New Initiative to Develop End User Demand for Clean Hydrogen

The U.S. Department of Energy recently announced a $1 billion initiative to build demand for clean hydrogen that is a linchpin of the Biden Administration’s clean energy efforts. The agency released a notice of intent and request for information for the program that seeks to “help ensure both producers and end users in the H2Hubs have the market certainty they need during the early years of production to unlock private investment and realize the full potential of clean hydrogen,” a release indicated. The Inflation Reduction Act (IRA) and the Bipartisan Infrastructure Law (BIL) provide $7 billion for the development of up to 10 regional clean hydrogen hubs (H2Hubs), along with tax incentives for the production and use of hydrogen. Hydrogen is seen as a clean fuel of the future that has the potential to reduce greenhouse gas emissions from hard-to-decarbonize industrial sectors, such as steelmaking, ammonia production, and long-distance transportation. When burned in a fuel cell, hydrogen produces only water vapor. It can be produced in several ways, most commonly from natural gas using steam methane reformation. While this process produces GHG emissions, it can be coupled with carbon capture and sequestration (CCS) to produce so-called “blue hydrogen” that has very low emissions. CCS is also in its nascent stages. Hydrogen can also be produced from water using electrolysis and other methods, and if the electricity used is from renewable sources, it is considered “green hydrogen.” But convincing end users in heavy industry to use the fuel and create demand for the clean hydrogen is seen as one of the big challenges to the hub concept. The Energy Futures Initiative recently released a report noting the challenges and providing policy steps to drive demand. DOE’s Pathways to Commercial Liftoff Report and National Clean Hydrogen Strategy and Roadmap for clean hydrogen also highlighted the lack of long-term offtake as a critical barrier. “However, recent federal incentives may not create adequate demand to drive national hydrogen market formation; additional policy and regulatory actions are needed,” the executive summary of the EFI report states. The report “estimates there will be a cost gap between the supply-side incentives of the IRA and the conditions needed to kickstart demand for most commercial uses.” The DOE believes that the developing the demand-side initiative is “critical to ensuring the early commercial viability of a H2Hub given that demand formation for a new energy source typically lags creation of reliable supply,” the statement indicates. The new program hopes to provide revenue certainty to hydrogen producers in order to attract private sector investments, and provide confidence to end users about the availability and cost of the fuel. The notice of intent asks for feedback from stakeholders about how the program should be developed, and notes several different methods that could be used. Those could include pay-for difference contracts that guarantee a set price and allow the government to make up the difference, a set amount of support per kilogram of hydrogen on top of other incentives, or other options. “Tools that mitigate market risk for clean energy technologies during scale-up could meaningfully accelerate commercialization of these technologies, especially in clean hydrogen,” Two groups are vying to form regional hydrogen hubs in Appalachia using abundant natural gas to make clean hydrogen, including the Decarbonization Network of Appalachia (DNA) effort led by Team PA Foundation, and the Appalachian Regional Clean Hydrogen Hub (ARCH2) backed by the state of West Virginia. The award of funding for the H2Hub projects is expected later this year, and the incentives to drive end use demand will be critical to the development effort.