The Department of Energy’s launch Wednesday of a $1 billion clean hydrogen initiative aims to solve one of the largest problems facing the emergence of the fuel in the United States: a lack of buyers.
The new initiative, which will be run by DOE’s Office of Clean Energy Demonstrations, seeks to reassure the nation’s first major producers of low-carbon hydrogen — specifically, those backed by billions of dollars in infrastructure law funds — that they can find reliable purchasers. Currently, low-carbon hydrogen is rarely made in the United States.
Last year, DOE said it was planning to award up to $7 billion this fall for the nation’s first six to ten “hubs” — major demonstrations of low-carbon hydrogen production, storage, transport and consumption.
But analysts have warned that many potential hydrogen buyers are still wary about the long-term availability and price of the fuel, suggesting the hubs could struggle to survive rather than sprouting into a national network of low-carbon hydrogen.
In a notice of intent announcing the new multiyear initiative Wednesday, DOE said it would seek to “catalyze durable, bankable clean hydrogen demand” from a variety of buyers.
David Crane, DOE’s undersecretary for infrastructure, said in an interview that the new initiative “should help industries that want to use clean hydrogen over time but want to be cautious and have assurance on the production, the front end.”
In a statement, Energy Secretary Jennifer Granholm cited the need to resolve “a lack of market certainty for clean hydrogen that too often delays progress.”
DOE wants “to help our private sector partners address bottlenecks and other project impediments — helping industry unlock the full potential of this incredibly versatile energy resource and supporting the long-term success of the H2hubs,” she said.
More details of the initiative will be announced at a later date, although DOE’s notice of intent floated several specific possibilities on how the money will be spent, while requesting public input on them.
For instance, the department could sign “pay-for-difference” contracts that guarantee a specified price for low-carbon hydrogen, the notice said.
If a producer is unable to sell hydrogen to a buyer at that specified price, the federal government would step in and pay for the difference under that idea, said Crane, who directed the Office of Clean Energy Demonstrations before being confirmed as undersecretary in June.
Alternatively, DOE could offer a fixed level of support for sales of low-carbon hydrogen or simply fund feasibility studies for potential hydrogen buyers who are unsure if it would be suitable for them, among other ideas floated in the notice of intent.
This summer or in early fall, DOE said it will issue a “broad agency announcement” that will kick off its search for an independent entity that can implement the initiative.
In the meantime, public input will allow the department to “identify the best approach” to engaging the private sector under the auspices of the new initiative, the department added in a press release.
“I see this very much as an essential bridge to a marketplace for hydrogen,” Crane said.
Meanwhile, the Biden administration’s broader plans for hydrogen — which include making low-carbon versions of the fuel as cheap as emissions-intensive, natural-gas-derived types as soon as 2031 — still face significant challenges.
Environmentalists in many parts of the United States remain skeptical of the hydrogen hubs program and have decried what they see as a lack of transparency about what many applicants are proposing to do, for instance.
House Republicans are also attacking the Biden administration’s proposed carbon rules for the power sector, which could allow fossil fuel plants to decarbonize using hydrogen if finalized. In late June, Republicans on the House Oversight and Accountability Committee launched an investigation of how grid reliability was considered during EPA’s drafting of the rules and criticized the proposal as “a thinly veiled effort to achieve de facto closures of existing coal and natural gas power plants.”
‘It’s been hard’
Low-carbon hydrogen was granted a flood of new federal subsidies in the last three years, although the money is not being distributed yet. In addition to the bipartisan infrastructure law’s hydrogen hubs program, the Inflation Reduction Act established the first-ever tax credit for clean hydrogen production.
But those federal supports may still not be enough to launch a U.S. industry for low-carbon sales of the fuel, according to many analysts.
Alex Kizer, senior vice president of research at the Energy Futures Initiative, said a lack of guaranteed demand for clean hydrogen is likely the single biggest challenge facing the nascent industry.
“Sorting out the demand is hard. It’s been hard for us to do in the United States,” said Kizer.
In February, Kizer’s group published a report finding that although that the Inflation Reduction Act’s subsidies and the hydrogen hubs program would be hugely helpful in slashing the fuel’s price in coming years, many potential buyers — such as power plants, oil refiners, steel makers and ammonia producers — would still view adoption as too risky.
Retrofitting plants and facilities to use hydrogen instead of fossil fuels would prove complex and expensive for many companies, said the report, which was sponsored by several of the country’s largest energy companies. Without long-term assurances that hydrogen will remain cheap and abundant, industries are unlikely to ditch fossil fuels, it said.
DOE has also made similar conclusions about the need to guarantee long-term demand for low-carbon hydrogen. In a clean hydrogen road map released in June, DOE noted that many producers of low-carbon hydrogen “struggle to find offtakers” that would buy large volumes and over a long term period.
Crane said DOE officials have been aware of the problem since last year, when the department announced its intention of awarding up to $7 billion for hydrogen hub funds.
Congress allocated DOE a total of $8 billion for the hydrogen hubs, he noted, leaving up to $1 billion for other activities. That $1 billion is now likely to fund the new initiative, he said.
“The idea that we need to do something on demand was something we knew well before we received any hydrogen hub proposals,” said Crane.
State moves
Several states have either approved or are studying potential ways to encourage the consumption of low-carbon hydrogen.
In May, Colorado Democratic Gov. Jared Polis signed into law a bill creating state tax credits that can be claimed by companies who buy low-carbon hydrogen as a way to displace fossil fuels, for example. The tax credits are available for companies in energy uses considered hard to electrify, like ammonia production and long-distance trucking.
In New York, utility regulators on the state Public Service Commission moved that same month to start identifying nonrenewable, “zero-emission” technologies — possibly including hydrogen — that could help decarbonize the state’s entire power grid by 2040, as called for by the state’s climate law.
The PSC’s order came in response to a petition from the Independent Power Producers of New York (IPPNY), a trade group representing gas plant operators and other types of power generators. The group argued that traditional renewables like wind, solar and batteries would be insufficiently reliable for a fully decarbonized grid.
Gavin Donohue, IPPNY’s CEO, said in May that the commissioners’ order was a step forward for hydrogen and other fuels. “This is good, it’s progress, but we have a long way to go, and we need to have a market” for new energy technologies, he said.
