The following article ran in the June 12 issue of S&P Global Commodity Insights' Chemical Week.
The clean hydrogen boom has arrived, at least in the US, as recent legislation and policy incentives create an on-ramp for project investment. According to the Hydrogen Council, more than 1,040 large-scale hydrogen projects — plants with more than 1 MW of electrolysis — have been announced globally as of January 2023, an increase of 350 new proposals since May 2022.
North America accounts for approximately 15% of announced projects, with 135 of the projects aiming to be fully or partially commissioned by 2030, the Hydrogen Council's Hydrogen Insights 2023 report said. Total direct investments of all North American hydrogen projects through 2030 amount to $46 billion, up from the $29 billion recorded last year.
While Europe leads with the most announced projects, North America has the highest percentage of committed investments, with 20% of projects already at the final investment decision stage or beyond, nearly triple the 7% committed in the rest of the world. Although the discrepancy is tied heavily to the North American reliance on low-carbon projects — nearly 75% of announced projects include blue hydrogen, which is produced with natural gas but the CO2 emitted is captured and stored, compared to the rest of the world's 20% — the tangible push for clean hydrogen in the US can be traced to two recent pieces of legislation: the Inflation Reduction Act (IRA) and the bipartisan infrastructure law (BIL).
Since 2021, the total announced production capacity has grown 1.5 times faster in North America than the rest of the world.
The IRA sets aside $400 billion in funding for the energy industry and also introduces a 10-year advanced manufacturing credit for clean energy projects, including a clean hydrogen production tax credit of up to $3 per kilogram, as well as a credit for $85 per metric ton of CO2 sequestered. The bill has catalyzed industrial gases makers to push all-in on massive and many clean hydrogen facilities, by focusing on incentivizing production, allowing for market growth and providing the private sector with the flexibility needed to make significant investments.
The BIL has authorized the US Energy Department to offer up to $8 billion in funding for six to 10 clean or low-carbon regional hydrogen hubs across the US; the maximum a single hub can receive is $1.25 billion. The DOE has also earmarked $1 billion to improve the efficiency and cost-effectiveness of electrolysis.
Of the initial 79 potential hubs that sent in concept papers last fall, the DOE encouraged 33 hubs to apply for funding by April 7; at least 21 hubs have confirmed that they have applied ahead of the DOE's final deadline. The application details are private and the DOE will release further information when the hydrogen hubs are selected to receive funding in late fall 2023.
Under the BIL, the DOE is required to select hubs that use diverse feedstocks — renewables, nuclear and natural gas with carbon capture — and have diverse end-market uses, including industrial and chemicals, the mobility sector and energy generation. The hubs must also be located in geographically diverse areas. Today's hydrogen demand in North America is driven almost entirely by the chemical and refining industries, all of which is met by gray hydrogen.
Specifically, the DOE is intending at least one separate hub to produce green, blue and pink hydrogen; at least one hub to provide hydrogen to the power generation, industrial, transportation, and residential and commercial heating sectors; and at least two hubs to be in regions with strong natural gas.
Many of the 21 potential hubs have opted to produce more than one type of hydrogen to diversify and improve their chances. Seventeen plan on producing green hydrogen, which is generated through electrolysis powered by renewable energy; nine plan on producing blue hydrogen; and seven hubs intend to incorporate pink hydrogen, which is generated through electrolysis powered by nuclear energy.
Part of hydrogen's central place in the decarbonization efforts is due to its unique versatility, nimbleness and resilience as well as its importance to US energy leadership and its ability to reach into high-impact, hard-to-abate sectors, such as chemicals and steel and cement making, Mike Graff, chairman and CEO of American Air Liquide Holdings Inc., said to Chemical Week.
McKinsey & Co. reported that a mature domestic hydrogen market stands to deliver an estimated $140 billion per year in revenue and 700,000 new jobs across the hydrogen value chain in the next decade.
"It is estimated that hydrogen could meet 20% of global energy needs by 2050. Unlocking hydrogen's future potential though, depends on the choices we make today. For the private sector, that's dependent on our investments now, and for our public sector, that's dependent on continuing to establish a policy framework that allows for further market growth," Graff said. "Allowing for flexibility today is so critical to establishing a healthy low-carbon hydrogen economy for the needs of tomorrow."
