Paul Rodden • Season: 2024 • Episode: 372
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Welcome to The Hydrogen Podcast!
Episode 372, In this episode, Paul discusses the U.S. Treasury’s finalized 48E tax credit rules, explaining their impact on the hydrogen economy. He highlights how the incentives lower costs, promote innovation, and drive investments in hydrogen infrastructure, setting the stage for clean energy growth.
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Transcript:
Big news last week as the US Treasury releases the final rules for the energy investment tax credit. Just what is the 48e and how does it apply to the hydrogen economy? I’ll go through the ins and outs and give my thoughts 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.
Okay, welcome back to the hydrogen podcast now, today is going to be a little bit different, since big news hit last week that the Treasury Department has finally released their final rules for their clean energy investment tax credit, or the 48e and so today, what I’d like to do is break that out a little bit and see just how it applies to the hydrogen economy.
Okay, so what is Section 48 investment tax credit? Well, it’s a policy to promote clean energy investments, and it’s a part of the IRA. And these rules provide clarity on eligibility and guidelines for projects to qualify for the ITC and related adders, ensuring a smoother transition to clean energy. And so first off, the ITC now applies to a wide range of clean energy technologies like solar, wind, geothermal, hydrogen storage and biogas. And starting in 2025 it will transition to a technology neutral structure, which is the sections 45y and 48e which support projects with zero or negative greenhouse gas emissions. There’s also a base and bonus credit so that projects will receive a base ITC of 6% which can scale up to 30% if prevailing wage and apprenticeship requirements are met and an additional 10% bonuses are available for projects using domestic content or located in energy communities or areas impacted by legacy hydrocarbon activities.
They also had some clarifications in the final rules, such as co located energy storage or energy storage technologies co located with ITC qualified facilities that can claim the credit. We also have the hydrogen projects or storage systems for hydrogen can now qualify even if the hydrogen serves non energy purposes. We also have ownership factors, so for energy properties, at least four of seven outlined ownership factors must be satisfied during construction or operation. And lastly, there’s the direct pay and transferability, so tax exempt entities can receive the credit as a direct payment, and credits can also be transferred to third parties, enhancing project flexibility. And so this new clean electricity investment tax credit is going to replace the previous tech specific credits with a technology neutral approach supporting any project with zero and negative greenhouse gas emissions. And so for hydrogen, this is going to include electrolyzers, fuel cells and hydrogen storage systems.
And so then, why is hydrogen central to the section 48e Well, hydrogen is key to decarbonizing sectors like steel production, heavy transport and chemical industries. So what is the challenge? Well, producing green hydrogen using renewable energy is expensive, and here’s where the section 48e steps in. The first is that it’s going to lower costs, and by covering up to 30% of project investments, Section 48e makes electrolyzers and storage systems more affordable. It also offers versatility. The final rules clarify that hydrogen storage doesn’t need to be solely energy related. So that’s going to open the door for broader industrial applications. And what about the Co Location synergies? Hydrogen projects co located with renewable power plants can share equipment and maximize ITC benefits. So how do you maximize that full potential with all the bonuses in the ITC.
Well, to do that, projects must meet these specific criteria. The first is that you have to have prevailing wage and apprenticeship, or ensuring fair wages and skilled labor boost the credit to 30% you also need domestic content or projects using us made components that are going to earn an additional 10% and then you have energy community bonuses or investments in areas transitioning from hydrocarbons that are going to qualify for another 10% there. This incentivizes building hydrogen infrastructure and economically challenged regions, creating jobs and diversifying the energy mix. What’s also important to note is that it’s going to transition to technology neutral incentives. So starting in 2025 the section 48e moves from targeting specific technologies like wind or solar to supporting any clean electricity project with net zero emissions. Now for hydrogen, this means sustained support for both renewable powered elect. Utilizers and innovative storage solutions, and these rules also ensure consistency and predictability for investors, reducing the boom and bust cycles of past clean energy policies.
So now let’s think of a real world example where this might work. Let’s say a hydrogen company is planning to build a hydrogen production facility powered by wind turbines like say, maybe what plug power is looking to do here in Texas, which has an abundance of wind energy? Well, they can claim the ITC for the electrolyzers, use domestically manufactured parts and locate the project in an energy community. Now, I realized that the plug facility is going to be located near Beaumont, which is down by the coast. But if I go to my hydrogen prospector map, I can see that there are dozens of locations just within the state of Texas where legacy oil and gas communities are also enriched with an abundance of wind energy. Areas like the Permian Basin in West Texas, or the Hugoton field in North Texas, or the Barnett field around DFW. And so with this in mind, the section 48e is really more than just a tax credit. It’s a cornerstone of the hydrogen economy. It’s going to be reducing costs and fostering innovation.
And so by providing targeted incentives and long term stability, it accelerates the shift to clean energy. And also today, I would like to thank Reuters and Mitsubishi Americas for their hospitality last week at their energy live event here in Houston, it was a great gathering, and it was good to see hydrogen being brought into the energy mix. The panels were fantastic, and the keynotes from Sanjay Shrestha and Bill Newsom were incredibly insightful. It was also great to see Parker Meeks on stage discussing Hyzon recent successes, and the atmosphere around the expo was surprisingly positive. I was in several conversations revolving around the new administration. In my thoughts on the next 18 months and also the next four years. Many of these conversations also included the pain points being felt around Europe, how they can or should move forward, and how to still avoid economic hits that they’ve been feeling recently. I also want to give Katya and Alex at Reuters a big shout out for all the help they gave us in getting our space for our on site interviews. Thank you both for all the help.
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 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 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.
