NiSource Inc. is beginning to make down payments on the hydrogen future that the company believes will be a critical part of the clean energy transition.

The company on Oct. 5 officially launched a pilot project that will allow its Columbia Gas of Pennsylvania Inc. subsidiary to test a 20% hydrogen blend in natural gas distribution infrastructure. In an interview with S&P Global Commodity Insights, NiSource President and CEO Lloyd Yates also said subsidiary Northern Indiana Public Service Co. LLC (NIPSCO) will repower one of its power plant combustion turbines to burn both gas and hydrogen.

NiSource has been considering low-carbon fuel blending for years. But as recently as 2020, former NiSource CEO Joseph Hamrock said the low, stable basis cost of gas in NiSource's six-state footprint, which rings the nation's largest dry-gas-producing region, made it harder to justify procuring higher-cost alternative fuels such as hydrogen and renewable natural gas.

But Yates, who took over the company's top job in 2022, said low-cost gas gives NiSource headroom to make investments without putting too much upward pressure on customer bills.

"If I can keep that commodity price low, I have a greater opportunity of trying to figure out innovative and creative ways to make investments to make the gas stream cleaner, to make the infrastructure better," Yates told Commodity Insights following a launch event for the pilot project. "If gas were $9 or $10 [per MMBtu], my hesitancy to make investments is a lot higher because my ability to recover those becomes lower."

Gas utility blending leads the way

NiSource sees potential for investments to support hydrogen production, transportation and storage to accelerate after its current five-year, $15 billion capital plan concludes in 2027, Yates told analysts in February.

With that potential in mind, NiSource, like some of its peers, is developing its capacity to handle the fuel, while seeking to demonstrate to policymakers that low-carbon hydrogen can safely and reliably decarbonize gas utility service.

Columbia Gas worked with EN Engineering to build a blending skid capable of injecting hydrogen at volumes from 2%-20% of the gas stream into a controlled system at the utility's Monaca, Pa., training facility. The company additionally constructed a model home to assess the impact of various blending percentages on a range of gas appliances.

On the operational side, Columbia Gas will seek to ensure that equipment works properly, from customer meters down to valves and fittings, and determine whether field workers need to alter any processes, such as leak repair techniques, said Erich Evans, NiSource's director for strategy and risk integration. The chief goal is to prepare both customers and NiSource employees for hydrogen blending in real-world settings, he said. NiSource said it might deliver hydrogen blends to customers in a future phase of the pilot project.

"We want to make sure that we can answer all their questions before we would ever deploy it out into the field to customers," Evans said.

Federal pipeline safety regulators have also taken an interest in the project. NiSource anticipates sharing data with the US Pipeline and Hazardous Materials Safety Administration on the ability of leak detection technology to monitor hydrogen-gas blends, as well as any signs that blends could embrittle or degrade metal and plastic pipe, executives said.

Plans for power plant hydrogen blending

NiSource is currently looking at repowering one of its NIPSCO combustion turbines to accept a hydrogen blend, Yates said. The company has not formally announced the project, and Yates did not specify the site, but he said the company was "in the middle of repowering that unit" to burn both gas and hydrogen.

NiSource executives have previously mentioned the potential to enable hydrogen blending at the 155-MW R.M. Schahfer CT plant in Jasper County, Ind., and raised the prospect of a blending pilot at 563-MW Sugar Creek plant in Vigo County, Ind.

In order to greenlight more substantial hydrogen investments, Yates said he needs to see policymakers implement policies that incentivize energy companies to transition to the fuel in a way that benefits ratepayers, utility workers and shareholders.

"I think people are trying to understand this. So I think their minds are on the right things, their thinking is in the right place," he said. "We're just not there yet."

Much of the supportive policy to date has sought to lower the cost of hydrogen, including a federal production tax credit. NiSource has also supported three applications to secure US Department of Energy funding to set up regional hydrogen hubs. Those include the Appalachian Regional Clean Hydrogen Hub, or ARCH2, and the Midwest Alliance for Clean Hydrogen, or MachH2.

The hubs would make low-carbon hydrogen supply available to projects like the Columbia Gas pilot, while also providing a platform for growth, Evans said. Steelmakers and data centers are among the energy-hungry industries in NiSource's region seeking to cut emissions, Yates said. Access to low-carbon fuels will also be critical to economic development efforts as the US aims to onshore more manufacturing, he said.

An alternative to electrification

In conversations with policymakers and regulators, NiSource is stressing the potential for hydrogen to facilitate an inclusive energy transition, Yates said.

While three out of six states where NiSource distributes gas have passed laws protecting access to gas, efforts to mandate all-electric building construction and renovations are spreading in the US — including in Maryland, another one of the company's operating territories. Pennsylvania Gov. Josh Shapiro recently pledged to explore a range of building decarbonization policies that could sideline gas.

The hydrogen blending project in Pennsylvania aims to demonstrate an alternative to electrification that allows gas customers to lower their carbon footprint without installing new appliances, Yates said. Out of NiSource's 4 million customers, about 30% have a hard time paying their monthly bill, he said.

"I think there's a big affordability issue that everybody is forgetting about. How are people going to pay for this electrification?" he said. "If you're making $48,000 a year and you're barely making ends meet, how are you going to rip out all your appliances and change them?"

NiSource currently has a goal of achieving net-zero Scope 1 and 2 greenhouse gas emissions by 2040. Since hydrogen emits only water vapor when combusted, hydrogen blending can help the company address more elusive Scope 3 emissions linked to its customers' gas use.

"We are thinking about that, and that's part of why we're making these investments," Yates said.

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