April 10, 2023 • Paul Rodden • Season: 2023 • Episode: 204
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In episode 204, Canary media releases their continuing coverage of the green hydrogen battle. I'll go over the first half of part two today on the hydrogen podcast.
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Canary media releases their continuing coverage of the green hydrogen battle. I'll go over the first half of part two today on the 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 is capital being deployed for hydrogen projects globally? And 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 episode 201 of the podcast, we covered Jeff St. John and Canary media talking about the two opposing sides of what clean hydrogen is, and should be in the United States. Now in the first podcast, the coverage was mainly on the importance of additionality, in developing electrolytic hydrogen, and in the follow up piece to that article, Jeff St. John focuses instead on the opposing viewpoint, which argues for looser rules surrounding clean or electrolytic hydrogen. And so to continue, Jeff says many of the parties calling for strict rules have cited an analysis by Princeton's zero lab that finds that hydrogen made from grid electricity will lead to net increases in carbon emissions unless production is paired with clean energy on an hourly basis. It also indicates that hydrogen production that uses genuinely carbon free power can be cost competitive with hydrogen made with hydrocarbons, thanks to the generous size of tax credits, even when the clean hydrogen producers are required to follow strict applications of the principles of additionality. deliverability and hourly matching but zero labs analysis is not the only one out there. Many of the companies submitting comments to the IRS say that requiring additional deliverable and hourly matched clean energy to produce electrolysis could push costs above those for hydrogen made with hydrocarbons limit production to only those parts of the US with the highest amounts of clean energy and undermine the country's push to become a leader in low cost hydrogen production.
As Jesse Jenkins of Princeton zero lab told Canary media says there isn't really much of a question about the veracity of the emissions analysis we've performed. The main response from those seeking to develop electrolyzer projects and make the most money is that this is too onerous and would raise project costs are too high to be profitable. Even a recent report by energy consultancy Wood Mackenzie that's being cited by NextEra and other opponents of strict rules finds that quote, green hydrogen production could lead to increased carbon emissions Wood Mackenzie determined that absolute emissions increase marginally under the scenario modeled for low levels of hydrogen production in Arizona and South Texas. Even though those two states are relatively high percentages of renewable energy in their grid mixes. In the report it's written quote, It is expected that the outcomes would vary significantly on a regional basis and may also vary as hydrogen production scales well past the addition of a 250 megawatt electrolyzer in a certain region. Wood Mackenzie analysis is more clear regarding its findings on the cost of hydrogen made via annual matching versus hourly matching of clean energy. It found that making hydrogen under hourly matching requirements will be 60 to 175% More expensive than making it under annual matching a cost increase that could result in unfavorable economics for green hydrogen adoption. The cost increase is central to arguments being made by plug power against strict rules for hydrogen tax credits.
The company A maker of hydrogen fuel cells, is planning to invest more than a billion dollars in hydrogen electrolysis facilities in California, Georgia, Texas and his home state of New York. But if eligibility for those tax credits is restricted to hydrogen produced with newly built clean energy delivered from where it's produced to where it's consumed on an hourly basis, plug powers electrolyzers won't be eligible for the credits and thus won't be able to compete on cost with hydrogen made from hydrocarbons. That's particularly true if today's gray hydrogen producers are allowed to qualify by adding carbon capture and storage systems to their Steam methane reforming sites to produce what is called Blue hydrogen. Something that's not cost effective today, but would be eligible for tax credits if the Treasury Department's final eligibility rules deem it sufficiently low carbon to earn the incentives and these cost concerns are echoed broadly in comments to the IRS and the Treasury Department from a range of companies and trade groups, arguing against hourly matching BP America, a division of UK based oil giant BP stated in Commons to the IRS quote, stringent requirements such as hourly zero emission matching have the potential to devastate the economics of clean hydrogen production.
Moreover, such restrictive requirements are likely not practical or feasible in these stages. If a green hydrogen production facility can only produce during hours when wind and solar are available, the low utilization rate will dramatically increase the price of the hydrogen produced. Nextera comments to the IRS use the same phrasing as BP Americas and claiming the hourly time matching would quote devastate the economics of clean hydrogen production, adding that it would quote not aligned with legislative intent to accelerate progress towards a clean hydrogen economy. Next era, the parent company of utility Florida Power and Light and clean energy development NextEra Energy Resources has made hydrogen central to reaching its goal of zero carbon emissions by 2045. The company's large scale hydrogen electrolysis plans include a project in Florida at its Gulf Clean Energy Center, hydrocarbon gas power plant that would be powered by Florida Power and Light solar projects and a project in Arizona in partnership with industrial gas producer Linde. NextEra Chief Communications Officer David Reuter said in an email NextEra also stated in its IRS comments that an internal analysis it conducted indicated that hourly clean energy matching would quote, increase the cost of green hydrogen production by around 70 to 170%.
