The US government is planning to introduce $1bn of subsidies to encourage the use of clean hydrogen as part of its $7bn H2Hubs programme, having identified a lack of offtakers to be a major bottleneck for projects.
While the US initially drew fanfare with a clean hydrogen production tax credit worth up to $3/kg, the anticipated flood of investment from green and blue H2 project developers has not yet arrived.
According to government statistics, around 12 million tonnes per annum of production capacity was announced as of late 2022, but only 10% has reached final investment decision (FID).
“Ensuring America is the global leader in the next generation of clean energy technologies requires all of us — government and industry — coming together to confront shared challenges, particularly lack of market certainty for clean hydrogen that too often delays progress,” said US energy secretary Jennifer Granholm.
“That’s why DOE [Department of Energy] is setting up a new initiative to help our private sector partners address bottlenecks and other project impediments — helping industry unlock the full potential of this incredibly versatile energy resource and supporting the long-term success of the H2hubs.”
The DOE has filed a notice of intent, which includes a consultation running up to 24 July, to provide $1bn of demand-side subsidies. However, it has not yet decided on a mechanism of awarding this support or what form the subsidy will take.
Some of the support options the DOE is considering include:
- Contracts for Difference, which fill in the difference between the cost of producing low-carbon H2 and what customers are willing to pay
- Fixed payments to demand-side projects
- Funding to support feasibility analysis from potential offtakers near H2Hubs
- Creation of a “market-maker” entity to provide a ready purchaser/seller for clean hydrogen
And it is also weighing up the following methods of awarding these subsidies:
- A reverse auction in which the demand side competes to bid the lowest level of support they need to make the use of clean H2 in a project viable
- A request for proposal-like process in which offtake projects apply and are selected based on a variety of factors
- An eligibility-based process in which all projects that meet certain threshold requirements receive some form of support
But while this support will be linked to the H2Hubs initiative, which aims to spend up to $7bn on six to ten regional hubs, the DOE is also considering partnership with “an independent implementing entity or entities” and consulting on whether it should seek out “a single entity with national scope or several entities with regional scopes”.
Although the EU has been criticised by industry for its comparative lack of support for producers, a new White House briefing note states that the upcoming European Hydrogen Bank is an example of the kind of demand-side support that could stimulate private investment.
The briefing also notes that the UK and Germany are already implementing offtake support, with the former basing its hydrogen subsidies on Contracts for Difference against a reference sales price, and the latter currently engaged in the double-sided H2Global auction, in which a government-owned entity buys green hydrogen from outside the EU and then sells it to the highest bidder.
A lack of offtakers willing to buy clean hydrogen was recently highlighted by a panel assembled by Hydrogen Insight last month, which pointed out a major mismatch between the high number of suppliers to the low number of customers signed up to the government’s H2 Matchmaker programme.