hand bar. And then the final 3% is the listed positions that are mark-to-market. When we invest, we do bake in downside protections for our investors.
Things like liquidation preferences, anti-dilution clauses, and then performance milestones with appropriate penalties. We, Richard and I sit on the boards of all of the positions that we've invested in on your behalf. We don't expect to have to use these downside protections, but we're there with the governance procedures to enforce them if that has to be the case. So that where that leaves us on the left-hand side, if you look at the orange line, the NAV per share rising steadily with organic growth in the portfolio, against the backdrop of weak and volatile markets. The blue line is our share price, and the gray line on the left-hand side is the listed hydrogen sector.
Our NAV has been steady and outperforming both of those metrics. I think really that's a combination of the portfolio construction, the valuation methodology, and the checks and balances that we have in terms of stewardship. As a further calibration point on the right-hand side of that chart, we look at the revenue multiples of the listed hydrogen sector, the blue line, and compare that to our private holdings, orange line, and the gap there is at least 30%, which I think says we've got quite prudent, quite robust valuations for these positions, and there's plenty of upside as we look to ultimately exit these positions, and potentially that could happen, of course, by IPOs.
So look, those are some comments on the financial performance for the first half. Let me give you a quick update on the ESG and then pass you over to Richard on the portfolio companies. Key focus for the fund last year was classification of HydrogenOne as an SFDR Article 9 fund, which is the highest standard for ESG funds, and you'll see those disclosures in the 2022 annual report. This year, we've built on that by becoming a PRI signatory and a reporter at a CDP, the Carbon Disclosure Project, and you'll see those numbers on the CDP website.
Ultimately, what we're all about here is growing value for investors, and avoiding greenhouse gas emissions by replacing fossil fuels in the energy industry. We have started, as of today, to report our ESG metrics on a six-monthly basis. And so this is our ESG dashboard. Our main KPI in this ESG area is avoided greenhouse gas emissions, 134,000 tonnes cumulative on the bottom right-hand side of that slide. And you can see we're disclosing Scope 1, Scope 2, Scope 3 from portfolio companies, again, for the first half of the year.
Richard and I sit on the boards of all of these portfolio companies, and we're engaged with them in many things, including in improving ESG, and so we do get to work with those boards to address some of the gaps that you see on the left-hand side of the chart. Look, with that, let me pass you over to Richard on the portfolio.
Thanks, JJ. Let me just take the controls there. Yeah, so I'd like to cover the portfolio down by breaking it down into some of the companies, looking at some specific case studies for you before rounding off for questions. Let's look first of all at the revenues from these businesses, which is an important health indicator of the growth within the portfolio, first of all. So if we look at this chart here, we're showing the revenue since we invested into these businesses with the businesses of Bramble, NanoSun and Sunfire. Top right-hand corner, 10-15 times revenues, revenue growth since we invested.
Really, the longer, longer investments that we've made, and the most recent investments into Strohm, Elcogen and Cranfield have grown 1x-4x. But, but all of these have got fantastic value potential, and we'll take you into that, in a second. In terms of the, how the portfolio breaks down, just by, first of all, by sort of theme. On the left-hand side there, we're showing you supply chain being the largest, exposure. And by supply chain, we mean companies and manufacturers, that actually make fuel cells, make electrolyzers, they're manufacturing businesses. And a small amount of investment in there, into hydrogen production in the light blue. That's a very, very important part, of us to the fund, with enormous growth potential, which we'll take you through in a moment.
And then we break down by geography, and although there's a lot of UK-listed businesses, most of the products that they're selling are going outside of the UK. There are no green hydrogen projects in the UK, they're all in Germany and Norway. We co-invest with some fantastic strategic industrials and world-class financial institutions. And what we're really looking for in the portfolio is a classic portfolio in terms of diversity, meaning allocation across the value chain. And if we think about the value chain being upstream on the left, where we actually make hydrogen, we're heavily invested into electrolysis, which is part of that process, transmission and storage.
