A multiregional competition to break into the nascent US clean hydrogen economy just passed its first major milestone in the form of a federal funding application deadline.
The US Energy Department closed applications April 7 for the first funding round of an $8 billion program to develop up to 10 regional hydrogen hubs. The funds, authorized by the 2021 bipartisan infrastructure law, aim to establish connection points among prospective hydrogen suppliers and offtakers.
The Biden administration is pushing the private sector to substitute fossil fuels for hydrogen in various applications, including transportation, the power sector and heavy industry. Unlike fossil fuels, hydrogen emits only oxygen and water when burned.
But hydrogen production is carbon-intensive when done cheaply, prompting the federal government to subsidize "clean" hydrogen production through the hydrogen hub program and an additional $1.5 billion in research and development grants. The US Inflation Reduction Act in 2022 also authorized tax credits worth up to $3 per kilogram of clean hydrogen produced.
Since then, more than half of US states and dozens of private organizations have started coalescing around hydrogen. "There is no part of that bill that has gotten more attention and more interest than the hydrogen hubs piece," Deputy Energy Secretary David Turk said in September 2022 when the first $7 billion for spending proposals opened up.
After reviewing a slew of prospective hubs' concept papers, the DOE gave an early indication in December 2022 of where the agency may spend the first round of funding. The department encouraged 33 of the 79 candidates to submit full applications, although the DOE did not disclose which entities it contacted. S&P Global Commodity Insights has identified about two dozen of the 33 projects, based on stakeholder announcements.
Gulf Coast
The Gulf Coast region has been especially keen to become an early mover in the hydrogen industry, with at least four overlapping projects vying for a DOE grant. Two of those projects — one led by the Port of Corpus Christi and the other centered around Texas' Permian Basin — have since merged into one group bid.
Local advocates said Texas and Louisiana are well positioned to meet future demand for clean hydrogen with their preexisting fossil fuel infrastructure, which may avoid the need to secure new rights-of-way for hydrogen pipelines. Other hydrogen build-out advantages in the region include shorter permitting timelines and an already-trained oil and gas workforce.
"I think the mentality in the Gulf Coast is we're going to be a hub," Andy Steinhubl, chairman of the Center for Houston's Future, said in an interview. The economic development nonprofit is a founding member of the HyVelocity Hub, which hopes to turn Houston into a global exporter of low-carbon hydrogen.
"We'd like the DOE support, but it's coming. The companies are committed, and we've got the business," said Steinhubl, also a board member of Green Hydrogen International Corp.
Northeast
Regions with less abundant fossil fuel output and infrastructure are setting their sights on electrolytic hydrogen, produced using electricity to split water into hydrogen and oxygen. The process, known as electrolysis, can also be powered by nuclear energy, producing what some industry watchers call "pink" hydrogen.
In 2022, the state of New York launched a multistate push for federal funding that has since grown to seven Northeastern states, with the latest addition of Vermont in February. The group plans to use renewable- and nuclear-powered electricity as energy sources to produce hydrogen.
Compared to the Gulf Coast, however, the region comes with the relative disadvantage of having to build most of its hydrogen infrastructure from scratch.
"Just the old infrastructure that exists in New England, let alone what's going to be needed for hydrogen infrastructure, is very daunting to think about," Shannon Angielski, president of the Clean Hydrogen Future Coalition, said at a hydrogen conference hosted by Commodity Insights in San Diego on April 4.
Appalachia
Some hubs are designed from downstream upward, starting with the industries expected to become offtakers of carbon-free hydrogen, Angielski said during a panel discussion.
"Part of what's catalyzing it is the hard-to-abate industries in these regions," Angielski said. "If you look at, for example, Appalachia, Ohio, Pennsylvania, Indiana, Illinois, there are a lot of hard-to-abate industries, and hydrogen may be the only way to do that."
The Biden administration has also set a goal to direct 40% of relevant federal investments to disadvantaged communities, known as the Justice 40 Initiative.
As a result, some applicants may be able to make an economic or environmental justice case for government investment. "Appalachia would be in that category. It would be a big boost to the region," Steinhubl said. "In fact, I'd like to see that one."
West Coast
California began laying the groundwork for a clean hydrogen economy before $8 billion in federal funding became available. The state government support includes a low-carbon fuel standard, which created a market for alternative transportation fuels.
The Golden State is also home to some of the earliest movers for hydrogen in the power sector, including the Los Angeles Department of Water and Power, which plans to replace natural gas with green hydrogen for peak generation.
"You have to give them credit for — I'll call it 'self-help,'" Steinhubl said. "They've put a lot of skin in the game there."
Path ahead
The emerging sector has so far enjoyed bipartisan enthusiasm, often bridging the divide between oil-and-gas advocates and climate hawks. Still, hydrogen has a long path to becoming truly cost-competitive in the energy space, inspiring skepticism among some industry experts.
David Bellman, a market analyst, said he attended Commodity Insights' conference on the subject to hear out the pro-hydrogen argument.
"The pragmatic view is perhaps it's like ethanol with huge government subsidies that keep it going," Bellman, owner of All Energy Consulting, said in an email after the conference. The federal government has supported the biofuel for the past five decades through tax benefits, tariff protections and use mandates.
A more optimistic view would be that hydrogen is in the same place as solar energy in the 1970s, before the cost of the renewable resource fell about 90%, Bellman said. However, such a cost decrease could be decades away, and the cost of hydrogen in the US power sector would need to decrease by at least 90% before becoming economical, Bellman said.
A pessimistic view would be to compare hydrogen to methyl tert-butyl ether, Bellman added, referring to the once-common fuel additive that was later phased out in the US due to fears of groundwater contamination. "At some point, the government reverses position, and many get left with stranded cost," Bellman said.
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