Hydrogen hubs pose challenges, opportunities for investors, markets: experts

The Gulf Coast's potential as a hydrogen hub poses challenges and opportunities for developers of hydrogen production and power plants, but also for renewable energy credit markets, and a new S&P Global Commodity Insights effort will start addressing the RECs issue Nov. 1.

Alan Hayes, S&P Global Commodity Insights head of energy transition pricing, said the global hydrogen market is "fully fledged" and "longstanding," but "not transparent ... based on long-term contracts that are formula based" on the price of natural gas, the feedstock for most commercial hydrogen.

Natural gas markets are "all very transparent, very clear," Hayes said Oct. 27 during the Energy Trading Week Americas conference in Houston, but "that situation does not exist" for hydrogen markets based on other processes.

"We can improve transparency ... with a whole suite of prices that incorporate the cost of production on a whole range of production pathways," Hayes said. "We are making ground on that front. I think one of the things more generally we're seeing is coalescence around the idea of how we think about the value of carbon-differentiated hydrogen -- maybe not a big surprise."

S&P Global has published prices in Europe addressing carbon-differentiated hydrogen, Hayes said during a panel discussion titled, "Jumping Jack Flash, It's a Gas Gas Gas (and so is hydrogen!)."

Platts, part of S&P Global, is launching price assessments for emissions-adjusted RECs ($/MWh) through a collaborative agreement with REsurety. In particular, S&P Global will use REsurety's "Local Marginal Emissions" data in ERCOT to measure hourly carbon emissions for generators in the Electric Reliability Council of Texas market.

LME is a measure of the metric tons of carbon emissions displaced by 1 MWh of clean energy injected to the grid at a specific location and time.

'Starting to evolve'

Panelist Brett Perlman, CEO at the Center for Houston's Future, a nonprofit that promotes the economic development of the Houston metro area, noted that the US Department of Energy's Office of Clean Energy Demonstrations selected the HyVelocity Hub team to develop a hydrogen hub on the Gulf Coast, incorporating perhaps the world's largest concentration of hydrogen production and end-use assets. The Center for Houston's Future is one of HyVelocity Hub's organizers, which is administered by GTI Energy and includes major energy companies and research institutions.

Investors have touted the green hydrogen potential of Texas' huge renewable energy fleet as a source to separate water into hydrogen and oxygen.

HyVelocity is "trying to accelerate the development of a hydrogen ecosystem," Perlman said, addressing both the supply and demand side.

"While we're doing all this work, the market is starting to evolve," Perlman said. "There's a lot of commercial projects that are being announced."

Typically, RECs are priced in $/MWh, but the emissions impact of each REC varies widely, Hayes said. When production is primarily from fossil-fueled plants, carbon emissions at a clean generation site are typically high, and vice versa, but REC prices typically ignore this phenomenon. Collaboration between Platts and REsurety will enhance clarity and independent valuations to differing power stacks.

S&P Global will publish the first Emissions Adjusted RECs assessments in the Nov. 2 Megawatt Daily based on Nov. 1 data, Hayes said Oct. 30.

Shift afoot to global pricing

The UK-based Linde global industrial gas and engineering company announced in February plans to invest $1.8 billion to supply hydrogen and other industrial gases to OCI's "blue ammonia" plant in Beaumont, Texas. "Blue" hydrogen and ammonia involve carbon dioxide capture and use or sequestration.

"That'll be the first blue hydrogen and ammonia project in the US, and then that export will help identify what is [needed] to reach a price globally," said panelist David Maher, Linde director of business development for hydrogen and carbon-capture hubs.

Most Gulf Coast hydrogen infrastructure involves "gray hydrogen" created from natural gas without carbon capture. The system involves hundreds of chemical plants and refineries from south of Houston along the coast to New Orleans, Maher said.

"We see growth ... in canceling out CO2 from existing emissions, building out new plants with carbon capture, then, using hydrogen along with other biogenic-type CO2 processes [to produce] renewable electricity, green hydrogen and other products," Maher said.

Linde can use its existing Gulf Coast assets "to store and sell spot hydrogen at times of high demand," Maher said.

In the US, the DOE has issued a request for proposals to help accelerate conversion of existing processes to use low- or no-carbon hydrogen, Perlman said. HyVelocity and the Center for Houston's Future hopes to help in that process, Perlman said.

Maher said, "It's important to get that supply and demand in balance."