Plug Power sees supply and demand for green hydrogen picking up as the company strengthens the clean hydrogen economy by deploying fuel cell systems, expanding its network of hydrogen plants and forging new partnerships.

This comes as cost competitiveness for green hydrogen, generated by renewable energy or low-carbon power, improves. A key to making that possible is incentives in the Inflation Reduction Act (IRA). Tax credits in the IRA are capable of reducing green hydrogen production costs to about $3/kg. The cost would have been about double that in some instances prior to the IRA’s passage.

Solving for Cost: Plug Power Talks Hydrogen as IRA, Climate Goals Fuel Growth
Sanjay Shrestha, general manager of energy solutions and chief strategy officer for New York-headquartered Plug Power. (Source: Plug Power)

“There is not a single market now where green hydrogen is not competitive versus gray hydrogen,” Sanjay Shrestha, general manager of energy solutions and chief strategy officer for New York-headquartered Plug Power, told Hart Energy. “If you can buy or produce green hydrogen at … similar prices as gray hydrogen, would you ever consider buying or producing gray hydrogen? You probably won’t.”

Today, there is about 300 tons of liquid hydrogen production capacity in the U.S., but that is expected to change given Plug’s plans to produce 500 tons per day by 2025 and 1,000 tons per day by 2028.

Hydrogen is seen as a cleaner alternative to fossil fuel-based sources. While most of the demand is met today by hydrogen produced with natural gas as feedstock, hydrogen supplies with low carbon intensity are expected to rise, helping to lower emissions in the U.S. and abroad.

Shrestha shared his insight with Hart Energy’s Velda Addison, senior energy transition editor, during CERAWeek by S&P Global.

Velda Addison: The passage of the IRA opened incentives for hydrogen. What do you believe is still needed in order to scale hydrogen?

Sanjay Shrestha: Our view on this has been that given what has happened to the levelized cost of renewable electricity and given that that is the biggest input cost to produce green hydrogen, which you can envision happens to the cost of electrolyzers. There is a clear path [for] the cost of green hydrogen [to] continue to come down. Now, what the passage of the Inflation Reduction Act and the production tax credit does is probably really similar to what it did to the solar and wind industry. …The size of the projects became larger. When you first talked about [a] big-scale solar project, you were looking at a 10-megawatt project. Now, you talk about gigawatt being a normal standard. When you now talk about onshore wind, numbers are 500-plus megawatt versus what it used to be.

We as an industry should applaud and thank our government for passing this landmark policy. I don’t think the approach should be ‘Well, gee, we need more.’ There’s always more we can use. With the passage of a policy like that, we now need to really take advantage of it. There should be a lot of capital formation in [the] green hydrogen industry. We’re funding 100% of project buildout with our own equity capital and using our balance sheet. That’s not an optimal way to scale this industry. What has to happen is you’ve got to see cost of capital go down. You got to see capital formation grow.

VA: What will it take to make that happen from a capital perspective?

SS: It’s a gradual process. I can talk Plug specific. We believe that once we have our first green hydrogen plant producing hydrogen—demonstrating how much cash flow it can generate, what kind of cash flow we’ll produce on an annual basis and what kind of debt service coverage ratio it [can] have—I believe there will be a natural growth [in] the debt market and back leverage for this project.

Another piece of this is really thinking about what the offtake agreements look like and how comfortable they would be from a technology standpoint. At Plug, we’re using our own technology for our own plants. We’re selling it to the third party [firms] as well. As you get more and more of the data from a performance standpoint, as the offtake becomes more and more robust, you can start to lend that portfolio offtake agreement between investment-grade companies. That’s what has to happen. Commercial banks also should see the sustainability aspect. The underwriting criteria must reflect that benefit when they’re thinking about back leverage, debt financing.

VA: Turning to demand, where do you see the greatest demand today, and where do you see it five to 10 years from now?

SS: There is about 25,000 tons per day of gaseous hydrogen demand serving a variety of different industrial applications—from the refining industry to ammonia manufacturing to even hydrogen demand in steel and glass manufacturing. …We at Plug also are a big user of liquid hydrogen, whether it’s for our material handling business, our stationary fuel cell product or even for mobility applications. That demand will continue. What this Inflation Reduction Act does is you will start to see a lot of green hydrogen around either our electrolyzer business or selling that green hydrogen molecule. Depending on the cost pattern in [the] refining industry, ammonia industry, methanol industry, you will start to see demand pick up. Even some of the existing gray hydrogen market will gradually be displaced by green hydrogen because of the economic value proposition and all the benefits green hydrogen brings to the table.

But take it a little further. Maybe I could draw a picture. Envision a scenario of Class 7 and 8 diesel trucks being displaced with green hydrogen. If that were to happen, you’re talking about 200,000 tons per day of green hydrogen demand just from Class 7 and Class 8 truck diesel displacement in the U.S. If you then think about only 5% blend of green hydrogen in the natural gas pipeline, you’re creating another 30,000 tons per day of incremental growth.  Now, we obviously need to think through the right infrastructure. So today we’re building a liquid generation network to support our customers, to make sure that there is a resiliency in the liquid hydrogen network in North America. Our mission is really what are we trying to be: make green hydrogen easy, economical and be a catalyst so that nobody ever thinks about where the hydrogen comes from when they’re thinking about adopting and embracing a new fuel cell operation.

VA: Let’s talk acquisitions. In the past, Plug has made several acquisitions. Plug's 2022 acquisitions included Joule Processing, an engineering, process equipment, services and process optimization company. Tell me about your acquisition strategy going forward?

SS: Right now, we’re really focused on making sure that we’re executing the strategy that we have laid out. We’re not really looking at any major strategic acquisitions at this point in time. But having said that, we’re always going to remain opportunistic to propel the industry forward. Let me give you an example of some of the strategic acquisitions. In terms of being able to produce clean hydrogen, we bought a company that actually manufactures electrolyzers. They have the best technology in our opinion, and Plug has scale up knowhow. It’s a perfect combination. Then, we bought another company that was the only non-industrial gas company that has successfully built and brought online a large liquid hydrogen plant. So, combining those two made a lot of sense for us. We can’t just go out and say, ‘gee, we’re going to get into building green hydrogen plants.’ You got to have all the pieces there.

From the portfolio offering perspective, in our green hydrogen business our goal is to go to a customer and ask them ‘what would you like us to do?’ We can provide you with turnkey equipment, if that’s what you’re used to doing. If you’re used to buying the greener molecules of hydrogen, we’re happy to provide you with that as well. That’s how we think about strategic acquisition. It’s always been driven by ‘what are the pieces’ because there’s a delicate balance in terms of how vertically integrated and how non-vertically integrated you want to be. There are plusses and minuses to that. Our fundamental philosophy has been tuck-in acquisitions that can help drive cost down, create more efficiency in the ecosystem of green hydrogen and really propel the industry forward.

VA: Plug continues to advance its hydrogen production construction projects, including one in Beaumont, Texas, with New Fortress Energy Inc. What’s happening with that project?

SS: We’re making continued progress. That is actually a classic example of our electrolyzer knowhow supporting a customer. We are also building a liquid green hydrogen plant outside of Dallas. The beauty for us in that is all the learnings that we have from our plant can be transferred to our customers. Not a whole more to add on. It’s going as planned.

Another one I would highlight though is we are looking to bring our green hydrogen plant in Georgia online next month. We’re all heads down focused on getting that executed. That will be a pretty big landmark event, not just for Plug, but for the entire hydrogen economy, because it will be the world’s first-of-a-kind liquid green hydrogen plant coming online. So, it’s a pretty special moment.