When we go right down to what we've got less exposure, but an important part of growth in the future, is the, on the right-hand side, fuel cells, and the uses of hydrogen. You can see the companies that we invested into on the right-hand side table and how they break down in terms of value in the fund. Let's get into some more interesting examples to sort of bring the investment alive. We'll talk about NanoSun and Gen2 Energy, first of all, and then follow on with Sunfire and Strohm. NanoSun, on the left-hand side there, make the...
It looks like a shipping container, but inside that container, there are nine cylinders that hold hydrogen at over 450 bar, and it's a great way to move hydrogen from A to B. Other people can do that. What other people can't do is then refuel from those cylinders into trucks, trains, buses and planes. Which takes a very ingenious amount of plumbing, if you like, to transfer the high pressures in the cylinders into the vehicle. So it's a unique product, and it's patented. So far this year, in terms of what's happening in the real world, NanoSun have shipped five of the 10 units they'd like to ship this year.
Most of the units have gone to Westfalen, a large German gas distributor, gas and fuels distributor. Some of the units have gone to the city of Bremen. I don't know if anybody will be going out there. If you do, you'll be traveling on a fleet of hydrogen buses. There are 10 Solaris buses that we're actually starting to see hydrogen being used. And Germany is a great sort of poster child for what can be done with hydrogen globally, and we'll come on more to that in a moment. The distribution agreement with Westfalen will be expanded, and it is being expanded at the moment into other countries in the EU, where hydrogen is really forging ahead in France, Italy and Spain.
The second example on the right-hand side there is Gen2. Now, investors will remember that we've spoken quite a lot about HH2E, our other project developer in the past, in Germany. Gen2 is a very similar company, with assets in Norway. The great thing about Norway is you've got very cheap hydroelectric, and we're tapping into that. So the image there shows the Mosjøen facility, which had full approval from the Norwegian government and authorities in July. Wood completed the FEED study for us, and we'll be going into FID and construction in the second half of this year. So watch this space for more announcements from Gen2. The Port of Helgeland planning consents for the jetty and the site have been approved.
And just in terms of project economics, that jetty that you see there is owned by another party. We'll be leasing it from them. As are the ships, we're not gonna start designing hydrogen ships from scratch. We're gonna leave that to Provaris, the Australian hydrogen shipping company, and we've signed a collaboration agreement with them for shipping and storing hydrogen, and they'll be using their H2Neo and H2Leo ships, which can carry between 300 and 600 tons. So Gen2 is a really interesting business.
Just to expand on Gen2 a little bit more, the map on the left-hand side there is showing the Helgeland region, where we've got the first two projects that we're developing, the Nesbruket 195-megawatt green hydrogen business, and Holandsvika, which is a 500-megawatt project. Hydrogen offtake agreements from Nesbruket are imminent, so look closely at our space for further announcements on that. The phase one of Nesbruket will be a 100-megawatt development.
As I said, the great thing about these Norwegian projects, which makes the whole thing work, which keeps the hydrogen production cost well below EUR 5 per kilo, is the fact that you've got 100% load factors from hydroelectric and very, very cheap hydroelectric electricity, green electricity. If that wasn't enough, there's the CO2 compensation scheme from the Norwegian government, which makes this an incredibly attractive project from the economics point of view. Sunfire, well, you know we're a great fan of Sunfire. We, we mentioned them many times, but they keep on doing such great things. We have to mention them again.
Some of you may remember this picture that we, we've shown before, of the plating facility, and the expansion of that factory to make 500 MW per year of electrolyzers, which is in the Solingen site. Which is just as well, because one of the key pieces of news that came after the end of June was that they'd received a 100 MW order for alkaline electrolyzers and nearly EUR 170 million worth of funding from the European Commission, to carry on building these fantastic products.
