The proposed guidelines for the 45V clean hydrogen production tax credit could “kill the rapid development of the green hydrogen industry by disadvantaging first movers”, Australian H2 producer Fortescue’s North America CEO Andrew Vesey told the government public hearing into the matter yesterday.

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The company had last year taken its first final investment decision (FID) on a US green hydrogen project, the 80MW Phoenix Hydrogen Hub in Buckeye, Arizona.

However, Vesey warned that in order to qualify for the up-to-$3/kg tax credit, project costs could balloon beyond the $550m committed due to the requirement for renewable power and H2 production to be matched on an hourly basis from 2028.

“Due to the intermittent nature of renewables, hourly matching will require substantial additional [energy] storage capacity to meet the times when the wind isn’t blowing, and the sun isn’t shining,” Vesey said in his testimony.

“Adding battery storage to comply with hourly matching, could increase the costs at a facility the size of our Buckeye project by over 140%.”

The facility is set to source its power from new sources of wind and solar generation from utility Arizona Public Service.

Vesey added that switching from annual matching to hourly correlation would require purchasing “two and a half times more power” — while the technology to prove that hydrogen production is matched to this time frame is not readily available.

“The renewable energy provider for our Buckeye project is not set up to measure, track, and retire EACs [renewable energy attribute certificates] on an hourly basis,” Vesey said. “They have indicated that they will need several years to have this capability.”

Fortescue also opposes “incrementality”, also known as additionality, which requires hydrogen producers to only use power from renewables built within three years of the facility, which Vesey noted “significantly disadvantages zero-carbon electricity sources, like nuclear and hydropower”.

This would penalise the Australian firm’s likely second hydrogen production project in the US — a 300MW facility in the state of Washington, which is part of the Pacific Northwest Hydrogen Hub earmarked for up to $1bn in federal funding.

“This investment would not qualify for the tax credit, because we plan to use a mix of surplus hydropower and other renewables,” Vesey said, arguing that this power is “literally ‘water over the dam’” and would otherwise be curtailed.

He continued that under the current guidance, Fortescue would have to buy “significantly higher priced additional new renewable energy resources”, which could take five years to come on line, delaying the project and increasing power costs by 20%.

“We are the only industry that has been told we have to bring our own green electrons to the table,” he added. “Think about that. If the EV industry was required to do the same, there would most likely not be a single electric vehicle on the road today.”

Vesey also argued against the requirement to use the GREET model — a methodology to calculate lifecycle H2 project emissions — “or a successor model” each year of production creates the risk that updates could push a facility from qualifying for a certain rate one year to not qualifying the next, thus creating unnecessary project risk.

Instead, Fortescue calls for the version of the methodology to be locked in once a project is deemed eligible for the 45V tax credit over ten years.

The Australian firm also wants, at a minimum, the final guidance to include a grandfathering clause for projects that begin construction before 31 December 2029, which would exempt them from additionality and the switch from annual to hourly matching.

“I also want to note that a “phase in,” “slope,” or “glidepath” approach, which postpones the requirement for hourly matching, but ultimately requiring all facilities to comply within the ten-year credit window, does not help,” Vesey added.

“Hourly matching requires an entirely different facility design and level of operability than monthly or annual matching, so the only workable approach is to grandfather first-mover projects.”

Proposed US guidelines on green hydrogen production

The US Treasury's proposed guidelines on green hydrogen production, published in December, call for three requirements or "pillars" that will ensure H2 is truly green and will not lead to increased emissions: additionality, temporality, and deliverability.

“Additionality” means that the green hydrogen would have to produced from new renewables projects, so that they do not utilise existing clean electricity facilities that would otherwise help decarbonise the power grid.

For this pillar, the Treasury wants hydrogen producers to source their power from zero-carbon projects built within three years of the H2 project.

“Temporality” relates to how frequently producers would have to prove that their electrolysers have been powered by 100% renewable energy — usually hourly, weekly, monthly or annually — and therefore to what extent they can use grid electricity at times when the wind isn't blowing and the sun isn't shining, and then send the same anount of renewable energy back to the grid at a later date.

Here, the Treasury is calling for renewable power to matched on an annual basis up to 2028, and then hourly from then on.

"Deliverability" — or geographic correlation — relates to how physically close the hydrogen-producing electrolysers are to the source of renewable energy they use. Distances can be set to ensure that an electrolyser in, say, Texas, is not powered by solar panels in California through renewable energy credits, which in practice could mean that green power is sent to a grid that doesn't need it, with the electricity actually used by the electrolyser coming from fossil-fuel power plants.

The US Treasury wants green hydrogen projects to be within the same regional grid as the renewable energy projects powering them.