A nuclear power trade association and four companies that operate US nuclear plants have asked the IRS to mandate that any hydrogen created using existing renewable energy resources qualify for a new tax credit.
The Nuclear Energy Institute (NEI) and Constellation Energy Corp., Vistra Corp., Public Service Enterprise Group Inc. and Energy Harbor Corp. aim to potentially pair a nuclear production tax credit with floor pricing of $40/MWh to $44/MWh with the 45V $3/kg tax credit for hydrogen produced by power sources that do not emit carbon — such as nuclear — included in the Inflation Reduction Act (IRA).
But the IRS is still weighing whether to require under the 45V tax credit that the electricity used in producing the hydrogen come from new renewable energy sources, known as additionality. Proponents of additionality argue that mechanisms like renewable energy certificates are useless unless they guarantee that the energy is derived from new generation.
The Natural Resources Defense Council and the Clean Air Task Force wrote in an April 10 letter to the IRS that additionality is key to the hydrogen tax credit program for ensuring "hydrogen producers' lifecycle emissions are truly offset by new clean electricity supply." The intent of the IRA is to prevent the tax credit "from having the perverse effect of actually increasing GHG emissions," the groups added.
On May 24, the NEI along with the four merchant nuclear plant operators told the IRS that imposing additionality would render their planned hydrogen build-out impossible.
"That is an infeasible amount of new renewable generation to bring online by 2030 given that, over the same period, large amounts of new wind and solar also must be built to meet state clean energy mandates and satisfy corporate procurements," they wrote. "Congress clearly intended for electricity generated by existing nuclear plants to produce hydrogen, as the IRA explicitly links eligibility for the section 45V tax credit with the section 45U tax credit that is available only to existing nuclear plants."
Even if enough new electricity sources could be constructed, "interconnection queue congestion, difficulties in building transmission, supply chain constraints, and permitting challenges" could still ultimately sideline new grid-connected renewable generation, the coalition said.
Requiring hydrogen electrolyzers to use new energy sources would also compromise proposed emission limits on new and existing fossil fuel-fired power plants that would eventually require most of those units to adopt emerging technologies such as carbon capture or green hydrogen, according to the NEI and nuclear plant operators.
"Without access to the Section 45V production tax credit, it will be impossible to scale clean hydrogen production from where it is now — with only a miniscule amount of clean hydrogen production — to the levels projected by [the US Energy Department] that, in turn, are needed to support [the US Environmental Protection Agency's] implementation of power sector emissions limits under the Clean Air Act," they wrote.
The standards unveiled May 11 by the EPA would require larger natural gas-fired power plants that operate at a high capacity factor to co-fire with 30% clean hydrogen by 2032, ramping up to 96% by 2038.
Bloomberg on May 30 reported that Constellation, which plans to build a $900 million hydrogen production facility in the Midwest, has paused the project until the IRS clarifies unresolved questions about the tax credit.
Constellation's first commercial-scale facility will use 250 MW of nuclear power to produce about 33,450 tonnes of hydrogen annually, with the option to expand to 400 MW, CFO Daniel Eggers said in February. The company aims to sell 90% of production to onsite customers through offtake agreements.
Constellation is also a member of the Midwest Alliance for Clean Hydrogen, a coalition with plans to seek federal funding under the 2021 Infrastructure Investment and Jobs Act's $8 billion program to develop regional clean hydrogen production and distribution hubs.
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