On top of that, there's been other great news flow from the business in terms of high temperature electrolyzers being supplied to the Neste Refinery in Rotterdam, and also 80 megawatts of electrolyzers going to RWE in Lingen. So Sunfire continues to be a great business with great revenue and earnings potential. The last example we wanted to mention was Strohm. We've not talked much about Strohm before. Strohm make a TCP pipe. It's a pipe, which you can run from that offshore platform there, onshore, from a continuous reel without any joins, and the hydrogen doesn't leak through.
This project is the Hydrogen Offshore Production for Europe, or the HOPE project, that involves 10 megawatts of electrolyzers on the platform offshore there, producing four tons of hydrogen per day, o- o- and stored off the port of Ostend in Belgium, and then transporting that hydrogen onshore. As well as supplying their TCP pipes into projects in Brazil, the, the, Strohm has received EUR 3 million of funding from the Dutch government for the OFFSET project to put green hydrogen ammonia into an offshore floating vessel offshore there in the Netherlands. We've invested alongside some other great companies. We're not the only people doing this, just to highlight the quality of the other companies that we're working with.
Shell, Chevron and Evonik all put money into this company with us, with a total funding round of EUR 40 million back in 2022, which sort of marked the end of the investment phase for the fund, as we now go into the harvesting phase of starting to think about exiting some of these businesses. Something that we talked about when we IPO'd two to five years after investment. What you can really see from this business is the growth in revenues in the bar charts on the right-hand side there in blue, from this fantastic growing business of TCP pipes that Strohm are supplying. Value, it's important not to forget about where is the value in this fund.
We're an unusual fund, and we can probably cover this more in the Q&A. Most of the other investment trusts that sit with us in the renewables sector are income funds. They're generating yield from projects that have been refinanced with debt. We are about capital growth, and that's unusual at the moment. We're in a risk, risk-off market, and growth of capital is not a popular asset class to be in, which partly explains some of the share price performance. That doesn't bother us at all because this is about identifying where are the winners in this fund. What we're showing you on the left-hand side there is the early stage revenues of companies with revenues under GBP 5 million, 19% of the portfolio, HH2E and others.
There's a lot of intellectual property in these companies, which doesn't necessarily affect what the exit value of those businesses will be, but we can cover that a bit later. The mid-stage companies are producing between GBP 5 million-GBP 50 million, 37%, and the late stage, greater than GBP 50 million in terms of revenues, 100%, 37%. Most of the revenue growth in the year came from the mid-stage companies, totaling GBP 52 million, 100%, as JJ has already mentioned. We'd like to cover more about the potential exits from the business as we really start to enter that important phase from now.
This is-- there's an important story here about revenue growth for the portfolio as a whole since investment, that really maps the progress that we've been making. This is showing revenues in aggregate from all of the investments in the fund. On a 100% basis, generated GBP 52 million in revenues over the last 12 months, up 170% from the equivalent period in 2022. The growth is real and accelerating, and the companies we've invested into are really, really starting to deliver now. I'd like to just round off by saying we continue to invest in some of the best hydrogen companies and projects in the world.
We continue to keep our pipeline alive, despite slowing down the investment as we manage ourselves through this difficult phase. The NAV is steady and rising, so everything's going well. Everything's going well in terms of the companies we're investing into and what they're doing. Material and private company revenue growth is what we're seeing. And we're still... there's a great deal of upside even compared to the listed companies still being depressed, reflecting that in the market, 30%, as JJ mentioned earlier. We've invested GBP 8 million in the first half of 2023. That's slowing down at the moment, we're starting to preserve cash.
JJ mentioned that GBP 12 million that we've got, which is adequate to keep the fund running. We are a true ESG reporting business. This is not something that was an afterthought. The whole fund was founded on ESG principles, and we've already avoided 134,000 tons of CO2 since the fund started trading. This is all against the backdrop of quadrupling investment in the hydrogen sector by the whole global market. We're attacking this from our specialist team. We've got first-mover advantage to identify the best opportunities, and we're really happy with where the fund is heading so far.
With that, I'd like to just round off and pass back to start off the Q&A.
