EXCLUSIVE | The top ten US hydrogen hubs most likely to win $7bn of government funding

Matching supply and demand is one of the thorniest problems facing the clean hydrogen sector as it grows from a tiny segment of the global hydrogen sector to the expected multi-billion-dollar industry of the next decade.

In the coming weeks, the US Department of Energy (DOE) hopes to tackle this problem by allocating $7bn (of a total $8bn pot) across six to ten regional hydrogen clusters, with the aim of incentivising producers, infrastructure owners and offtakers to work together to jointly develop a much-needed hydrogen value chain — allowing them to attract financing, actually build their projects and decarbonise some of the country’s most polluting sectors.

In the end, 22 proposals publicly announced that they were applying in full and the DOE is now tasked with picking the winners — and rejecting at least half of them, possibly even more if more hubs made applications under the radar.

All of which begs the question: Which hubs are likely to be successful? And, importantly, on what basis will that be decided?

Selection criteria

But although the DOE has firm selection parameters, it is not clear which of these will be prioritised when assessing applications which all meet some of the requirements but not others.

And the requirements are firm. Supply-side projects at the hubs must produce at least 50-100 tonnes per day (equating to 18,250-36,000 tonnes per year if operated 365 days per year) and include end uses compatible with local demand, as well as utilising potential or existing infrastructure such as hydrogen or carbon dioxide storage.

Hubs must also be able to demonstrate carbon dioxide-equivalent emissions reductions on a well-to-gate basis, and be prepared to match federal funding with state-level or private funding.

And the final suite of chosen projects must also meet the DOE’s four technical criteria:

The importance of geography

“The encouraged hubs have, individually or collectively, already met the production, end-user, and employment requirements defined by the DOE, since the program allowed for hubs to complement each other in these criteria,” says Domingues. “Geographic diversity, however, is where these hubs compete as some encouraged hubs are regionally overlapping, such as some applicants in Gulf Coast and East Coast. Making decisions based on geography can also prevent competition between regions and reduce scepticism about politically-driven choices for the US hubs.”

In general, hub applications are concentrated in the densely populated Northeast, the Atlantic coast and the Gulf Coast.

But the federal agency will be strongly incentivised to spread cash throughout the country, especially in deprived areas in need of regeneration, and the DOE will be additionally keen to ensure that hubs aren’t competing for supply from local hydrogen producers.

This means that even some projects which meet the criteria will not make the final cut — while some less robust projects could end up with federal funding.

Meanwhile, four relatively small hubs without the backing of deep-pocketed energy giants or industrial conglomerates have made it on to the list, on account of the impact it could make to the local area and their relatively disparate locations.

And projects in regions with nuclear power, such as the Northeast and Midwest are also more likely succeed on account of their potential for pink hydrogen projects, which would not need expensive new nuclear infrastructure.

‘Green bias’

Despite the US’s history of gas production and the DOE’s emphasis on prioritising gas-producing regions, there is a slight bias towards renewable and bio-reformation production pathways among the hubs, which together make up 62% of all applications.

“The identified hydrogen hubs have varying contributions toward nationwide hydrogen deployments,” she explains. “Broadly speaking, these hubs can be divided into two categories: those with an extensive list of partner companies and financial resources, and those that are seeking to attract industries and develop capabilities to create local economic and employment opportunities.”

“While both groups fit [the] DOE’s criteria, when exclusively looking into reducing market barriers and hydrogen production costs, hubs less engaged with industrial partners may hinder the country’s hydrogen economy development.”

Rystad also has doubts about the financial impact the H2Hubs cash on its own, pointing out that if ten projects are selected, they could be in line for around $700m each — a drop in the ocean when combining multiple clean hydrogen projects, infrastructure and end users.

Moreover, the DOE has not made clear how the cash will be allocated within individual winning hubs, or how it will manage fund allocations to companies, such as Exxon or Air Products, which are associated with more than one application.

The biggest impact of the hubs will be to encourage the financial sector to top up investment in clean hydrogen, in a sector where banks have been reluctant to shoulder technical or volume risk, Domingues says.

In fact, the scheme is likely to generate significantly more investment than the federal government puts in. The DOE has already estimated that the 33 “encouraged” hubs have committed around $33.5bn of state-level and private investment, more than four times’ the $7bn committed by the energy department.

Full details of Rystad’s most likely winners:

The hub is one of two Appalachia-based applications spanning some of the most economically deprived regions of the US and encompassing abandoned coal mines and territories of indigenous peoples. Its socio-economic profile and high density of industry means that the region is a prime location for those hoping to benefit from hydrogen production tax credits and investment tax credits (which are available for solar, geothermal and fuel-cell energy).

This is one of three East Coast (or mid-Atlantic) applicants in the final 22, all of which have been identified by Rystad as most likely to utilise the area’s nuclear power infrastructure to produce pink hydrogen.

The hub is targeting hydrogen production from three different production pathways — green, blue and pink.

The Midwest Alliance is backed by 70 members — comprising hydrogen producers, end users and public bodies — including nuclear power plant operator Constellation, Air Liquide, steel producer ArcelorMittal, EU-funded research institute EIT InnoEnergy, Plug Power and ExxonMobil.

The project, which wants $700m from the H2Hubs pot, aims to set up industrial parks in Oregon and Washington state to house ammonia plants for fertiliser production, fed by a hydrogen pipelines from green hydrogen production plants. It is backed by just one sponsor, Oregon-based solar producer Obsidian Renewables, and is one of two hub proposals located in the US Northwest.

The region plays host to several fertiliser production plants that could be decarbonised with green ammonia produced from renewable hydrogen, but the biggest draw for federal funding for the Southeast Hydrogen Hub could be the impact it would have on the local economy.

Five regional utilities are behind the scheme, which aims to develop a “green hydrogen network” across all six states.