US Bill Could Help 'Green' Hydrogen Compete Immediately

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Incentives for “green” hydrogen production proposed in the US’ Inflation Reduction Act (IRA) would make the zero-emissions fuel immediately cost-competitive with other methods of producing what is a key ingredient in high-emitting industrial sectors, according to industry players.

The IRA, if signed into law, would provide a $3 per kilogram "production tax credit" for hydrogen produced with an electrolyzer powered by clean energy, essentially eliminating the cost delta with so-called “gray” hydrogen produced through conventional steam methane reforming (SMR), said Plug Power CEO Andrew Marsh.

“All applications that use gray hydrogen today, such as fertilizers and manufacturing, will now be able to buy green hydrogen at a competitive price with gray,” Marsh told analysts on a quarterly conference call this week. “Applications that are looking to move to hydrogen, like steel and concrete manufacturing and natural gas heating, will have a path to dramatically reduce their carbon footprint cost competitively.”

The sweeping legislation has lit a fire under proponents of clean energy technologies like hydrogen and carbon capture and storage, two sectors that stand to see some of the most significant benefits from the bill.

Narrowing the Gap

Plug builds and sells electrolyzers, which split hydrogen from water molecules without producing emissions if they are powered by renewable energy. Plug also produces its own green hydrogen.

The reported cost of producing green hydrogen ranges from around $2.50/kg to $6/kg or more, depending on the power source. Conventional gray hydrogen typically costs $1-$2/kg to produce.

With the newly proposed production tax credit, “all of a sudden there is not a single application where the green hydrogen is not economical anymore,” said Plug strategy chief Sanjay Shrestha.

Marsh said the first big markets for green hydrogen will likely be “industrial applications where it's simpler to substitute green hydrogen for other feedstocks.”

“Everyone wants green hydrogen. Now there is a path that always makes it competitive,” he said.

Electrolyzer Demand

Most material to Plug and other hydrogen equipment providers will be the expected surge in demand for electrolyzers sparked by the IRA’s incentive program.

Marsh said he expects to see a “boom” in Plug’s electrolyzer business with the passage of the IRA. KR Sridhar, CEO of Plug rival Bloom Energy, said the IRA “is going to make this market grow enormously into a very big size over time.”

Plug noted that the refining and ammonia sectors alone consume almost 20,000 tons per day of hydrogen, almost all of it currently done through SMR. If just 20% of that converts to green hydrogen, that would represent incremental electrolyzer demand of 10 gigawatts in the US alone, the company said.

Plug’s current backlog stands at 1.5 GW of electrolyzer capacity, already surpassing its target of 1 GW of backlog by the end of 2022.

Supply Chain Challenge

Global demand for electrolyzers, particularly in Europe, has been on the rise, raising questions about the equipment sector’s ability to source materials and deliver products given ongoing supply chain challenges.

Marsh tried to allay those fears, saying Plug is looking to add staff and simplify electrolyzer designs, which would allow more materials to be sourced domestically.

“We have designs, which we're looking to reduce the number of parts, which help us with cost and supply chain,” he said.

He said he was not trying to “downplay” supply chain issues, but said the challenge is “less intense than it was.”

Hydrogen, Corporate Strategy , Policy and Regulation, Low-Carbon Policy
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