Richard, JJ, that's great, and thank you very much indeed for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by using the Q&A tab that's situated on the right-hand corner of your screen. While the team take a few moments to review those questions that were submitted already, I would like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via your investor dashboard. Richard, JJ, as you can see, we have received a number of questions that were both pre-submitted and those that came in throughout your presentation this afternoon. Firstly, thank you to all of those on the call for taking the time to submit their questions.
Guys, if I may just hand back to you, just to read out those questions and give your responses where it's appropriate to do so.
Yeah.
And then I'll pick up from you at the end. Thank you.
Okay, that's great. Thanks. Let me just hit the first question first of all, to get this one out of the way. The share price is poor. Why? We've sort of explained that this is about growth capital. Growth capital is viewed as more risky than income, and this is a risk-off market. So but in principle, we would expect ourselves to be trading below other businesses, like people selling gold bars, for example. That is where investors want to be at the moment. People are unsure about what's going on. We're in a high inflation environment with high interest rates, but we're at that peak.
But just to reassure people, the potential growth in this fund will come from larger industrial players and financial players buying out the companies we've invested into. And if you think about the investment horizon of companies like Siemens Energy, like some of the larger engineering businesses, these are 5- to 10-year planning horizons. They are already starting to look at where they have fallen short, in terms of electrolysis and fuel cells, expertise, and exposure to the hydrogen market. So, can't say which, for obvious reasons, but two of our companies have already appointed investment banks in anticipation of starting to receive bids from external companies. So there's the market and concern, and we understand that, about what's going on with financial markets.
When the financial market starts to see how this fund actually works, which is not just by talking about, you know, a regular uptick in revenues, steadily moving forward, which is a great indicator of financial health. This is about active M&A in the hydrogen sector, and this fund is front and forward, giving you the best exposure to that. It could happen at any moment from now, given the planning horizons of these businesses. Yes, share price depressed makes a fantastic opportunity to get into this sector before things really start to take off. Hopefully, as the general...
If when everybody feels like the financial markets are starting to improve, interest rates have peaked and are starting to come off, everybody will then start to look at where are the big growth companies to invest into, and that will be HydrogenOne.
... so that just to try to get that one out the way, first of all. And then, I think there's also concern around at the moment about what the U.K. government is thinking or not thinking. Clearly, it's not thinking. But I'll let JJ handle that one and how that could affect the fund. Yeah. There's a number of questions around our thinking around U.K. investments and U.K. policy, in general, around boilers. So let me try and address all of those things.
We have always, since we launched the fund, thought that the leading regions for hydrogen: Japan, South Korea, EU, particularly Denmark, Germany, Norway, California, and the UK has not been a leader in the hydrogen industry. The issue really, I think, in the UK, is around policy formation, tax credits, contracts are different to all of the things that are needed to set those green hydrogen projects. The UK is just behind, you know, in terms of those policies versus those other regions. Where we have invested in the UK is in supply chain businesses. So good old British engineering.
So NanoSun, Bramble, HiiROC, and Cranfield Aerospace, which is a flight innovator. And if you look at the order books of those businesses, they're typically outside of the UK, so they're selling products into the EU and further beyond. In terms of, you know, next steps in the UK, I think keep an eye on green hydrogen projects. The government does have a short list of 20 green hydrogen projects, facilities to manufacture the hydrogen, that are all competing for a share of the Net Zero Hydrogen Fund, which is GBP 240 million.
That, that, those grants were supposed to have been awarded by the end of this year, and we may, may yet see that positive news coming, coming from the U.K. In terms of one of the questions, government statements, what's Rishi Sunak gonna say this afternoon and everything? I mean, I just don't think we have really any insight into that. I mean, I would just say there's an imperative to address climate change. If you have a look at the latest U.N. materials on where are we on the Paris Agreement and the commitments that countries made to stay within 1.5 degrees of pre-industrial levels, the...
