March 30, 2023 • Paul Rodden • Season: 2023 • Episode: 201
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In episode 201, Canary media opens up the debate on green hydrogen production in the United States. I'll go through the first article on today's hydrogen podcast.
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Canary media opens up the debate on green hydrogen production in the United States. I'll go through the first article on today's hydrogen podcast.
So the big questions in the energy industry today are, how is hydrogen the primary driving force behind the evolution of energy? Where's capital being deployed for hydrogen projects globally? Where are the best investment opportunities for early adopters who recognize the importance of hydrogen? I will address the critical issues and give you the information you need to deploy capital. Those are the questions that will unlock the potential of hydrogen, and this podcast will give you the answers. My name is Paul Rodden, and welcome to the hydrogen podcast.
In an article from Canary media, Jeff St. John writes the Great Green hydrogen battle. Jeff writes, a month long debate over the future of the US clean hydrogen industry is about to reach the boiling point. At stake is whether 10s of billions of dollars of federal tax credits from last year's inflation Reduction Act will go to support a domestic clean hydrogen sector that reduces carbon emissions or one that actually increases them. On one side is a loose coalition pushing to make hydrogen production in the US as close to zero carbon as possible, made up of climate scientists, energy analysts, environmental groups, and a subset of would be hydrogen producers.
The only way to do that they say is for the federal government to set strict rules for the tax credits that would require hydrogen to be made with electrolyzers powered entirely by new sources of carbon free electricity supplied on an hour to hour basis. Without such rules they warn The tax credits could bolster projects that result in more than twice as much carbon pollution as projects making hydrogen from hydrocarbons. In a quote from Rachel Fakhry, who leads the hydrogen energy innovation portfolio at the National Resources Defense Council. This is a huge subsidy. And she also says allowing money to flow to hydrogen production that increases emissions would be a perversion of the intent of the law. On the other side of the debate stand a host of companies with big hydrogen plans such as BP, Shell, NextEra Energy and plug power that say overly restrictive rules could strangle a nascent and still cost uncompetitive industry and its cradle.
hey want tax credits to go to hydrogen made from clean electricity that's accounted for on an average annual basis from across the country's grid, including through the use of controversial unbundled renewable energy credits, or made using existing resources such as hydropower and nuclear energy rather than newly built clean power sources. Even if looser rules don't extend through the 10 year lifespan of the tax credits. This camp argues they're needed at least during the early years of the industry's growth. The debate has been raging and hundreds of comments submitted last year to the IRS and the US Treasury Department, which are tasked with writing the rules for how the tax credits will be administered. Industry watchers say draft rules could be issued as early as April, in a quote from Mona Dajani, head of hydrogen and ammonia practice at law firm Sherman and Sterling.
There's a lot of money at stake here. How it will be spent, she says depends on how the Treasury Department and the IRS are going to hash it out. She continues by saying on one hand, if it's regulated too tightly, clean hydrogen will be too expensive, and it will be difficult to get started. On the other hand, if there's not enough regulation, then the whole purpose of clean hydrogen to save the planet is not really happening. But proponents of stricter rules say that hydrogen production that can be both low carbon and economically competitive. The Case for strict carbon accounting is summed up in a letter from the Natural Resources Defense Council and other environmental groups, energy analysts and hydrogen and clean energy companies, which they sent to the White House and the Treasury Energy Department's last year. The signatories asked that the hydrogen tax credit rules do three things. The first is to require hydrogen producers to use new sources of clean energy, not existing sources, or in other words, additionality. The US grid will need a lot of clean electricity over the coming years to power increasingly electrified buildings and transportation systems. And the hydrogen industry should not be competing for those electrons.
This is an argument from those groups. The second is to require hydrogen producers to use clean power that can actually reach their production facilities on the grids they're connected to, or in other words, require deliverability. They say today's clean energy trading regimens allow buyers to claim credit for power generated in places far from where they're actually consuming electricity. And the third is to require hydrogen producers to match production and consumption of clean power down to an hourly basis or hourly matching. They say today, clean energy credits are average on an annual basis, which means that a hydrogen producer could for example, buy enough solar Power credits to claim that they're running on clean energy 24/7 year round even when they're operating after the sun has set, these three pillars of policy can ensure that the tax credits lead to a quote, truly low or zero emitting hydrogen project and support projects that are, quote, extremely competitive from the outset.
