POWER-TO-X

US engages with hydrogen’s biggest challenges

The US Department of Energy has shared its strategy for growing the low-carbon hydrogen sector, including a focus on high-priority off-takers, cost-cutting and regional hubs. Its willingness to engage with hydrogen’s biggest challenges should hope to green hydrogen investors.

RICHARD HEAP

June 12, 2023

  • US Department of Energy publishes low-carbon hydrogen roadmap
  • Its strategy targets priority off-takers and innovations to cut costs
  • It wants to drive down costs to $1/kg low-carbon hydrogen by 2031

On 6th June, the US Department of Energy set out its 99-page plan for growing the US low-carbon hydrogen sector. This should give confidence to investors globally as it highlights how the US is grappling with major challenges facing green hydrogen producers.

These challenges are not constrained to the US. Key concerns for companies in the sector are how they can support greater use of green hydrogen production in a host of high-priority sectors; how they can use financial incentives to cut the levelised cost of green hydrogen production; and how to stimulate off-take deals by basing the producers and users of green hydrogen near to each other.

The strategy shows a willingness to engage with these issues, and its solution may influence the growth of the green hydrogen sector both in the US and worldwide.

The ‘National Clean Hydrogen Strategy and Roadmap’ has been over two years in the making. The Biden administration first committed to $9.5bn support to grow the low-carbon hydrogen sector in its Bipartisan Infrastructure Law that became law in November 2021, and followed this with incentives in the Inflation Reduction Act in August 2022. The new roadmap sets out how the US plans to make this reality, with goals for how far it expects the technology to progress by 2030, 2040 and 2050.

This is based on three strategic priorities:

  1. Support the use of green hydrogen in “strategic, high value” sectors

The US DoE said it sees low-carbon hydrogen – which includes ‘green’ hydrogen produced using renewable energy, and also hydrogen produced in other non-fossil-fuel ways – as crucial to deep decarbonisation, and has picked the sectors that it believes have the most potential. This includes sectors that already use hydrogen and could switch to alternative low-carbon sources, and other sectors where the opportunity is emerging.

The roadmap said it sees existing demand for green hydrogen in sectors such as:

  • Industrial processes including oil refining, methanol and ammonia production;
  • Transport including buses, cars and light industrial vehicles like forklift trucks;
  • Power production including distributed generation, and for grid balancing; and
  • Buildings, where small amounts hydrogen could be added to the fuel supply.

It also includes a long list of sectors where it sees potential for green hydrogen as it achieves scale and commercial maturity, such as:

  • Industries including steelmaking, cement manufacturing, and industrial heat;
  • Transport including trucks, trains, ships, planes and other off-road vehicles;
  • Power generation, including as a form of long-duration energy storage; and
  • Buildings, where hydrogen could be blended into the fuel supply at higher proportions, and to support heating at both a district and building level.

The roadmap goes into more depth about how it plans to support the rollout of low-carbon hydrogen in each use case. This detail should give confidence to developers and investors that green hydrogen demand could grow rapidly in the coming decades.

  1. Back innovations that will reduce the levelised cost of hydrogen

The DoE is also looking at how the US government can support innovations that will drive down the cost of low-carbon hydrogen, and thus make it a viable fuel in the wide variety of sectors outlined above. Its ambition is to reduce the cost of clean hydrogen to $1/kg by 2031, from over $5/kg now for renewable hydrogen.

Its targets include helping companies to grow demand for green hydrogen so that prices of electrolysers – alkaline, PEM and solid-oxide – fall rapidly as manufacturers achieve commercial maturity and economies of scale; and to increase the amount of wind, solar and other renewables in the US energy mix, so that it sees falls in the price of the electricity that is used to power the electrolysers. It argued that both steps were vital for commercial ‘lift-off’.

The plan anticipates opportunities for 10million metric tonnes of clean hydrogen in the US annually by 2030, 20million metric tonnes annually by 2040, and 50million metric tonnes annually by 2050.

  1. Focus investment on regional hubs to kickstart the market

Finally, the DoE is aiming to ensure the deployment of commercially-viable green hydrogen in the US by setting up regional hydrogen hubs.

Its idea is that locating hydrogen production near off-takers will kickstart the market because it will reduce the logistical challenge of transporting hydrogen over long distances; establish hydrogen production in areas with lots of renewables production; and help hydrogen producers to win long-term off-take contracts from nearby companies. It said this would help to boost cooperation between companies throughout the green hydrogen supply chain.

By reducing the risks for the production and supply of hydrogen, the government is also seeking to reduce potential risks for investors and bring down the cost of capital. The roadmap identified these areas as potential hydrogen hubs:

  • Alaska & Hawaii
  • Appalachia
  • California
  • Central US
  • Great Lakes
  • Gulf Coast
  • New England
  • Pacific Northwest
  • Soutwest

Challenges for green hydrogen

The other aspect of the plan that gives us confidence is that the DoE is not ignoring the challenges associated with the growth of green hydrogen, which bear out talking points from Tamarindo’s own Power-to-X Leadership Council discussions.

These include the lack of ubiquitous infrastructure to distribute green hydrogen; the lack of electrolyser manufacturing at scale; the cost of technology and the impact it has on the cost of green hydrogen; and the struggle for hydrogen producers to find off-takers with sufficient demand for hydrogen within a sensible distance. Producers and off-takers have also cited difficulties with the lack of price transparency.

It is heartening to know that the DoE is aware of these challenges as that is a crucial first step to fixing them.

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