Posted on October 19, 2023 by Emma Quigg and Natalie Houghtalen
On October 13th, the U.S. Department of Energy (DOE) selected seven public-private partnerships spanning 16 states as part of DOE’s Regional Clean Hydrogen Hubs program (H2Hubs). Created by the bipartisan Infrastructure Investment and Jobs Act of 2021 (IIJA), the seven hydrogen hubs are expected to stimulate $40 billion in private funding, resulting in a combined public and private investment of nearly $50 billion, and create more than 330,000 direct jobs. These hubs can potentially reduce the emissions equivalent to over 5.5 million cars.
The H2Hubs represent the growing market demand for domestic, clean hydrogen that can reduce emissions in difficult-to-decarbonize sectors, like steel or other industrial applications.
Hubs Announced
The DOE selected seven hubs across the country that will utilize diverse feedstocks to produce hydrogen for various end-uses. Initially, the DOE received 79 applications and encouraged 33 applicants to submit complete applications. Because of this competitive process, the seven awardees will exceed the required 50/50 cost share and match more than five dollars in private investment with every U.S. taxpayer dollar. In addition to incentivizing massive private investment, the hubs will create thousands of jobs. The Alliance for Renewable Clean Hydrogen Energy Systems (ARCHES) hub anticipates creating 220,000 direct jobs – 90,000 permanent jobs and 130,000 construction jobs. The other six hubs range from 3,880 to 45,000 direct jobs.
H2Hubs Project Details
Source: Appalachian Regional Clean Hydrogen Hub (ARCH2),Alliance for Renewable Clean Hydrogen Energy Systems (ARCHES), HyVelocity Hydrogen Hub, Heartland Hydrogen Hub, Mid-Atlantic Clean Hydrogen Hub (MACH2), Midwest Alliance for Clean Hydrogen (MachH2), Pacific Northwest Hydrogen Hub (PNW H2)
Diversity of feedstock and end-use pathways is key to the long-term success of the hydrogen market in the U.S. It adds resiliency to the regional value chain and encourages the adoption of low-emissions technologies across the U.S. The IIJA required the DOE to select diverse feedstocks and end uses. Electrolysis via renewable energy represents the majority of production. It is in five of the seven hubs; natural gas with carbon capture and storage (CCUS) is utilized in three hubs, nuclear energy is used in two hubs and biomass is used in one hub. Most hubs contained more than one type of end-user sector with various end uses, including glass production, power generation, refining and petrochemicals.
Looking Ahead
Next Steps on Hub Development
As recommended in ClearPath’s implementation memo from January 2022 following the passage of IIJA, the DOE has a milestone-based, four-phase funding structure for the implementation of the H2Hubs program, in which it will evaluate each hub between phases for the next tranche of funding. Since clean hydrogen is a nascent energy sector without much-existing infrastructure to leverage, the hubs will need to build out infrastructure and at the same time, lower costs. This presents a challenge that phased funding helps solve by ensuring if a hub is not able to move forward, then funds can be reallocated to other hubs that can reach the next project phase.
45V Hydrogen Production Tax Credit
In addition to the hub funding, the awardees can use the 45V tax credit, which is a financial incentive for hydrogen producers, tiered based on the emissions intensity of production. Lower-emissions hydrogen receives a higher tax credit. The tax incentive boosts hub economics by lowering the price of produced hydrogen, which focuses IIJA funds on early-mover infrastructure costs. The tax credit also sends a market signal to interested developers to join an established hub. The U.S. Department of Treasury is in the process of developing the guidance for 45V, which is expected by the end of 2023. Clarity on the applicable tax credit amount is important to the hubs’ financial and project planning because a lower-than-anticipated tax credit would redirect funds away from capital investments toward lowering costs. It is vital for the Treasury to finalize guidance before the hubs finish contract negotiations in Q1 of 2024.
Hydrogen Pipelines
It is equally essential that the hubs develop cohesive midstream infrastructure because distribution and storage can more than double the cost of delivered clean hydrogen. To reach net-zero by 2050, the DOE anticipates that 30 percent of total hydrogen investment must be in midstream infrastructure. In the ARCH2 description, the White House specifically mentions, “the strategic location of this Hydrogen Hub and the development of hydrogen pipelines, multiple hydrogen fueling stations, and permanent CO2 storage also have the potential to drive down the cost of hydrogen distribution and storage.” However, in a recent report, the International Energy Agency said current project lead times are too long and can act as a barrier to clean hydrogen uptake, urging governments to make “licensing and permitting processes as efficient as possible.” To recognize hydrogen’s full potential, regulation and permitting must be improved so hydrogen developers can efficiently and affordably deploy midstream infrastructure.
Development of a Supplementary H2Hubs Program
The DOE Office of Clean Energy Demonstrations (OCED) is also developing a demand-side mechanism to support reliable offtake for H2Hubs. The purpose is to tackle revenue uncertainty from the imbalance caused by short-term offtake contracts and expected cost reduction from fast-follower producers. The agency released a Request for Proposal (RFP) seeking an independent entity to administer the initiative earlier this year. Note the DOE is expected to make its selection by Q1 of 2024.
Our Take
The Regional Clean Hydrogen Hubs signify a bipartisan effort to increase American energy and national security by utilizing America’s domestic energy resources, while tackling emissions from difficult-to-decarbonize sectors.
This ambitious initiative, born from bipartisan collaboration and enacted in the IIJA, embodies a vision that emboldens American innovation. It harnesses our natural resources and further reduces global emissions while growing our economy. These hydrogen hubs, spread across 16 states, carry the promise of not only creating hundreds of thousands of jobs but also securing the nation’s clean energy future. By fostering a clean and affordable hydrogen industry that utilizes American resources, the hubs align seamlessly with conservative goals of improving domestic energy security and bolstering local economies.
