The Minnesota Public Utilities Commission approved an increased budget for a CenterPoint Energy Inc. hydrogen blending pilot program.
CenterPoint Energy Minnesota Gas, a subsidiary of CenterPoint, requested a $1.4 million increase to the pilot program's budget on Jan. 22, representing a more than 25% increase from the original $4.6 million budget to almost $6.1 million. The PUC adopted the higher budget, with specific provisions regarding the source of funds, at an April 23 meeting.
CenterPoint said its engineering consultant, Standby Systems, produced a larger budget estimate after completing the front-end engineering design (FEED) study. In addition to more detailed engineering and design information, CenterPoint cited inflation and market conditions for labor and materials as drivers for greater capital investment in this project.
The PUC approved the pilot project's original budget, to be spent over a five-year period, in October 2024 as part of CenterPoint's Natural Gas Innovation Act (NGIA) five-year plan. The project would feature a 1-megawatt green hydrogen electrolyzer powered by on-site solar panels, generating and blending hydrogen into the company's natural gas system in Mankato, Minnesota.
Hydrogen blending projects have faced criticism in other states. Climate and environmental justice advocates urged the California Public Utilities Commission in March filings to reject gas utilities' petition to blend small amounts of green hydrogen into natural gas pipelines, citing insufficient evidence that hydrogen blending at low volumes is safe and environmentally sound.
Budget concerns
When questioned about the need for the greater capital investment, CenterPoint said $468,412 is the minimum required to construct the project's solar array in time to qualify for investment tax credits. An additional $935,972 in contingency costs associated with the hydrogen components would provide greater certainty for the project.
Standby Systems initially considered a preassembled model for the project, but none were suitable for Minnesota's winter temperatures. CenterPoint said the custom model, which it also had to use for its downtown Minneapolis pilot, was more expensive than initially expected.
"For [the] pilot to proceed without approval of [CenterPoint's] budget modification request, the inclusion of major aspects of the pilot would need to be reevaluated for the pilot to stay within budget — including the on-site solar and/or hydrogen storage," CenterPoint said in comments to the commission.
The Minnesota Center For Energy And Environment was the only stakeholder to recommend approving the full requested increase rather than a partial $400,000 adjustment.
The Minnesota Department of Commerce Division of Energy Resources said the request for a bigger budget highlighted a lack of transparency regarding the risks and uncertainties in the original proposal. Advocacy organization Citizens Utility Board of Minnesota and clean energy group Fresh Energy said the early budget increase reinforced concerns about cost-effectiveness, scalability, and the redundancy of this pilot.
Decision provisions
The PUC approved the full increase after considering the cost of hydrogen storage components. The funds will come from a different CenterPoint pilot program that purchases renewable natural gas, keeping the funds invested in alternative fuels, a focus of the NGIA statute and CenterPoint's plan.
The commission said budget adjustments must be relative to the originally approved budget and clarified that the approval applies only to the current five-year plan.
The PUC agreed with the Minnesota Office of the Attorney General to consider how increases to the five-year plan could impact lifetime costs and ratepayer impact.
For CenterPoint's next NGIA five-year plan, the company should consider alternative options, Commissioner Joseph Sullivan said at the PUC meeting. He said CenterPoint should work with stakeholders to develop a targeted electrification project that focuses on deploying cold-climate heat pumps and boilers for low- and moderate-income residents, with an emphasis on equitable program design.