This is going according to the letter. Rules that failed to incorporate these principles could quote, forced treasury to spend more than $100 billion in subsidies for hydrogen projects that result in increased net emissions. Creating rules that support these three policy pillars won't be simple. structures that account for hourly matching of clean electricity generation and delivery to its users do exist and are in use in parts of the country but haven't yet been codified by federal agencies or international standard setting groups. And determining whether clean energy is truly additional that is built supplying hydrogen production, rather than being diverted from other uses, is a particularly complicated task. These projects include some of the biggest yet announced in the US Hy Stor Energy has targeted Louisiana and Mississippi for 110,000 metric ton per year hydrogen production and storage complex to be powered by solar and wind farms it will build itself. Energy company AES and industrial-gas producer Air Products have announced plans to invest about $4 billion in a Texas hydrogen production facility to be powered by about 1.4 gigawatts of new renewable energy and Intersect Power renewable energy developer with more than $6 billion in project finance lined up to expand a multi gigawatt portfolio of solar and battery projects plans to build renewables to supply the three gigawatts of clean hydrogen facilities it has under development.
In comments to the IRS intersect joined wind power Giants Nordex and Vestas, hydrogen developer Synergetic, and Electric Hydrogen, a well-funded startup developing large-scale electrolyzer technology that is partnering with Intersect to warn that allowing lacks clean energy accounting standard would lead to spending billions of dollars on effectively doubling emissions. Hourly matching on the other hand will result in near zero carbon hydrogen. But giving hydrogen producers full tax credits if they purchase unbundled renewable energy credits for solar energy and then produce hydrogen overnight when the sun isn't shining. Or if they quote, buy some wind power in Iowa and run an electrolyzer in Pennsylvania, won't lead to truly clean hydrogen production, allowing the US hydrogen industry to develop in a way that could be a black eye that's fatal to the industry. These coming at a quote from Raffi Garabedian CEO of electric hydrogen. He also says we want hydrogen to thrive long term, and the only reason for it to exist is decarbonisation. If we're not striving for decarbonisation, he says, You should just be pumping more oil and gas out of the ground.
Okay, I'm gonna go ahead and pull away hear from the article, which is considerably longer. And just the first part in a three part series. Now, Canary has done a great job covering the energy industry. And I particularly like what they're doing in this three part series. We're doing deep dives, to cover each viewpoint of the green hydrogen debate in the US. And if we pull away and look at this article as a whole, it echoes very much the same arguments that we're seeing in the EU, over clean hydrogen, and how it should be really allocated with electricity. And there are some things to keep in mind when reading this article. The first is that they're just talking about electrolytic hydrogen. This article in this debate, in no way talks about hydrocarbon derived hydrogen, or CCUS. And so if we're looking at this argument strictly from an electrolyzed perspective, the additionality requirements do make a lot of sense. Especially say if you're in Texas, or California and have had to deal with the issues of using renewable electricity during crisis situations. Do you really want to be pulling away that electricity from a grid that's already strained? And to that point, if we are totaling up a full carbon intensity score for green hydrogen, you do have to take into account where the electricity that they're using for the electrolyzer where that's coming from? Is it a natural gas plant? Is it renewables? Is it a coal fired plant? Is it nuclear?
When totaling up a CI score These metrics matter? And then there is really a gray area about energy generation that people really don't talk about, especially when it comes to renewable powered electrolysis, and that is should nuclear be considered a part of that? It's electricity generation has no carbon emissions, and it's running all day every day. Also, what people aren't talking about when it comes to renewables are geothermal and hydroelectric power, neither of which are intermittent. And so really what that boils down to is that both sides of this argument have a lot more wiggle room and overlap than I think they realize. That yes, pulling away electricity from the grid that's currently being supported by renewables is not the best use of that electricity. And so installing dedicated systems for those electrolyzers makes sense. But there are better sources of electricity that can be used right now to avoid those dips in supply and demand for hydrogen generation for electrolyzers.
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