On the U.N. assessment, we're not, we're not close, and the situation's actually getting worse, and I'm sure that'll be in the thinking of the, of the government as when they, they make the statements that they're going to make. There's also a question about U.K. strategy around boilers, around domestic boilers. So, so again, we're not directly invested in this, but, but domestic heating is a hard-to-decarbonize sector, alongside flight. And there are some difficult decisions to be made there as to which way to go.
We have made the case that grid blending, so blending natural gas with hydrogen and then burning that in existing boilers, and boilers in the UK can burn, you know, a blend of natural gas and hydrogen, that is a good intermediate step before these boilers need to ultimately be replaced. This is a very political decision, and the discussion here in the UK, if you follow the German media, German politics, you'll see the same discussion playing out there as well. And it's a segment, frankly, that we've stayed out of because the outcome is just very uncertain at this point. What comes after the investing and harvesting phase of the fund?
Will there be an extension, or is there an end-of-life close date for HN? Well, the good news is that this is an evergreen fund. It's an investment trust that just keeps going. So we don't really feel like the clock is ticking. I suppose the way the fund is working, relating to some of the other questions about what do you do with the money after you exit the business? Well, we think the hydrogen sector will be growing rapidly out to 2030. So we will be reinvesting that capital once we've exited from a business back into further growth.
When we think it's starting to slow down, you'll want us to start, you know, returning it. So, and maybe there's the option to return some of that in dividends early on as well. But this is unashamedly about capital growth, and while we think the market is growing, we will continue to invest into it. Okay, there's a question: Will you invest in white hydrogen? So just to calibrate everybody, white hydrogen is a concept that hydrogen can be explored for and produced in the same way as oil and natural gas, so geological hydrogen. This is one we're keeping an eye on, but we do have some questions. There is natural hydrogen in the world.
There were discoveries of white hydrogen in Mali, in obviously West Africa in the 1980s. Those deposits were put on stream actually by a company called Petroma in 2012. It's used in the local power market. The thing to be careful of here, there are really two issues. Firstly, if you want to use hydrogen in fuel cell, it's got to be extremely pure, so that the fuel cells are not damaged by the contaminants in the hydrogen. We have a feeling that geological hydrogen will have contamination in it, and so there's a cost to cleaning that up and, you know, will it ever be price competitive?
I think the second thing, just to bear in mind, is that oil and gas exploration is a very risky business, typically one in 10 exploration wells actually find something, and those wells can cost $50 million, $15 million each. So I just wonder whether there is, there's the economics and the risk appetite in the market to go exploring for white hydrogen, given the uncertainty of the drilling outcomes and the contamination that could be there in anything that's found. So keeping an eye on it, not front and center for the fund. We'll just see how that trend plays out.
From a technological perspective, what year do you expect European green hydrogen pricing will be in parity with traditional fossil fuels? Interesting area to go in. Well, last year, actually, when gas prices were spiking, green hydrogen was actually cheaper to produce than grey hydrogen. And of course, gas prices have moderated slightly, and but they're almost on parity at the moment, actually. So that's kind of now. What you'll see in the coming months is announcements from us and from others about offtake agreements being signed for green hydrogen, and that means that people have already got over that hurdle about buying green hydrogen.
Of course, the other thing that feeds into that are potential government subsidies, but a lot of our hydrogen modeling in the, on the projects doesn't rely upon government funding. Because really, on the consumer side, there is also a race on for green steel. People will buy more for a car produced from green steel, and people will buy consumer products if they are labeled as zero carbon. A lot of that can only come from green hydrogen. So we're seeing a lot of interest from offtakers who are prepared to pay that little bit extra right now, just because they want to have a green product.
But the one thing that will really start to change the face of hydrogen is when you start to see the announcements of offtake being signed, and that's key because all of these CGI projects that people show you, we've showed you a few pictures as well, become real, and we start investing and the whole thing goes ahead.
