Report: Demand Development, Cost Reduction Keys to Hydrogen Adoption

The billions of dollars contained in recent federal legislation to spur the development of regional clean hydrogen hubs is a promising foundation for the emerging technology, but more must be done to develop viable end-use markets and reduce its cost, a new report determined.

“The U.S. Hydrogen Demand Action Plan” was released last week by the Energy Futures Initiative, a nonprofit think tank led by former U.S. Secretary of Energy Ernest Moniz. The study represents two years of research, including a study of U.S. hydrogen investments, three regional workshops and numerous interviews with leaders in industry, government, and academia.

The recently passed Inflation Reduction Act (IRA) and the Bipartisan Infrastructure Law (BIL) provide $7 billion for the development of up to 10 regional clean hydrogen hubs, along with tax incentives for the production and use of hydrogen. The subsidies have created a healthy competition among many groups vying to form regional hydrogen hubs, 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. Both groups are aligned with major industry backers, and have received encouragement from the U.S. Department of Energy (DOE) to submit full applications for funding to develop an Appalachian hub.

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 if the electricity used is from renewable sources, it is considered “green hydrogen.”

The IRA incentives can significantly lower the cost of clean hydrogen production, the EFI report found, with its modeling suggesting an average cost of between $2 and $7 per kilogram.

“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 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 EFI estimates that hydrogen costs may be competitive in the $0.27 to $0.90 per kg range for industrial users to make the conversion.

The EFI Action Plan outlines a number of actions to drive demand for national hydrogen market formation, including:

· Deploying regional hubs as engines for market development, significantly increasing DOE funding for the program, and creating robust information-sharing requirements for all hubs to share lessons learned;

· Activating early investments for market-ready applications, by increasing research and development, maintaining flexibility in market formation, and developing a phased approach for tax credits;

· Prioritizing local and regional workforce development and community benefits;

· Expanding research and development and development cross-functional centers of innovation to decarbonize industrial clusters;

· Prioritizing infrastructure permitting and U.S. supply chain development, working to overcome siting, permitting, and operational challenges; developing a public-private partnership model for CO2 storage management, and beginning to regulate the blending of hydrogen into natural gas pipelines.

During a recent webinar to unveil the action plan, Moniz explained, “As our report indicates, we have a fabulous foundation, and now we need to finish the job.” EFI believes more resources are needed to make hydrogen a commercially viable fuel.