US hydrogen developers need clarity to improve economic viability: industry

Hydrogen industry members and investors are expressing concerns over the economic viability of hydrogen projects as they await production tax credit finalization, panelists said at a Dec. 4 Reuters Events: Energy LIVE 2024 conference panel.

The hydrogen industry is currently waiting to see what impact the upcoming president-elect Donald Trump administration will have on the Inflation Reduction Act, with panelists specifically highlighting the draft hydrogen production tax credit.

Gonzalo Ramirez, vice-president of clean ammonia at oil and gas company INPEX, said he expects the hydrogen production tax credit, called 45V, will "remain relatively stable" under the new administration. INPEX is developing green and blue hydrogen and ammonia.

"That stability and that certainty needs to be there in order for us to keep moving ahead with all the engineering and all the project development costs that we are now facing," Ramirez said. "Partners, investors, are a little wary ... we need to wait a little bit to see what happened with 45V, but we are moving ahead."

"Hopefully, everything is going to be favorable for all these production projects that we are developing," he added.

The incomplete 45V program is "very bad for investors," particularly in long-term and very large-scale projects, said Ana Quelhas, managing director of hydrogen at EDP.

"Uncertainty and financing those projects, they don't go together," Quelhas said. "It's reasonable to question if we should still be looking at the opportunity or at least dedicate so much resources at this point in time and taking decisions, investing in the development of projects with this big cloud behind preventing us to have visibility on the long-term profitability of the projects."

Sanjay Shrestha, president of Plug Power, said he is cautiously optimistic. He said if 45V is implemented, it could help create demand for clean hydrogen by driving down the cost of the molecule and making it more cost competitive.

"As an industry, need to educate this incoming administration and collaborate and make sure that the momentum that is already here continues, and we can actually really do the right thing from a national energy security perspective," he said.

The US has an opportunity to be a leader in clean hydrogen, "if we can actually get 45V set up in the right way," said Tomeka McLeod, vice-president of US hydrogen at BP.

"We have an ambition, 5 to 10 clean hydrogen projects online by the end of the decade," she said. "So, we're still working through that, but we want to be pragmatic about it, make sure that the economics of those projects work, and they need to be able to compete within our portfolio."

McLeod said some aspects relating to blue hydrogen, or clean hydrogen produced with natural gas as a feedstock, need to be "hammered out." She said the use of RNG or certified natural gas was "not really laid out and not clear," saying these options would reduce carbon intensity.

These feedstock alternatives and the use of steam integration "would allow blue projects to get the full $3 per kilogram" production tax credit, which would make BP hydrogen projects to be "some of the most competitive projects globally," she said.

BP is primarily focused on two geographies for their US-based hydrogen business, that being the Gulf Coast and the Midwest, McLeod said. The Gulf Coast is a "really good geography to be able to do blue hydrogen and particularly blue ammonia as well," she said.

BP is also part of the recently-launched $1 billion Midwest Alliance for Clean Hydrogen Hub and plans a blue hydrogen facility that would provide clean hydrogen to a BP refinery "as week as some of the demand in the area," McLeod said.

Platts, part of S&P Global Commodity Insights, assessed the average cost of producing hydrogen via alkaline electrolysis in the Gulf Coast at $2.91/kg in October, based on month-ahead grid power prices and including capex. This assessment shows the region's alkaline production costs as one of the cheapest worldwide, according to Platts data. Platts assessed the price of low-carbon ammonia in the region at $510/mt on Dec. 3.

US midcontinent hydrogen production via alkaline electrolysis was assessed by Platts on average at $4.16/kg in October.

Production costs with the more expensive proton-exchange membrane electrolysis pathway were assessed at $3.41/kg in the Gulf Coast and $4.6/kg in the midcontinent on average in October, Platts data shows.