There's a question: Can you say some more about the composition of the specialist team that we have? No, for sure. There are six of us here in the office. This is Oxford Circus, so this is the headquarters of Hydrogen One. In the team, I mean, Richard and I have energy and financial markets backgrounds over the last 30 years or so. In the team, we have external affairs, we have a CFO, we have valuation experts and portfolio managers. These staff come from private equity and the utilities and energy sector backgrounds.
We are governed by a board of four people who have a banking background, investment trust background, a representative from INEOS, the CEO of INEOS Energy, obviously one of our major backers, and a representative of somebody who's actually a practitioner and is working setting clean hydrogen projects in the EU. Beyond that team, there's an advisory board of six people with energy and capital markets backgrounds. So that's the team.
How much competition is there for investing in your universe of investee companies? I'd like to give you a very good example of that from one of the project developers. The way... I mean, if you go back to the chart that showed hydrogen producers, it's a relatively small part of the portfolio because we invested into the equity of Gen2 Energy and HH2E. Both those companies sit atop of the projects that sit in SPVs. And we, what-- the way it works is that we get exposure to those projects from TopCo, but we can also, we have the right to invest directly into those projects as well. And we can...
We have first rights to invest into those projects, but we can tell you there are some very big private equity names queuing up to if we choose not to invest into those projects. And that gives us great confidence. And then we're actually starting to talk to some of those other investors to see whether they want to buy some of those rights from us, or it gives us great security that, you know, we've got real value there.
There are some questions around the discount rate and how much that would have to change to explain the current share price. In other words, what's your sensitivity to the discount rate? I mean, look, to give you a number, in the first half, the discount rate increased from 13% to 13.7%, so 0.7% increase. The impact in that on a NAV per share basis was 7p. It feels like a 1% move in the discount rate is kind of 10p on the NAV. I... If you wanted to, it's like Paul's asking those questions, if you wanted to do some sensitivities on that, then those are some numbers for you.
I have to say, I think the share price, it's not something we can easily explain. We do understand that as discount rates increase, interest rates increase, that does affect the NAV, but I'm not sure that the movement in the interest rate cycle fully mathematically explains the drop in the share price. If you look at where our share price is trading compared to other growth funds, it's very much in line, actually. We do think the market, as Richard said, has just gone risk-off on private equity growth funds.
A difficult experience for existing investors, and you know, no one likes to see that, but at the same time, it is a very interesting entry point for people looking to get in below the nav, into this exciting growth theme.
Just stepping off that same point, there's a question here, which is very fundamental: What is the biggest threat or concern you have for the fund in the future? And it is that at the moment, financial markets are sort of running scared from growth, whereas the way we see the hydrogen market is through the eyes of some of the most educated and long-sighted industrial players who will be looking, we know they're looking at our portfolio companies, but they might figure out that, "Well, why don't we just buy all of these portfolio companies by buying HGEN?" Now we won't let that happen, unless it's at a considerable premium to where we are.
So, you know, great advisors in terms of Barclays and others to help us with that, but that is a concern. I don't think it's gonna... If it did come, it wouldn't come from financial markets, 'cause I don't think many people understand hydrogen the way that we do, but it's potential industrial buyers that from your point of view as shareholders, that's potential upside, because that, that's a concern. But it's not, it's not up on the forefront of our minds. We don't-- we've got a lot, lot of, you know, antenna out into the market, and we haven't seen that sort of thing going on.
There's a question about the fees: What management fees do you apply to the fund, and are they consistent? So yes, they are consistent. You'll see them all set out in the reporting. So we charge 1.5% annual fee for private assets and 0.8% for listed assets. Ultimately, we look to sell these positions, and we would also, in that environment, be remunerated with a 15% carry, so 15% above an 8% hurdle. And Richard and I have committed to purchasing shares, you know, from the market in HydrogenOne with at least 10% of that carry. Those numbers are lower than a typical private equity fund. So you may have heard of a 2 and 20, 2% annual fee, 20% carry.
We are 1.5% and 15% carry. So that's where we are on the fees, and as I say, they're consistent, and you'll see that set out in the annual report.