Location, location, location
Of the 21 potential hubs, four have a focus on the chemicals sector: the HyVelocity Hub, based out of Houston with support from Louisiana; the HALO Hydrogen Hub, a consortium effort from Arkansas, Louisiana and Oklahoma; the Appalachian Regional Clean Hydrogen Hub (ARCH2) centered in West Virginia, with support from Ohio, Pennsylvania and Kentucky; and the Alliance for Renewable Clean Hydrogen Energy Systems (ARCHES) Hub in California.
"These hubs are critical to the maturation of a robust hydrogen economy — one that will not only make low-carbon hydrogen more accessible and affordable to the industrial users in each region, but also support the existing energy workforce present, while creating new, long-term jobs," Graff said.
Air Liquide is a founding member of the HyVelocity Hub, which gives the company a more active role in the formation and governance of the hub; it plays a supporting investment role in ARCH2 that mainly focuses on the development of overall hydrogen efforts in that region, Graff said.
The proposal for HyVelocity Hub, led by a collaboration of academic, nonprofit, government and industrial groups, would expand, modify and repurpose existing infrastructure to meet growing demand for clean hydrogen in Texas and Louisiana. HyVelocity will use both natural gas with carbon capture and renewables to produce hydrogen.
"No place in the country has the Gulf Coast's combination of assets for clean hydrogen generation. [We have] the physical assets of pipeline infrastructure, existing plants and geology ripe for storage, as well as softer factors such as operating expertise and training opportunities," said Brett Perlman, CEO of the Center for Houston's Future, one of HyVelocity's leading partners.
The Texas Gulf Coast is currently producing 3.5 million metric tons of hydrogen per year, one-third of the US' annual hydrogen production. The region's existing assets include 48 hydrogen production plants and over 1,000 miles of dedicated hydrogen pipelines, according to HyVelocity. S&P Global Platts priced the US Gulf Coast hydrogen without carbon capture and sequestration at 82 cents/kilogram for April 2023, with Gulf alkaline electrolysis at $2.09/kg and proton exchange membrane (PEM) electrolysis at $2.94/kg.
The HyVelocity Hub will begin producing green hydrogen at 14% of its total capacity and increasing the share over time. The hydrogen produced will be utilized in industrial heating, chemical manufacturing, power generation, marine and transportation. The hub requested $1.25 billion from the DOE and announced it has matched that total with funds raised by its partners.
While the influx of public funding is certainly valuable for cutting down startup costs, Perlman finds that the "legitimization" of these regional hubs by the government will bolster the foundation of the US' hydrogen economy and cooperation. "We're tracking over 30 projects over the Gulf Coast — between clean hydrogen and ammonia — what the HyVelocity Hub and other hubs are doing is accelerating the collaboration between those projects, increasing the velocity of clean hydrogen," Perlman said.
Due north of HyVelocity, the HALO Hub will focus on green, blue and pink hydrogen, requesting $1.25 billion from the DOE. The hub will target industrial, agriculture and power generation sectors with its renewable product.
Air Products & Chemicals Inc., CF Industries Inc. and NextEra Energy Inc. are the leading partners for the HALO Hub. As an anchor project, CF and NextEra have plans to build a 100-MW electrolysis plant, powered by a 450-MW renewable energy facility, to produce up to 100,000 metric tons per year of green ammonia in Oklahoma.
Jason Lanclos, the HALO Hub's project lead and Louisiana's Department of Natural Resources State Energy Office director, is optimistic about the hub's advantages: "The HALO Hub's infrastructure is viable and already in place across the respective states, with ample natural gas production; robust pipeline networks; rail and river transports; heavy industry that already relies on hydrogen as a feedstock; established ports and trucking centers that could convert to hydrogen fuel and opportunities to take advantage of regional geology to sequester carbon captured from hydrogen production deep underground." The HALO Hub has over 110 stakeholders in its hydrogen value chain, from feedstock and production to delivery, storage and end-use. Despite this, the HALO and HyVelocity hubs serve similar end markets, with the major differences being HALO's lean into agriculture and HyVelocity's heavier focus on chemical manufacturing and heavy-duty transportation.
