Hydrogen developers, clean energy industry groups criticize tax credit guidance

Green hydrogen developers and renewable energy industry groups are assailing the stringent conditions stipulated in the US Treasury Department's long-awaited guidance for the hydrogen production tax credit.

The proposed framework for the 45V hydrogen production tax credit (PTC) would require electricity that powers hydrogen production to come from new rather than existing clean sources, a concept known as additionality.

Under a condition known as time-matching, the energy attribute certificates purchased and retired by facilities to qualify for the credit must also represent power generated in the same hour that a hydrogen production facility uses it. That provision would take effect in 2028.

A third pillar, known as deliverability, obligates producers to demonstrate that they sourced clean electricity from within an established region per the Treasury guidance.

"As we have said before, an ample transition period for annual matching and inclusion of grandfathering [projects under construction] are important in the final rule to expedite clean hydrogen's role as a cornerstone in decarbonizing the US economy," NextEra Energy Inc. said in an emailed statement. "Without that, the US risks driving up project costs and significantly slowing economy-wide decarbonization, job creation and economic development, among other benefits from hydrogen."

In October, NextEra subsidiary Florida Power & Light Co. said the electrolyzer at its Cavendish nextGen Hydrogen Hub in Okeechobee County had begun producing hydrogen and is expected to be fully operational by the end of the year.

Plug Power Inc. President and CEO Andy Marsh asserted in an email that the PTC guidance "would fall short in achieving the administration's decarbonization objectives, such as the Clean Air Act Section 111 performance standards and [the US Department of Energy's] Clean Hydrogen Hubs program."

The company, which has struggled to translate sales of green technology into profits, issued a going concern warning in November that it could run out of liquidity during the next 12 months, prompting a stock sell-off.

Analysts at Morgan Stanley told clients Dec. 6 that "a highly favorable ruling on 45V is needed (no additionality, annual matching, and loose regionality requirements) for [Plug Power] to achieve profitability in its fuel delivery business."

Plug Power is a partner in two of the seven hydrogen hubs that won a combined $7 billion of DOE grants.

One of the projects that Plug is participating in, the Appalachian Regional Clean Hydrogen Hub, recently lost partner CNX Resources Corp. after the gas producer could not reach final commercial terms with developers of the associated Adams Fork clean ammonia project in Mingo County, W.Va. Delays and uncertainty over rules guiding the use of the 45V hydrogen production tax credit provisions of the Inflation Reduction Act also contributed to CNX's decision, the company said in a Dec. 15 news release.

Xcel Energy Inc., which is participating in a hub headed by the University of North Dakota's Energy & Environmental Research Center, agreed in an emailed statement that the proposed additionality pillar would "slow down the development of the hydrogen marketplace ... increasing the costs of the hydrogen hubs."

Nuclear tax credit pairing in doubt

Nuclear operators hoping to pair a nuclear production tax credit with floor pricing of $40/MWh to $44/MWh with the hydrogen PTC were similarly disappointed by the Treasury's proposed framework.

"If finalized, America will surrender hydrogen and deep decarbonization leadership to China and Europe, both of which have policies that smartly utilize their existing nuclear plants to make hydrogen and speed decarbonization," Constellation Energy Corp. said in an emailed statement. "In an ironic twist, the rules claim that existing nuclear, ignored for years, is now simply too valuable to use for hydrogen production."

Constellation's planned $900 million production facility would be part of the Midwest Alliance for Clean Hydrogen hub. But company President and CEO Joseph Dominguez told investors in November that the project will not happen "without the right rules."

Constellation, Public Service Enterprise Group Inc., Vistra Corp. and the nuclear power trade association the Nuclear Energy Institute had asked the Treasury to allow any hydrogen created using existing renewable energy resources to qualify for the PTC.

Public Service Enterprise Group declined to comment on the guidance, but Nuclear Energy Institute President and CEO Maria Korsnick said in a statement that additionality "will make many clean hydrogen projects uneconomic and will create years of delay for the few projects that can move forward."

Keith Martin, Norton Rose Fulbright renewable energy tax expert and co-head of projects, said in an email that the proposed rules would make securing offtake contracts even harder. "Developers will have a hard time persuading banks to lend until they can demonstrate an ability to comply with hourly matching," Martin predicted.

During a Dec. 21 call with members of the media, senior Biden administration officials said they are looking for ways to ensure that hydrogen production remains economic for nuclear developers.

"There are a series of potential pathways, including upgrading the facility, relicensing pathways that anticipate losses in generation as a result of retirements that could happen and including a carve-out that we create a safe harbor essentially for a percentage of the production that can go into clean hydrogen," the officials said.

Trade groups, manufacturers respond

Industry trade groups like the Edison Electric Institute, the American Council on Renewable Energy and the American Clean Power Association also expressed concerns that the Treasury framework would hinder development.

All three organizations emphasized in statements that while hourly matching in particular would dampen prospects for jump-starting the industry, they also hope the final rules are more flexible.

Reactions from other electrolyzer manufacturers, on the other hand, were more positive.

"The four-year phase in from annual to hourly matching is a middle-ground approach that provides time for industry to scale hourly matched [renewable energy credits]," Electric Hydrogen Co. chief legal officer Beth Deane said in an emailed statement. "The hourly matching requirement also boosts high-tech, US-manufactured electrolyzers with their ability to load follow variable renewables."

"To create a durable industry, hydrogen users and taxpayers need to have confidence they are getting the emissions reductions they funded," Deane added.

Advanced Ionics Inc. President and CEO Chad Mason agreed that the guidance is crucial to ensuring that hydrogen "is clean and can deliver on its promise to decarbonize challenging sectors like ammonia, petrochemical and steel."

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