The Department of Energy on Friday announced seven projects that will receive $7 billion to build landmark hydrogen hubs, delivering a major boost to a nascent U.S. industry.
The long-awaited move is a key piece of the Biden administration’s climate agenda. On Friday, the White House said it expects the DOE funding to help cut 25 million metric tons of carbon dioxide annually, roughly equivalent to removing 5.5 million gasoline-powered vehicles from the road each year.
“With this historic investment, the Biden-Harris administration is laying the foundation for a new, American-led industry that will propel the global clean energy transition,” said Secretary of Energy Jennifer Granholm.
Dozens of hydrogen coalitions had vied for the funding, which was authorized in the 2021 bipartisan infrastructure law. DOE chose the following seven: the Mid-Atlantic Hydrogen Hub, the Appalachian Hydrogen Hub, the California Hydrogen Hub, the Gulf Coast Hydrogen Hub, the Heartland Hydrogen Hub, the Midwest Hydrogen Hub and the Pacific Northwest Hydrogen Hub.
Each is a mix of private sector groups and state governments. On Friday, President Joe Biden will travel to Philadelphia to promote the mid-Atlantic hub, which is likely to use both renewable and nuclear energy for hydrogen production.
The hub program could put the U.S. hydrogen sector, which is now largely reliant on fossil fuels, in a position to grow exponentially in the coming years. The Biden administration is aiming for 10 million metric tons of “clean” hydrogen annually by 2030. Administration officials say hydrogen could reduce economywide U.S. greenhouse gas emissions up to 20 percent over the coming decades.
To produce energy, hydrogen atoms need to be extracted from water and then combined with oxygen in a fuel cell. If powered by renewable energy, that process is considered “green.” Hydrogen can also be blended and co-fired with natural gas, earning the nickname “blue hydrogen” if the carbon emissions are captured at the gas plant. The administration considers both “clean,” although critics have questioned whether the fuel will live up to its name.
DOE envisions the hydrogen hubs as a demonstration of production, storage, transport and consumption. The seven selected projects will span 16 states. On top of the $7 billion for the hubs, DOE is planning a $1 billion program to incentivize hydrogen demand.
“They are not single production facilities,” a senior Biden administration official, who was not authorized to speak on the record, said on a press call with reporters Thursday. “They are an aggregation of linked regional assets, covering in some cases hundreds of miles.
“Our hope over time is that, as a second step and a third step, they all get linked together into a national hydrogen economy,” the official said.
‘Opening up a floodgate’
Administration officials did not release the applications for the awardees. But on the press call, they said each hub will produce clean hydrogen as part of its portfolio.
It’s a big moment — and test — for DOE, experts say.
“They’ve had historic challenges with large demonstration projects,” said Dan Byers, vice president for policy at the U.S. Chamber of Commerce’s Global Energy Institute. “They want to show that they can do these really big, complicated demonstrations.”
DOE’s Office of Clean Energy Demonstrations, which was created through the infrastructure law and charged with administering the hydrogen program, is a change of course for the department. Historically, it has largely funded basic research and development for energy systems.
The Biden administration expects the seven hubs to produce 3 million metric tons per year, nearly a third of its 2030 goal.
It also expects the seven hubs to generate more than $40 billion in private sector funds. That money isn’t yet secure, however.
“It would be an exaggeration to say that, that any of the seven hubs have absolutely firm commitments,” said another senior administration official on the call. “But right now, I would say that that number represents them telling us how much they’re expecting to invest in the project. And their financing plans will be developed over time.”
DOE will now need to finalize negotiations with the awardees. The department will then disburse only a portion of the $7 billion. The hub program identifies four phases for the funding.
“It’s a long-term process,” said George Fibbe, a partner at Baker Botts and former DOE lawyer. “And these are very long-term projects themselves. I think the department is targeting eight to 12 years in total. A lot of the funding won’t get sort of really disbursed at the very beginning of the project.”
Private sector supporters say the announcement is timely.
“Money has kind of come to a halt at this point. When the announcements come out, it’s opening up a floodgate,” said Roxana Bekemohammadi, executive director of the U.S. Hydrogen Alliance. “Some of [the hubs] are going to be advanced enough where it’s just signing a contract at that point. And then in some other scenarios, it opens the door for investors to come in.”
The tax credit debate
But industry is also waiting on the Treasury Department to unveil a much-anticipated — and significantly delayed — guidance on the hydrogen tax credit, known as 45V for its place in the tax code. The Inflation Reduction Act enacted the tax credit, which will award up to $3 per kilogram of hydrogen produced, with low- and no-carbon production receiving the biggest incentives.
“It would be preferred to have clarity about the 45V, so that these hub proposals would have been optimized,” said Frank Wolak, CEO of the Fuel Cell and Hydrogen Energy Association, an influential industry group. “45V guidance that is more flexible and less rigid ties into maximizing the investment in the hubs.”
For months, a rigorous debate has been underway over how the coming tax credit guidance should address “hourly matching,” a concept that would require developers to match their hourly consumption of grid power with hourly clean power generation.
The idea is supported by many environmentalists who say it will make it less likely that hydrogen production spikes grid emissions from fossil fuel electricity. On the other side are many investor-owned utilities, fossil fuel companies and conventional hydrogen producers that say hourly matching rules would be onerous and discourage investment.
A Treasury Department spokesperson declined to comment.
Environmentalists are digging in for a fight.
“DOE should be directing funding to hub proposals that demonstrate the highest possible GHG reductions in ways that are sustainable in the long term and benefit the community,” said Sarah Lutz, climate campaigner at Friends of the Earth U.S.
“This should clearly deprioritize funding towards ‘blue hydrogen,’ which we know to be even more polluting than bog standard gray hydrogen,” she said, referring to production using fossil fuels without capture. “Unfortunately, DOE has taken steps in the wrong direction.”
Some in the climate research community argue for prioritizing hydrogen industry growth, rather than immediate emissions reductions.
“A lot of oil companies and energy companies are involved,” said Alan Krupnick, a senior fellow at the think tank Resources for the Future. “And the lowest-hanging fruit is to take your existing hydrogen plant that’s producing gray hydrogen from natural gas and capture the CO2 and put it on your ground or use it for enhanced oil recovery.”
Krupnick said he supports “getting a lot of action and getting all these projects going.”
Some of the hydrogen produced at the hubs will likely be exported. Other production will likely go to domestic power generation, industrial uses like cement and steel production, residential and commercial heating, and transportation.