Lanclos also stated that "significant" production is underway at HALO, with new large-scale clean hydrogen projects scheduled to come online within the next couple of years. Like the HyVelocity Hub, HALO has already built out a hydrogen value chain — with local producers, transportation infrastructure and consumers — coupled with the low-cost business environment and energy-rich history in its three consortium states that makes the HALO Hub another hot spot primed for clean hydrogen generation.
In the Appalachian region, the ARCH2 will leverage its existing natural gas resources and sequestration potential to produce green and blue hydrogen for use in the industrial, power and heating sectors. Private funding for the hub has not been disclosed.
As part of the proposal, ARCH2 will include a blue ammonia plant led by Adams Fork Energy LLC in Virginia. The project, jointly developed by Adams Fork and the Flandreau Santee Sioux Tribe, is expected to start construction in 2024, with initial annual ammonia production capacity of 2.2 million metric tons per year. The Chemours Co. also entered a partnership with the hub and TransCanada PipeLines Ltd. to produce hydrogen by way of PEM electrolyzer at the company's Washington Works and Belle manufacturing sites in West Virginia.
PEM water electrolyzers, the technology being deployed by Chemours at ARCH2, are ideal for pairing with renewable sources of electricity, Chemours' head of hydrogen economy venture, Stefanie Kopchick said. "The newest PEM electrolyzers can take the electricity generated by these zero-carbon sources and create zero-emissions green hydrogen which can be stored, transported and then used to generate power and support industrial processes wherever and whenever the hydrogen is needed ... at better energy [and cost] efficiency than alkaline electrolyzers." Furthermore, PEM electrolyzers' superior durability, efficiency and versatility make them the best choice for the foundation of a hydrogen economy without any carbon emissions.
The ARCHES Hub, led by California's Governor's Office of Business and Economic Development, will solely generate renewable hydrogen with the aim of producing 500 metric tons per day by 2030 and scaling to 45,000 metric tons per day by 2045 for use in especially difficult to decarbonize power plants, heavy-duty transportation and port operations. The hub bid is aiming to win the DOE's renewable hydrogen hub slot, and the hydrogen produced will be used to grow California's clean energy economy and hydrogen infrastructure on the West Coast.
ARCHES is requesting $1.25 billion from the DOE and will provide private funds of $4.75 billion. Uniquely, ARCHES does not intend to initially incorporate facilities in its cluster to produce clean ammonia, prepare hydrogen for use in residential homes or blend hydrogen into existing natural gas pipelines.
"ARCHES is initially focused on ... hydrogen fuel cell technologies [which] are the most promising zero-emissions solution for medium and heavy-duty vehicles and port equipment. Renewable clean hydrogen is also the most scalable zero-carbon alternative to natural gas for use in gas power plants required by state planning to remain operational to ensure reliability. Hydrogen is an important complement ... needed to reach California's clean air, clean energy, and climate goals," the hub said.
Missing the moonshot
Another wrinkle of the DOE's plan is its "Energy Earthshots," moonshots designed to rapidly spur clean energy breakthroughs. The first of seven — the Hydrogen Shot — seeks to reduce the cost of clean hydrogen by 80% from about $5/kg to $1/kg in one decade.
To come close to this ambitious goal, clean hydrogen supply must skyrocket, and currently, even with the flurry of announcements, committed projects lag behind targets. Despite the regulatory momentum, producing clean hydrogen is more expensive today than it was two years ago in the US, due to national average power purchase agreement prices nearly doubling from 2020 to 2022, labor costs increasing 20% and a two- to fourfold increase in gas prices.
Even with the national interest in clean hydrogen booming, the significant costs of infrastructure development and realizing economies of scale through proper demand and production volumes will present real tethers to any moonshot hope of the DOE's $1/kg clean hydrogen goal, Lanclos said.
Additionally, the DOE, on May 24, released its seventh "Energy Earthshot" — the Clean Fuels & Products Shot — which is seeking to meet the 2050 net-zero emission demands for 100% of aviation fuel; 50% of maritime, rail and off-road fuel; and 50% of carbon-based chemicals by using sustainable carbon resources, putting clean hydrogen's touted usage as a net-zero driver to the test. In particular, the program targets three of the hardest sectors to decarbonize — transportation, industrial and chemicals.
