U.S. President Joe Biden touted on Oct. 13 seven projects selected for $7 billion in federal funds to create regional hydrogen hubs as an example of the benefits of the public and private sectors working together.
“Federal investments attract private sector investments—a lot of it. It creates jobs in industries like clean energy and demonstrates we’re all in this together,” Biden said at the Tioga Marine Terminal in the Port of Philadelphia, which is part of the Mid-Atlantic hydrogen hub.
The federal investment marks one is the largest in U.S. history and is expected to attract tens of billions more in private investment in the hydrogen sector across 16 states, pushing the U.S. closer to its goal of net-zero emissions by 2050.
“When it comes to charging our cars or powering our homes, all we need is clean electricity to power and [we] get it from solar and wind. That’s just fine. We’re doing that. We’re getting close to meeting that goal,” Biden said. “When it comes to manufacturing things like steel, aluminum and other materials, factories need to process materials at over 1000 degrees Fahrenheit to get that done. You need to burn fuel to get that done. You can’t get it done with wind and solar. You cannot generate that much energy. That’s where hydrogen comes in.”
Hydrogen, which has near-zero greenhouse-gas emissions, is seen as a solution to climate woes, serving as a route to decarbonize hard-to-abate sectors and reduce reliance on fossil fuels used in transportation.
Combined, the hubs are targeting more than 3 million metric tons of hydrogen per year.
“Taken together, emission reductions from these hydrogen hubs will be the equivalent of taking 5.5 million gas powered vehicles off the road,” Biden said.
Funds to establish the hubs are from the Bipartisan Infrastructure Law. The Biden administration said the selected hubs “will catalyze more than $40 billion in private investment and create tens of thousands of good-paying jobs—bringing the total public and private investment in hydrogen hubs to nearly $50 billion.”
However, the announcement doesn’t mean the U.S. Department of Energy (DOE) is committed to the selected hubs. The multi-phased process, which includes design and development, permitting, financing and construction phases, now enters negotiations, a process that can take months. The DOE has warned it may cancel or rescind the selection for any reason during that time.
The hubs were selected by the DOE based on criteria such as technical merit and impact, including an ability to deploy infrastructure and produce at least 50 mt of clean hydrogen per day and reduce greenhouse-gas emissions; financial and market viability, referring to its growth potential; workplan, including when the hub could begin operations; management team and project partners; and a community benefits plan that covers community and labor engagement, quality job creation and workforce development, diversity equity inclusion and accessibility, and the Justice40 Initiative.
Making it through the negotiations process is not guaranteed, according to Jason Munster, founder and principal of CleanEpic, a clean energy advisory firm. Munster, who previously worked with the DOE and helped analyze the hub projects, spoke on a panel this week at a hydrogen conference in Houston alongside GTI Energy’s Brian Weeks and Erika Taugher of Pattern Energy.
“If on any of the metrics there are issues that can’t be resolved, or if engineering looks to be in peril, the money will be not be doled out,” said Munster, who was also one of the lead authors on the DOE’s Commercial Liftoff Report for hydrogen. “What happens with the money that’s pulled back is still up in the air. But for all of these projects, beyond hydrogen hubs even, the stage gates make it so the money is protected, taxpayer dollars are protected. But it also means that unlike some funding, the money can be pulled back and it’s not guaranteed that someone selected is even going to make it through negotiations and get awarded the money.”
He anticipates the negotiations will be “tense,” lasting longer than the two months DOE officials have said. “And as everyone knows, with these projects being over $1 billion, every week means something like $2 million in opportunity costs for every billion dollars. ... And importantly, there’s a lot of strong applicants and there are probably applicants on the bench.”
Getting through the negotiations process is one hurdle. Offtake is among the hydrogen industry’s biggest obstacles. Another limiting factor is a project’s ability to secure debt financing, which often hinges on offtake agreements among other factors.
Plus, there are still lingering issues that developers and industry observers say need to be resolved. Among these are guidance on incentives related to the production tax credit in the Inflation Reduction Act. The 45V hydrogen production tax credit offers up to $3 per kg of hydrogen, depending on greenhouse-gas emission intensity.
“We’re not going to get a bunch of money given to us to build a project when we don’t know what’s going to qualify as green,” said Taugher, director of green fuels business development for Pattern Energy. “We can’t model out our returns until we have more clarity on policy.”
Besides offtake and policy, getting a project to final investment decision also involves challenges associated with logistics, storage and sourcing wind or solar energy that might not be near a hub, she added.
Taugher sees offtake potential in ammonia production, given today’s market for fertilizer.
Weeks, senior director of R&D operations for GTI Energy, pointed out that he has seen a lot of ammonia projects announced.
“I wonder just how solid some of those projects are. Having said that I have no inside track on any of them,” Weeks said. “But we’ve seen waves like this in building polyethylene plants when the fracking revolution started; we've seen a lot of LNG projects … announced and then only a few really got built. So, I think I think there will be probably a settling out in the hydrogen industry, as well.”
Like others, Munster recognized all of the early-on hype with hydrogen and said he was frustrated by it. At one point while writing the liftoff report he said that data showed that for every 100 kg of hydrogen production announced, there was only 2 kg of offtake associated with it. The amount of offtake has since risen, he added, attributing that to the hydrogen hubs process.
“There’s an immense amount of bluster on the production side. Everyone wants to be producing hydrogen and reaping that 45V or 45Q credit,” Munster said. “You’re not going to get those credits most likely if you don’t have certified offtake. … I really believe that the hydrogen hubs are going to be the demonstrations of how hydrogen can be done and how real [it] is going to be.”
2023-12-07 - Argentina’s Vaca Muerta or “dead cow” shale formation represents a game-changing opportunity to convert the South American country into a major exporter of piped-gas and oil to the Southern Cone region as well as oil and LNG to world markets.
2023-12-07 - U.S. natural gas futures slid about 2% to a three-month low on Dec. 7 on forecasts for milder weather and lower heating demand.
2023-12-04 - At the meeting OPEC+ agreed to reduce its oil production by another 700,000 bbl/d – which will come from Iraq, UAE, Kuwait, Kazakhstan, Algeria and Oman.
2023-11-30 - Saudi Arabia, Russia, Kuwait, Kazakhstan and Algeria were among producers who said cuts would be unwound gradually after the first quarter, market conditions permitting.
2023-11-29 - Cheniere Energy Inc. and Cheniere Energy Partners LP entered into a 15-year integrated production marketing gas supply agreement with a subsidiary of Canada’s ARC Resources Ltd.