US Department of Energy to invest US$7 billion into seven regional hydrogen hubs

The announcement by the U.S. Department of Energy (DOE) to invest US$7 billion across seven Regional Clean Hydrogen Hubs (H2Hubs) signifies a significant step towards creating a low-carbon hydrogen economy, according to Wood Mackenzie.

Hector Arreola, Principal Analyst at Wood Mackenzie, said: “The H2Hubs, designed to accelerate the shift to a cleaner energy landscape, are poised to play a crucial role in achieving President Biden's ambitious targets, including a 100% clean electrical grid by 2035 and net zero carbon emissions by 2050.”

“This initiative also focuses on reducing the cost of clean hydrogen production to US$1 per kilogram by 2030, making it cost-competitive with conventional hydrogen within the next decade. This will help communities across the country benefit from clean energy investments and good-paying jobs,” added Bridget van Dorsten, Senior Research Analyst at Wood Mackenzie.

The seven H2Hubs selected reflect the production of three million metric tons per annum (Mtpa) of hydrogen and a reduction of 25 Mtpa of carbon dioxide emissions when fully operational, according to the announcement made by the Biden Administration on October 13.

The selected projects, spread across various regions, demonstrate a strategic approach to harnessing local resources and addressing unique challenges: 

1. Pacific Northwest Hydrogen Hub: Emphasizing electrolysis for heavy-duty transportation, fertilizer production, generators, peak power, data centers, refineries, seaports, and aviation. Collaboration with the California Hub is planned for a West Coast freight network. 
2. California Hydrogen Hub: Prioritizing renewable energy and biomass to reduce emissions in public transportation, heavy-duty trucking, port operations, and power generation. 
3. Heartland Hydrogen Hub: Focusing on the agricultural sector and power generation (co-firing). 
4. Midwest Hydrogen Hub: Enabling decarbonization in steel and glass production, power generation, refining, heavy-duty transportation, and sustainable aviation fuel by leveraging abundant renewable energy, natural gas, and low-cost nuclear energy.   
5. Appalachian Hydrogen Hub: Leveraging low-cost natural gas to produce low-cost clean hydrogen and permanently store associated carbon emissions. 
6. Mid-Atlantic Hydrogen Hub: Producing renewable hydrogen from renewables and nuclear electricity for heavy transportation, manufacturing, industrial processes, and combined heat and power. 
7. Gulf Coast Hydrogen Hub: Focusing on large-scale hydrogen production using natural gas with carbon capture and renewables, centred in Houston. 

The hubs are not yet recipients of the full $7billion funding set aside by the Biden Administration, but each have been awarded an initial US$20 million to develop detailed project plans over the next 12 to 18 months. The allotted funding will be awarded incrementally to each hub as it completes different phases of development in the next eight to 12 years.

“These hubs will pioneer the domestic consumption of hydrogen for decarbonization of industrial processes, heavy-duty transport, power generation and long-term storage in the region. Each hub is unique and will indicate how hydrogen deployment and adoption will expand throughout the rest of the U.S., along major trade ways,” van Dorsten noted.

Real momentum will come from private investment

While this announcement marks a significant step towards developing a low-carbon hydrogen economy in the US, it's important to contextualize the impact of the H2Hubs. By 2030, if fully developed, the selected hubs’ combined production capacity will only contribute 30% to the 10 Mtpa hydrogen supply capacity objective, as outlined in the U.S. National Clean Hydrogen Strategy and Roadmap. Yet due to the uncertainty of low-carbon hydrogen project announcements in the U.S., Wood Mackenzie only estimates around 4 Mtpa of supply by 2030.

“Although Wood Mackenzie analysts expect low-carbon hydrogen supply to grow rapidly in the coming years, we don't anticipate all of the hydrogen hubs' capacity to have fully developed by 2030,” Arreola added.

In addition, Wood Mackenzie’s analysis shows that the goal of US$1/kg is currently out of reach for green hydrogen. This is primarily due to higher renewable power costs, a slower decline in capital expenditures for electrolytic hydrogen, and lower electrolyzer load factor assumptions.

Wood Mackenzie analysis finds that the US$7 billion funding due to be allocated to these hubs represents less than 10% of the Government support expected for U.S. hydrogen production facility developers over the next two decades, under the Inflation Reduction Act’s Clean Hydrogen Tax Credit. The real momentum is going to come from the US$40 billion of private investment that is meant to be catalyzed by this initial funding from the DOE.

Source: Wood Mackenzie Lens Hydrogen & Ammonia

More guidance needed for the IRA

Though the U.S. currently has the strongest incentive support for clean hydrogen production, regional project developers face significant uncertainty as they wait for guidance from the Treasury on how carbon intensity accounting will work for electrolytic hydrogen under the Inflation Reduction Act.

This guidance will be released as hubs develop their detailed plan, however it will only impact hubs harnessing renewable energy for electrolysis.

van Dorsten said: “Going forward, the importance of the H2Hubs lies not just in their immediate contribution, but in the momentum they generate for a broader and accelerated adoption of low-carbon hydrogen in various sectors. The subsidies outlined in the IRA are poised to play a substantial and enduring role in supporting this transformative journey.”

“While these H2Hubs are an essential and initial stride for the low-carbon hydrogen economy, their true impact may be amplified by forthcoming legislative measures, such as the 45V (Production Tax Credit), 45Q (Carbon Capture Tax Credit), and other demand support programs,” van Dorsten concluded.

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EDITOR’S NOTES

This initiative is a key provision within the Bipartisan Infrastructure Law (Infrastructure Investment and Jobs Act).

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