To track this net-zero scenario, by 2030 there needs to be an increase of more than twenty-fold of committed capital to boost clean hydrogen supply globally. In the US, to achieve its net-zero economy by 2050, it will need to increase the installation of its renewables four times to reach its required 900 GW of renewable energy.
The real test of the hydrogen ecosystem will happen when the IRA sunsets, as the Hydrogen Council anticipates that after 2032 — when the IRA's incentives go away — despite all the innovation, scale-up and build-out of manufacturing and supply chains, renewable hydrogen will still be more expensive than gray hydrogen. Because of this, many offtakers are hesitant to sign long-term contracts, and without policies to mitigate risks for offtakers, demand acceleration will slow.
While the IRA and BIL will be key to expediting the accessibility of green hydrogen to more consumers for the first time, adoption will still have its stop-and-start growing pains. "There are going to be plateaus where current incentives will need to be increased for everyone from [original equipment manufacturers] to the end users themselves. With each phase we will meet a slightly more hesitant population that will need more incentives, more intense education and greater demonstration of how use of green hydrogen is beneficial to bring them on board," Kopchick said.
"How far the [IRA and BIL] take us is still an open question. Will it be enough to start a snowball effect? Well, we'll have to wait and see," Perlman said.
Infrastructure insufficiency
Time is winding down on 2030 climate goals, as the DOE's funding process and build-out period for the hubs will take around 12 years to finalize, with each of four stages taking an increasing amount of time. Awardees will receive up to $20 million in stage one, then after a "negotiated go/no-go" process can receive up to 15% of requested funds in stage two. In stage three — a phase that can take up to two to three years itself — the hubs will be rewarded the remaining 85% of funds on an undefined schedule before starting stage four where the hubs will transition to their operational stage.
Besides curbing costs, to be part of the energy transition, especially in the US, clean hydrogen infrastructure needs to be rapidly built out. The US has committed one-third of its total hydrogen production to be renewable by 2030, an impossibility to implement without proper pipelines and transportation channels.
The Hydrogen Council has suggested that to reach the US' long-term goal of moving 60% of hydrogen production through pipelines by 2050, the country would need approximately 10 north-south and five east-west pipelines to connect its potential hydrogen hub clusters, which the Hydrogen Council tabs as a $100 billion cost. Actual investments in US hydrogen infrastructure projects until 2030 total only $3 billion.
IRA aftermath
The IRA has started a chain reaction in capital expenditure explosion for the leading gases makers, propping the US up as the potential clean hydrogen leader over Europe: Air Products could potentially invest $100 billion in clean hydrogen and ammonia over the next 10 years, and Linde PLC said it sees the potential to invest more than $50 billion worldwide in the next 10 years to support the clean energy boom, with more than $30 billion to be in the US.
Air Liquide hasn't inked a number, with Graff adding that the company focuses on a customer-driven approach for capex versus a "build it and they will come" mentality. Benoit Potier, chairman of parent company L'Air Liquide SA, said in a call to shareholders that "there's no growth in our business without investment. ... The real question that arises for us is to know [how many billions] are needed if hydrogen is to accelerate sharply."
Air Liquide, Linde and Air Products have partnered with six, four and one of the proposed DOE hubs, respectively.
The real boon of the recent legislation, Perlman said, is not just incentives or the funding but that it "brings us out of a vacuum. Clean hydrogen cannot be feasible without strong, collaborative interconnected clusters."
"While the amount of investment and technological advancement needed to accomplish the 100% substitution of clean energy for fossil fuels by 2050 is substantial, no plan to accomplish that appears possible without clean hydrogen," Kopchick said. The clean hydrogen venture is bold and new, Kopchick continued, which makes it enticing, but it also makes it risky. "Inherent challenges exist in the concept of 'not knowing what we don't know'," Kopchick said.
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S&P Global Commodity Insights reporter Jameson Croteau produces content for Chemical Week magazine. S&P Global Commodity Insights is owned by S&P Global Inc.
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