Versus annual matching, eliminating the ability of the production tax credit to make green hydrogen cost competitive with other forms of hydrogen. That cost estimate was echoed in comments from the Edison Electric Institute, a US utility trade group, which used language nearly identical the Nextera's, like the cost estimate of Wood Mackenzie is significantly higher than the estimates from zero Lab, which found cost premiums for hydrogen produced via hourly matched clean energy on the western US electricity grid would be only 20 to 50 cents higher than the base price of 250 to 350 a kilogram next era and Edison Electric Institute labs some key reasons why they say hourly matching will drive up costs. One has to do with location, or more precisely, the fact that some parts of this country have less clean energy than others. Edison Electric Institute noted that requiring hourly matching would disadvantage producers in some geographical areas, and are noted as saying, quote, although hourly matching may be achievable more quickly in certain regions in the United States. With the appropriate renewable generation mix, it will take longer in many areas of the United States. And NextEra wrote that hourly clean energy matching would require green hydrogen projects to quote buy time correlated renewables during periods of under generation, which corresponds to higher market price periods.
But proponents of strict hourly matching rules out that the availability of clean energy ought to be a primary factor in deciding where to produce green hydrogen. That's not just because clean energy is a vital input to producing carbon free hydrogen they say it's also because electricity prices a major factor in hydrogen costs are usually lower at times when clean energy is plentiful, and at higher times, when electricity demand spikes and at higher proportion of hydrocarbons that are used to make up the balance. In a quote from Beth Deane, Chief Legal Officer at electric hydrogen, which is advocating for stringent tax credit rules. The levelized cost of hydrogen is very much driven by the cost of energy. And the fortunate thing is that the cost of energy is also lowest when the carbon or carbon intensity of grid electricity is lowest, or when you have a grid that's pouring off energy because it's not needed. Those price differentials are likely to become more pronounced, as the country adds increasingly more low cost solar and wind power to meet its climate goals. Deane also pointed out that some of the arguments against strict hourly matching are being put forward by companies that are already made plans to invest in hydrogen production in areas that lack ample renewable resources today, plug powers first hydrogen facility is being built in Georgia, a state with a current power mix of 47% natural gas 16% coal 24% nuclear and only 8% renewables. Florida the home of NextEra's own utility Florida Power and Light, get 75% of its power from natural gas 5% from coal 13% from nuclear power, and less than 1% from renewable energy.
Now, Deane did acknowledge that strict rules would make green hydrogen production less viable in certain regions in the next few years, but argued that ensuring hydrogen production doesn't boost overall carbon emissions is the most important goal. She says folks that want lack standards have their business reasons for them, and they're entitled to their points of view. But we want to make sure people are thinking long term rather than short term. Okay, so I'm gonna go ahead and stop right here. And much like the last article, this one is quite extensive. But what I would like to do is in the next podcast finish off this article, because it gets into the pros and cons of running electrolyzers 24/7. Now, again, much like the first article, I think it's important to note that this analysis in this argument is strictly on the electrolyzed hydrogen model, and has nothing to do with any of the other hydrogen development technologies on the market today, or coming on market in the near future.
And last time, I did note why I understand the argument for additionality of renewables to be used in the development of hydrogen. But what I find very interesting, and especially in the last part of this article that I read today, is where it mentions the importance of geography in electrolyzed Hydrogen,. More specifically, the additionality arguments being made towards this kind of hydrogen development. Now, specifically, they mentioned Georgia and Florida. But they only covered what's going on right now, as far as the energy generation spectrum in those two states. But the fact is, if you take out the political spectrum of renewable energy generation, everything is extremely boiled down to the varying climates around the world, notably, where you have the most solar radiance or wind or geothermal activity, and that's where locationality comes into play. And something that the electrolyte is hydrogen movement may be succumb to. Now personally, I think hourly reporting is ridiculous.
If you can show as an electrolyzed hydrogen developer, that you're getting your energy needs sourced from a renewable power system that's about as green as you can get under their arguments. And it seems irrational to have renewables on site for this development. Ultimately, we will have to wait and see what the federal government determines. But I would say more likely than not that the US government is going to listen to groups like NextEra, and BP and throw out these hourly reporting systems as it just doesn't make any sense.
All right, again, that's it for part one of this article. I'll be back next time with the second half of this article and my analysis of that. But until then, if you have a second, I would really appreciate it if you could leave a good review on whatever platform it is that you listen to Apple podcasts, Spotify, Google, YouTube, whatever it is, that would be a tremendous help to the show. And as always, if you ever have any feedback, you're welcome to email me directly at email@example.com.
And as always, take care. Stay safe. I'll talk to you later. Hey, this is Paul. I hope you liked this podcast. If you did and want to hear more. I'd appreciate it if you would either subscribe to this channel on YouTube, or connect with your favorite platform through my website at www.thehydrogenpodcast.com. Thanks for listening. I very much appreciate it. Have a great day.