Now, investors probably get this, but just to back that one up, this is a private equity fund. You know, at least 97% of the assets are private equity. JJ and I sit on the boards of these companies. We effectively run these companies. We contribute a lot to the daily running of these businesses, which is very different to sort of an open-ended fund that would be investing into listed securities, where there are very low fund expenses. It's just about buying and selling costs and a team of two or three people running billions of pounds. Private equity is a very different investment model. It's very expensive.
We have to have a lot of lawyers, a lot of insurance, and we have to deploy a lot of people. If you look at the number of people running your average private equity fund, it's probably 10 or 20 times the number of people running investments into the listed company. So that just to explain, you know, what's going on here in terms of fund costs. What else can we say? What's holding us back from investing in the UK? Well, we just over half the fund is already invested into the UK, but into UK companies producing and manufacturing. And the other half is invested into Germany, the Netherlands, and the Nordics.
But we're not sitting with bated breath looking at what government policy is, is gonna be necessarily on renewables, because we're not really in any renewable projects, in the U.K., which is really the difference that any announcement might make. Alongside any other investment in the U.K., we're more concerned about, corporate tax rates in the U.K., you know, that, that, those sort of standard measures of, of U.K. businesses. But our projects are over, are overseas, and increasingly, I know we're, we're talking, we should be talking just about historically what's happened, but going forward, we will see a lot more investment into the U.S. to take advantage of the Inflation Reduction Act out there, particularly on the project side.
So the US government are taking quite a different stance to even Europe. But even the European countries have put EUR billions, EUR billions aside for investment, whereas the UK government has only put GBP a few hundred million. So it never really was a particularly attractive place for green hydrogen projects. But that may change in the future, so we'll keep an eye on it.
I think we may be reaching the end of the fresh questions. Biggest threat?
We've done that.
We've done that.
Sorry, we're just checking through-
Debt structure of the fund, another question from Tim. We have the facility to, or the authority, as we've said, to take on 25% gearing. So 25% of the value could be done in debt. We have not done that. As we sit today, there's no debt on the fund, and actually, the invested companies are basically debt-free. These are equity investments. Tim, that's the answer to your question.
The question on what do you plan to do with the revenues received? Well, we don't really receive the revenues that the companies are generating, but if we were to receive capital from exits from these businesses, I mean, if it were substantial, well, I mean, there'd be shareholder votes on, you know, could—should or could some of that go back to investors? But I think we covered this earlier, that really, we think the best place in the growing sector is to reinvest into the hydrogen sector. I think that's it on questions. So, can we pass it back to our host?
Richard, JJ, absolutely, and thank you very much indeed for being so generous with your time and addressing all of those questions that came in from investors this afternoon. And of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended, just for you to review, to then add any additional responses, of course, where it's appropriate to do so. But Richard, perhaps before really just looking to redirect those on the call, to provide you with their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments just to wrap up with, that'd be great.
Yeah. Thanks very much. And look, thank you, everybody, genuinely for coming on and supporting us and listening to what's going on in the hydrogen sector. Yes, it's a tough market from a financial perspective, but we're here to tell you from the industrial perspective, we've never seen better health in the hydrogen sector. It's been dealing with the difficulties that everyone's been having to manage with high inflation and high interest rates. But despite all that, despite high interest rates, you know, the fund is indicating fantastic financial performance, despite all those headwinds.
We're now entering a very important phase of starting to exit from these investments, as we said we would at IPO, after the first of—in the sort of 2-5 year period after investing, and we're going there now. That's where you're really gonna start to see some fantastic news flow from the fund, and it could happen at any time. Thank you for staying with us, and hopefully we can continue the good work here. Thanks very much.
Richard, that's great, and thank you once again for updating investors this afternoon. Could I please ask investors not to close this session, as you'll now be automatically redirected, for the opportunity to provide your feedback in order that the management team can better understand your views and expectations. It's going to take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of HydrogenOne Capital Growth plc, we would like to thank you for attending today's presentation, and good afternoon to you all.