April 13, 2023 • Paul Rodden • Season: 2023 • Episode: 205
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In episode 205, What are the arguments for additionality and running? electrolyzers 24/7. I'll go through the second half of the Canary media article on this on today's hydrogen podcast.
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What are the arguments for additionality and running? electrolyzers 24/7. I'll go through the second half of the Canary media article on this 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 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. So today, we're going to cover the second part of the Jeff St. John and Canary media article regarding the battle on green hydrogen, which in today's case means focusing in on the pros and cons of running electrolyzers 24/7. And what that means to the renewable energy load. And additionality. Jeff writes, another key argument for why hourly matching will drive up hydrogen costs is that it would require electrolyzers to curtail production when renewables aren't available. And that's a problem. NextEra wrote because hydrogen production equipment remains expensive and requires high utilization to improve the overall facility economics.
Edison Electric Institute agreed that quote, if time correlated renewables are not available, the green hydrogen project maker tale its electrolyzer, leading to long idle times. hydrogen production equipment remains expensive and requires high utilization to make hydrogen production facilities economic Plug Power made similar arguments and it's IRS comments quote, electrolytic hydrogen facilities must maintain high capacity and utilization factors and as a result, we'll need to operate at times of the day and night that would preclude the availability of renewable energy credits under any hourly based time matching work. In a March report, research firm rhodium group highlighted another reason why a hydrogen producer may be economically compelled to run as close to around the clock as possible. Many in uses of hydrogen such as chemicals, manufacturing, and fertilizer production, quote, need a relatively constant supply of hydrogen, it's report states and providing that constant supply under strict hourly matching rules would be more expensive. Quote today firmed clean electricity contracts come at a cost premium does according to rhodium, pairing solar power with batteries capable of storing and shifting that power.
The most common way clean power can be firmed today could increase the total subsidized cost of hydrogen production from a range of 93 cents to $2.98 per kilogram to a range of $1.49 to $3.65 per kilogram. Its analysis found potentially pushing higher end prices beyond the level of the $3 per kilogram tax credit. Proponents of the stricter hourly matching rules point out that hydrogen producers would not be prohibited from running their electrolyzers at times when the electricity powering them isn't clean. But they argue the hydrogen produced at those times simply wouldn't be eligible for the most lucrative tax credits. But what about additionality? Some of the companies pushing for more lenient tax credit rules have plans to produce hydrogen using specific sources of carbon free electricity, just not new sources. They argued that the use of this carbon free power should be enough to qualify as clean under the tax rules. Plug Power, for example, has contracted with the New York Power Authority to supply its planned electrolysis facility in New York State with electricity generated by existing hydropower resources. And for utilities that own nuclear power plants. Arizona Public Service Constellation Energy, energy harbor and Xcel Energy are partnering with the US Department of Energy on pilot projects to use their nuclear plants to produce hydrogen. Constellation Energy which owns 19,000 megawatts of nuclear power plants across the country is lobbying the federal government to allow hydrogen produced using the power to earn the maximum production tax credits. But advocates of strict tax credit rules argue that if these kinds of projects would divert from carbon free electricity from the grid over the next few years, even as clean power will be needed to run electrified homes and electric vehicles.
As hydrogen production ramps up to meet huge anticipated demand. This threat is all the more concerning they say. That's why these advocates are pushing the IRS to insist on additionality requiring hydrogen projects to add clean new electricity sources to power their operations without such requirement using quote existing clean resources completely eliminates any omissions benefits of an hourly matching requirement. This according to zero labs modeling, Jenkins of zero lab argued in a Twitter thread that using existing carbon free energy to power hydrogen production quote, leads to exactly the same bad outcome as just plugging into the grid and doing nothing. That's because the clean power going to those new electrolyzers is being taken away from the grid at large, leaving gaps to be filled by whatever generation is left. Some of that electricity will come from the wind and solar power, but the rest will come from hydrocarbons leading to this hydrogen production pushing up carbon emissions. Jinkins contended, electric hydrogen CEO Raffi Garabedian also argues that running hydrogen operations on round the clock baseload carbon free electricity sources such as nuclear and hydropower is a particularly bad idea.
His company is designing electrolyzers intended to run on solar and wind power that can ramp up and down to match surges and sags and generation according to Garabedian, and the last thing you want to do is add more baseload demand, we're deploying more and more variable renewables that are stressing ramp rates and transmission capacity. That's why we're building so much battery storage. And now we're going to take all that expensive battery stored energy and move it into electrolyzers. That doesn't make any sense. Garabedian pointed out that hydrogen facilities that run on variable renewables actually help the grid because they can soak up excess clean power produced during certain hours and seasons. That excess clean power will be an inevitable result of building the gigantic amounts of wind and solar, the country will need to fully decarbonize its grid. He also says this is exactly why we have been working so hard toward this singular goal of making an electrolyzer plant that's really cheap. And if it's cheap enough, you can afford to use really cheap energy to run your electrolyzer intermittently, and that's completely green hydrogen.
