NextEra hydrogen moves not predicated on tax credits, but optimism still holds

While the raft of recent investments NextEra Energy has put towards green hydrogen signals the company's bullishness on hydrogen, company executives assured investors that those investments aren't counting on the potential tax incentives being considered by Congress.

A small plank within the Build Back Better Bill currently before lawmakers is a hydrogen production tax credit that would provide $3/kg for green hydrogen, or hydrogen produced with 95% fewer emissions than that produced with fossil fuels.

Although hydrogen observers have repeatedly noted how this incentive could multiply the number of clean hydrogen projects in the US, NextEra Director and CFO Rebecca Kujawa clarified that the company's recent green hydrogen investment decisions were made without taking the potential tax credit into account.

"The investments we've made to date do not assume that there's a change of incentives, or even the specific question around hydrogen – that there's a hydrogen [production tax credit]," she said during the company's Jan. 25 earnings call.

The credits are designed to reduce the cost of green hydrogen and stimulate market demand for the clean fuel. According to S&P Global Platts price assessments, the cost of producing green hydrogen using PEM electrolysis (including capex) in Southern California was $4.41/kg on Jan. 26, while hydrogen produced using natural gas (including capex) without carbon capture cost $1.48/kg.

NextEra's green hydrogen investments

Kujawa highlighted several investments the company has made in the nascent hydrogen economy. Last year, NextEra's subsidiary, NextEra Energy Resources, became a minority equity investor in Monolith Materials, which manufactures clean hydrogen and carbon black using a methane pyrolysis method in Nebraska. In January, Monolith was awarded a $1 billion loan from the Department of Energy to increase its production capacity by more than 1200%.

Early in 2021, NextEra also invested in a liquid fuels company that will produce synthetic fuels using a proprietary process that will combine green hydrogen with concentrated CO2 streams captured from industrial processes.

Other projects include a 500-MW wind farm that will provide electricity to an adjacent green hydrogen fuel cell manufacturer, and a 20-MW electrolyzer plant in Florida that will produce green hydrogen using solar power.

"Green hydrogen presents a particularly compelling new market for Energy Resources," Kujawa said, referring to the company's subsidiary.

But while the hydrogen tax credit currently being considered by congress would create "even more opportunity," she said, the company's "investments don't assume it."

Build Back Better optimism

NextEra executives expressed optimism about the chances of Build Back Better or a carve-out of its climate provisions passing through Congress, despite slowdowns from within the Democratic party.

Earlier this year, Democratic holdout Sen. Joe Manchin of West Virginia stalled negotiations over the bill when he announced he would not lend his support to the bill, leaving Democrats just shy of a majority. But Manchin later reinvigorated hopes around the bill's climate provisions when he told reporters that "the climate thing is one that we probably can come to agreement much easier than anything else."

NextEra Chairman and CEO James Robo said that while his optimism is somewhat more muted than it was before Manchin pulled out of negotiations, he still believes it will come to pass by the end of 2022.

"I think I felt more optimistic in the fourth quarter than I do now – that's just reality," Robo told investors. "But I do think it's more likely than not that the clean energy piece of BBB gets acted on this year. I do think it's going to take a while."

"My sense is that it's not going to be first quarter event," he added. "It's going to be post that, either a second quarter event or honestly, probably more likely sometime in the fourth quarter after the election."

That sentiment has been shared by others in the green hydrogen sector. During Plug Power's Jan. 20 annual business update, CEO Andy Marsh said that he felt that many parts of the climate package could be passed as individual bills by April.