Greater clarity on tax credits and a commitment to rigorous rules on certification are two critical components to make clean hydrogen a viable energy source in the United States, a new industry report from US law firm Troutman Pepper found.
The report argues that, in addition to the above, the US should boost exports to provide additional routes to market, bolster domestic manufacturing for hydrogen technologies, and prioritise ‘backbone’ infrastructure to reduce project risk.
The Inflation Reduction Act and Bipartisan Infrastructure Law have generated considerable commercial interest in American clean hydrogen projects. But the legislation, and implementation of those regulations, come with complexities and caveats that require navigation.
According to the report, one such issue is tax credits. Designed to incentivise companies to produce clean hydrogen, helping them transition from early-stage development and planning to construction, the proposed IRS regulations on Section 45V in December 2023 have been considered too stringent by many in the industry.
For hydrogen to be considered ‘clean’ and eligible for credits, it must meet three criteria: additionality, time matching and deliverability.
These “3 Pillars” ban hydrogen facilities from drawing power from a source more than three years older than the hydrogen project. They also require electricity produced from hydrogen to be generated within the same hour as the hydrogen, as well as the electricity source and hydrogen facility to be in the same geographical area, as defined by the DOE’s transmission needs analysis.
Many developers and utilities who were contacted by Troutman Pepper said that these strict regulations will drive up costs and make it difficult to get projects in the nascent sector off the ground.
According to Troutman Pepper, hydrogen offtakers have asked for improved clean hydrogen certification standards to offer transparent reassurance that they will recieve the expected product.
To stimulate the development of hydrogen infrastructure, the Biden administration granted $7bn in funding last year for the construction of hydrogen hubs in 16 states. By 2050, the US wants to produce 50 million tonnes of clean or ‘green’ hydrogen, a fivefold increase from today.
