Fortescue forks out $200m to develop a world leading green hydrogen hub in Germany

Fortescue Futures Industries has entered into a deal with global energy infrastructure developer Tree Energy Solutions to accelerate the development of a "world-leading" green hydrogen and green energy import facility in Germany.

Tree Energy is developing a global portfolio of terminals to enable the transportation of green energy.

Fortescue Metals (ASX: FMG) will fork out 130m euros equivalent to approximately $199.5m at today's exchange rate towards:

• 30m euros ($46m) to become a shareholder of Tree Energy Solutions

• 100m euros ($153m) to acquire a 30% stake in Tree Energy's subsidiary, Deutsche Grungas and Energieversorgung GmbH, the company that will build the Green Energy Hub in Germany

"The first phase of this partnership is to jointly develop and invest in the supply of 300,000 tonnes of green hydrogen with final locations being currently agreed, and a financial investment decision targeted in 2023," Fortescue said in a statement.

The delivery of first green hydrogen in Germany is expected to take place in 2026, with further collaboration projects focused on Australia, Europe, the Middle East and Africa.

“The United Kingdom and Europe urgently need green solutions to replace fossil fuels and this investment will enable Europe to do exactly that. Not in 2050, but in four years from now," said Fortescue Executive Chairman Andrew Forrest.

Capex on the rise

The deal will be funded by Fortescue Future Industries' unutilised capital commitment at 30 June 2022 of US$1.1bn.

To reflect this investment, Fortescue bumped up FFI's anticipated capital expenditure to FY23 from US$100m to US$230m.

Food for thought

Fortescue has embarked on a radical pivot and commitment towards net zero. In September, the company announced a US$6.2bn investment to eliminate the use of fossil fuel across all mining operations by 2030.

Fortescue is announcing more and more green oriented projects and investments, which continues to dilute its image away from the iron ore major we know and love.

While this shift is in the best interests of the environment, it might undermine why investors choose to hold Fortescue shares in the first place - for its cashflow and strong dividend.

Annual decarbonisation expenditure is expected to reach around US$1.5bn per annum between FY24 to FY28. To add some perspective, Fortescue paid out $6.4bn in dividends in FY22.

Analysts including Morgan Stanley have downgraded Fortescue's FY24-26 dividend outlook under the assumption that this capital spend is coming from cash flows.

Fortescue share price chart