But what about a phased in approach, proponents of stricter tax credit rules want to ensure that a clean hydrogen industry aligns with long term decarbonisation goals. The company's pushing for more lacks rules are primarily focused on creating an economic framework that will help the clean hydrogen industry grow to commercial scale in the next few years. Given the uncertainties involved in the early stages of clean hydrogen growth, some groups in the latter camp are calling for the federal government to start with looser rules and phase in stricter clean energy requirements over time, the energy Futures Initiative, a research group led by former Energy Secretary Ernest Moniz and advised by companies including Duke Energy, Exxon Mobil, National Grid and Toyota make that argument and a February report highlighting the uncertain path for growing clean hydrogen supply and demand in the United States. One major problem is on the demand side, the report states today relatively few buyers of clean hydrogen exist, so it's unclear just how much money producers can expect to make to earn back their initial investments. Given that demand uncertainty report argues that the IRS should consider a phased approach that enables investors to start the project development process in the near term, but that also maintains flexibility to adjust requirements over time.
For example, the IRS could initially require annual estimates of lifecycle emissions, allowing producers to combine multiple energy input types and phase two daily or hourly data over time. Plug Power has also called for starting with broader annual clean energy matching and moving towards stricter hourly accounting over time. There's quoted as saying, when we fast forward five to seven years, our plants will largely run behind the meter with a mix of wind and solar. And it's March report rhodium group highlights another reason for allowing a phase in for stricter, hourly matching rules. If making quote green hydrogen is too difficult in the next few years. There's quote a risk of lock of blue hydrogen or hydrogen made from hydrocarbons with carbon capture as the leading technology producing clean hydrogen. The rhodium group report notes that existing blue hydrogen producers might be able to earn tax credits in a relatively straightforward manner even as hydrogen electrolysis projects faced more complex tax credit rules that stifle investment that could lead to a competitive advantage for hydrocarbon based hydrogen industry. The report warns, but not all analysts see this threat materializing. However, blue hydrogen deals with its own challenges this according to Rachel Fakhry, who leads the hydrogen and energy innovation portfolio at the National Resources Defense Council. The technology to effectively capture the carbon emissions from Steam methane reforming And to transport and store carbon in a way that prevents it from escaping into the atmosphere has not yet been proven to be effective at commercial scale, and public opposition to projects for capturing, transporting and storing carbon underground is a significant barrier for blue hydrogen she added. If a phased in approach is taken, clean energy groups want to make sure that projects that start collecting tax credits, under looser rules are ultimately required to follow stricter rules when they come into force.
But in it's comments to the IRS the utility funded trade group Edison Electric Institute proposes a lock in for looser rules, the provisional emission rate should be guaranteed so the project can proceed to development the group stated early certainty of emission rates will be essential for timely clean hydrogen project development. But Fakhry contends that allowing projects to keep operating under looser rules won't just risk using taxpayer money to support hydrogen production that increases carbon emissions, and also risks undermining the competitive economics of projects that are designed to only produce hydrogen when clean power is actually available to them. That could leave the country with a hydrogen producing industrial capacity that's optimized to run around the clock, not one that's designed to ramp up and down to absorb the growing amounts of solar and wind power, the country will need to build to decarbonize, she is quoted as saying the size of the subsidy is so large that any phase in has to be very carefully designed. If a phase in allows really bad projects that will never be consistent with emissions thresholds or what we need from assets on the grid, then we have a big problem. Okay, so quite the debate on the green hydrogen stage as to what constitutes something that is fully green and should be deserving of the federal tax credits. And it's also interesting to see how they bring in hydrocarbon derived hydrogen into this argument, and the possibility that that technology could be getting these tax credit incentives before green hydrogen.
Now, this article does say that carbon capture at scale is not yet cost effective. But we know that Exxon is building a plant that will make it cost effective in the near term. I also find it interesting that a large part of this argument against using the current grid structure for electrolysis is the expanded electrification of the United States. When let's be honest, a shift towards a hydrogen utilization model could decrease the load requirements in many areas of the United States. But ultimately, I think we all know that economics are going to push how the incentives get dispersed, which will mean one of two things. One that if additionality and hourly reporting requirements do get initiated, it won't be for quite some time. That's one to that hydrocarbon source, hydrogen will continue to lead the way as the primary source for hydrogen around the world.
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