Department of Energy Chooses Seven Regions for $7 Billion in Hydrogen Hubs Funding

This morning, the Department of Energy decided how it will allocate up to $7 billion of Bipartisan Infrastructure Law (“BIL”) funding set aside for establishing regional Hydrogen Hubs. (For more information on the Hubs, see our post HERE).

The funding could be critical to jump-starting the country’s clean hydrogen economy.  It will support projects for clean hydrogen production, distribution, and end-use within the Hub regions.  The goal is to drastically reduce greenhouse gas emissions—particularly for hard-to-decarbonize sectors of the economy that will make use of the low-carbon hydrogen the Hubs will produce.  Those hard-to-decarbonize sectors include manufacturing steel, cement, and industrial chemicals, as well as the production of sustainable fuels for air travel, heavy-duty trucking, and maritime shipping.

The following Hubs were selected for funding:

  • Mid-Atlantic Hydrogen Hub (Mid-Atlantic Clean Hydrogen Hub (MACH2); Pennsylvania, Delaware, New Jersey) – up to $750 million.
  • Appalachian Hydrogen Hub (Appalachian Regional Clean Hydrogen Hub (ARCH2); West Virginia, Ohio, Pennsylvania) – up to $925 million.
  • California Hydrogen Hub (Alliance for Renewable Clean Hydrogen Energy Systems (ARCHES); California) – up to $1.2 billion.
  • Gulf Coast Hydrogen Hub (HyVelocity Hydrogen Hub; Texas) – up to $1.2 billion.
  • Heartland Hydrogen Hub (Minnesota, North Dakota, South Dakota) – up to $925 million.
  • Midwest Hydrogen Hub (Midwest Alliance for Clean Hydrogen (MachH2); Illinois, Indiana, Michigan) – up to $1 billion.
  • Pacific Northwest Hydrogen Hub (PNW H2; Washington, Oregon, Montana) – up to $1 billion.

The Hubs announcement reaffirms the Biden administration’s commitment to clean hydrogen as a key climate solution.  Yet it is in many ways just the beginning for the clean hydrogen industry and serves as a critical reminder that several questions remain unanswered regarding how the Hubs and other hydrogen incentives will function.

The selected Hub proposals themselves will need to be developed further.  Hub funding is to be doled out in four phases, according to the Department’s Notice of Funding Opportunity.  Those phases will be punctuated by Go/No-Go reviews, in which the Department will assess project performance, adherence to project schedule, whether milestone objectives have been met, the Hub projects’ continuing ability to meet cost-sharing and contingency requirements, and whether Hub projects have been adequately implementing community benefit programs.  The first phase—“Detailed Project Planning”—will require, among other things, the “completion of preliminary engineering, construction, and commercial scale designs” and the accomplishment of other milestones intended to show that the Hub is “technologically, financially, and legally viable, with buy-in from relevant local and community stakeholders.”

The federal government must also decide how it will implement other hydrogen programs that will be critical to the Hubs’ success.  The one that immediately comes to mind is the Hydrogen Production Tax Credit in the Inflation Reduction Act.  Treasury and IRS have delayed issuing guidance on how that credit will be implemented, leaving many to wonder what production processes will qualify and how the agencies will determine whether lifecycle GHG emissions thresholds for clean hydrogen are met.

Key issues must be resolved particularly regarding how “green” hydrogen—hydrogen produced via electrolysis using renewable energy—will be credited.  Treasury and IRS are considering stakeholder comments regarding how hydrogen projects planning to use power from the electric grid will attribute that power to renewable resources, such as wind and solar.  Some propose an annual matching requirement, while others are advocating for a more stringent hourly matching requirement, which would, in effect, require hydrogen producers to match their power consumption on an hourly basis to renewable power being generated during the same time.  Other requirements under consideration include additionality—that hydrogen should be produced drawing only from new sources of renewable power, rather than preexisting resources—and regionality—that hydrogen producers must attribute their power to renewable generation occurring within their specific region.

Department of Energy must also decide how to allocate the remaining up to $1 billion in Hubs funding it has set aside for demand-side projects, that is, projects that will use the clean hydrogen the Hubs produce.  For the Hubs to function successfully, hydrogen producers and distributors will need off-takers seeking a reliable supply of clean hydrogen.

We may soon get answers to the outstanding questions.  Some reporting suggests that the Hydrogen Production Tax Credit guidance could be released before the end of the year.  The Hubs funding decision could add pressure to get that guidance out sooner rather than later, as many hydrogen projects could be relying on obtaining the credits and other incentives to be economical.

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