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What is the impact of US policy on green hydrogen?

Updated: Aug 29, 2023

The Inflation Reduction Act is the most recent policy initiative to include funding for clean energy. This follows the Jobs Act of 2021 and the Investment Tax Credit before that. The IRA appears to be the most impactful as it assigns $369B in new spending for renewables. That is an enormous amount. As a result, clean energy projects in the US are accelerating with new investments in solar, wind, and my favorite, hydrogen.

Globally, electrolyzer shipments are set to double in 2023 with the fastest growth seen in the US. This trend dovetails with the increase in wind and solar investment. The US solar industry believes over the next ten years there will be a 48% increase in solar deployment than would otherwise be expected without the IRA. As more renewable energy sources come online, and the price of the electricity produced comes down, the ability to add green hydrogen production increases in tandem. Excess midday power from existing renewables, creating the famous duck curve, can be redirected to electrolyzers instead of curtailment and taking solar and wind farms offline, optimizing the entire network.

The $3/kg production tax credit provision of the IRA will have a monumental impact on the ability of green hydrogen to compete in the market with blue and gray hydrogen in the near term. Many end users prefer green hydrogen to reduce their CO2 emissions but some have difficulty absorbing the price difference. The provision provides a ten year runway to allow the market and technology to evolve until green hydrogen reaches price parity with its less carbon friendly siblings. Guidance from the US Treasury Department is imminent and will determine how emissions intensity of electrolysis-based hydrogen is calculated and how producers can qualify. A friendly ruling will undoubtedly increase the number of US suppliers.

Prior to the IRA, the bipartisan Infrastructure Investment and Jobs Act of 2021 included $8B for hydrogen hubs in addition to the investment in roads and bridges. The hydrogen hubs will be awarded next month to incentivizing producers and end users to work together to develop a localized hydrogen value chain. There will be eight to ten geographic regions selected. The objective is to increase supply, stimulate demand, and jump start the hydrogen economy to help it become self-sufficient. The diverse regional hubs will work independently and include a variety of hydrogen supply methods, including green hydrogen from electrolyzers.

The hydrogen friendly environment in the US is the catalyst for companies to build new fuel cell and electrolyzer manufacturing facilities like Plug Power's sites in New York and the NEL Hydrogen factory in Michigan. Plug opened the Vista Technology Park in Slingerlands, New York creating 1600 jobs this past January. This follows the opening of Plug's gigafactory in Rochester in 2021. NEL is a Norwegian company and selected Michigan for its newest plant after considering numerous US and European sites. The new factory will create 500 jobs. The selection of a non-European site was a huge surprise and may lead to other European companies to follow NEL to the US.

The affordable and reliable supply of hydrogen is an important element of the clean energy future and supportive legislation gives the US a significant boost. Without this assistance green hydrogen in particular would have a difficult time competing against carbon based hydrogen and fossil fuels. This new paradigm of localized production and a public-private partnership will alter the geopolitical environment as well as clean the environment. The hydrogen friendly US policy will get much of the credit.

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