August 03, 2023 • Paul Rodden • Season: 2023 • Episode: 234
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Welcome to The Hydrogen Podcast!
In episode 234, Bloomberg Law talks hydrogen demand contracts. I’ll go over their talking points and give my thoughts on how location Analytics can help move those contracts forward. All of this on today’s hydrogen podcast.
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Paul Rodden
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Transcript:
Bloomberg Law talks hydrogen demand contracts. I’ll go over their talking points and give my thoughts on how location Analytics can help move those contracts forward. All of 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.
In an article in Bloomberg Law, Daniel Moore writes hydrogen subsidies and contracts in spotlight as us ways demand. Daniel writes us energy officials must craft incentives that cover steep upfront costs and leverage government buying power to scale up adoption of hydrogen in the power sector, ammonia production, heavy trucking, and other hard to decarbonize areas this according to industry leaders, that input came as feedback to the Energy Department’s $1 billion program for demand side mechanisms announced and a Notice of Intent this month. policies being crafted are crucial that link supply and demand in a nascent industry. This is according to the agency, as they will create certainty for the first wave of hydrogen producers that there will be customers for their product. The policies also provide the certainty needed for customers to make investments to use that hydrogen. The program aims to fill a gap in incentives to scale up a hydrogen industry as part of the Biden administration’s goal of achieving net zero greenhouse gas emissions across the US economy by 2050. Clean hydrogen is envisioned to use renewable or zero carbon electricity to split water into oxygen and hydrogen molecules.
To achieve this goal, the government should support feasibility analysis, an important early step for possible buyers to assess what new technologies may be needed to use hydrogen as well as contracts for the difference, a mechanism that reduces the cost gap between clean hydrogen and conventional fuel this according to one influential trade group, those contracts should be flexible and run at least 10 years as shorter term deals may not provide the certainty needed to attract investment in clean hydrogen projects and spur demand that according to comments submitted this week by hydrogen forward a group of nine companies interested in hydrogen across the supply chain that includes Cummins, Linde, Hyundai and Toyota. Such contracts have been used in the UK since 2014. To support a range of renewable energy projects that are awarded for a period of 15 years. Others are skeptical those contracts could work given the lack of organized markets for hydrogen that have long determined prices for electricity.
This is according to Kyle J. Hayes partner at Foley and Lardner LLP, who wrote comments to the DOE on behalf of hydrogen investors, project developers equipment manufacturers and others. The DoE could instead support a take or pay contract, a common agreement in the oil and gas sector that obligates an off taker to take the molecules or if they don’t pay a certain amount. Again, according to Hayes, the agency should also subsidize equipment and upfront pipeline interconnection costs and beef up the credit worthiness of off takers. The department’s program is centered around something that Hayes says he doesn’t know that we’ve necessarily seen before, which is that the DoE is subsidizing commodities for off takers. Hydrogen production could jump from almost zero today to 10 million metric tons by 2030 and reach 50 million metric tons by 2050. This according to the Department’s National Clean hydrogen strategy and roadmap, which was released last month, Congress in the climate and infrastructure laws primarily dangled incentives for the industry to get production facilities. A new clean hydrogen production tax credit promises up to $3 per kilogram of clean hydrogen.
The industry is eagerly awaiting guidance on what types of hydrogen production qualify and the Energy Department is moving forward on its $7 billion regional hydrogen hub program, which plans to scale up a hydrogen industry in six to 10 regions across the country. The hubs are expected to include a mix of hydrogen produced by renewable energy, one from hydrogen source from natural gas and using carbon capture and storage and one nuclear powered hydrogen project. The investment needed for hydrogen to be transported, stored and ultimately used by consumers has been less defined. In a quote from Alejandro Perellón, head of the Americas for Hy24, which is a 2 billion euro fund set up to invest in the entire hydrogen supply chain around the world. Alejandro says that’s the key thing that was missing from the IRA. And talking to folks in the downstream segment. The feedback has been They did wonders for the upstream, but they forgot about us down at the end of the value chain. He also says you kind of have everyone looking at each other and no one wants to take that plunge unless they know what’s coming. In March, a bipartisan group of Senate lawmakers proposed the hydrogen infrastructure initiative, a collection of four bills that target incentives for ports, trucking heavy industry and transportation and storage infrastructure.
The bills quote, fill in the gaps and incentives for the hydrogen industry. This comes in a quote from Senator Chris Coons, a Democrat from Delaware, who introduced the legislation alongside Senator John Cornyn, a Republican from Texas last week. Coons also went on to say demand side drivers like those included in the proposal are the missing link to dramatically scaling the US hydrogen economy. He says he’s optimistic that we have a path forward to advance the bills of this term. Along with sectors like steel and chemicals. Utilities could be a major source of demand given the scale of their distribution networks, but they answer to regulators and Ratepayers sensitive to any hike in monthly bills. So hydrogen cost must gradually fall in order for utilities to blend greater volumes. This is according to Ben Wilson Chief Strategy and external affairs officer and interim president and National Grid ventures. A unit of the London based electric and natural gas utility that operates in New York and Massachusetts National Grid is exploring hydrogen investments and is partnering with a Seattle based startup Modern Hydrogen that is working on distributed hydrogen production technology that serves to disrupt us as according to Wilson, the utility is also involved in a DOE hydrogen hub proposal in the northeast, Contracts for Difference have worked incredibly successfully in the UK to bring down the cost of offshore wind and could work well in hydrogen.
This again, according to Wilson, a heating standard that mandates gas distributors to source increasing percentages of hydrocarbon free gas would also provide steady demand and certainty for hydrogen investors. Wilson also went on to say that the missing piece is that demand pull and not just the demand pull, but they’re kind of a multi your confidence that provides us a signal he says, if we had that, then I think we’d really be off to the races. Okay, so more great commentary on downstream demand for hydrogen. And what tools can and should be leveraged in order to satisfy the lingering questions about supply, as well as decreasing the risk profile on would be downstream projects. Now, one crucial piece of this value chain puzzle that I believe I need to keep emphasizing is the need to incorporate geography into the discussion. The oil and gas industry was a late adopter and bringing in location analytics and geospatial Asset Management as part of their day to day operations. And I don’t want to see that happen with the energy transition. Now, to be fair, the renewables industry has done a much better job of integrating location analytics into their workflows, and some of their data can transition into working with hydrogen datasets.
So with that being said, now must be the time to start thinking geospatially as hydrogen production ramps up, and this word of wisdom is for everyone in the hydrogen space upstream, midstream and downstream or if you prefer thinking about it this way, producers and suppliers, transportation, and off takers all need to think about location analytics. So how does this tie into the topic of off taker agreements and contracts of difference? Well, one of the biggest issues keeping offtake agreements from ramping up is the worry of supply. And another issue is that suppliers may not be as strategic in identifying locations for development as they could be. Leveraging a Geospatial Platform geared with this in mind can drastically lower a project’s risk, as well as increase its economics by lowering the time involved for site selection and identifying opportunity and variability. But beyond that, by integrating a Geospatial Platform into a business development scenario, you can showcase continued hydrogen production to satisfy that 10 to 15 year offtake agreement.
All right. That’s it for me, everyone. 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 will be a tremendous help to the show. And as always, if you ever have any feedback, you’re welcome to email me directly at info@thehydrogenpodcast.com. So until next time, keep your eyes up and honor one another.
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.
