Three Ways 45V Can Jumpstart American Clean Hydrogen
The Inflation Reduction Act’s 45V hydrogen production tax credit can jump-start the clean hydrogen industry. But we must get the rules right and the details really matter.
Adopt annual matching for clean hydrogen facilities that begin construction before 2030; shifting to monthly time matching for facilities that begin construction in or after 2030.
Rationale for phased approach to time matching
Currently, there is both a lack of sufficient renewable sources and a nationwide administrative system for accounting for renewable energy certificates (REC) and energy attribute certificates (EAC) on restrictive (hourly) time scales.
As new renewable sources of power are developed, driven by other IRA incentives, and accounting systems improve, more restrictive time matching—as frequent as monthly—can be implemented.
Argument against hourly matching
Limiting a REC’s or EAC’s time-of-use to the hour of its generation, otherwise known as hourly-matching would:
- Significantly increase the cost of clean hydrogen:
The electrolyzers needed to produce clean hydrogen require a stable electricity supply. However, renewable electricity is intermittent and many commercially available electrolyzers cannot cope with fluctuations in electricity input. Intermittent renewables will increase wear and tear on the electrolyzers driving up maintenance and replacement costs.
- Deter investment resulting in fewer electrolytic hydrogen projects being built:
A facility won’t be able to produce a steady supply of clean hydrogen if their electrolyzers are operating intermittently. This will make the supply of clean hydrogen unreliable and prohibit offtake by many potential consumers. These conditions will render many projects uneconomic, deterring both customers and investors.
- Limit the development of a clean hydrogen market:
Fewer projects and customers will stifle development and scaling of the market for clean hydrogen.
Reject additionality requirements and allow clean hydrogen producers to use existing clean power sources.
Rationale against additionality
Additionality would significantly delay hydrogen projects by forcing them to wait until new clean energy projects come into service—a process that could take 5+ years due to permitting and interconnection delays and construction timelines.
Argument against additionality
- Timelines for new renewables
- It takes on average 7 years for a renewables project to come online once an interconnection agreement is filed. That means a renewable project that is entering into the interconnection queue in April 2023, would not become operational until April 2030 at the earliest—towards the END of the 45V tax credit program
- Very few new renewable projects would be able to come online before the 45V tax credit expires in 2032.
- Lack of congressional intent
- Additionality requirements are not included in the 45V statutory language.
- There is no mention of additionality in the colloquy. The colloquy was intended to identify the congressional intent on the use of RECs but not for setting any specific requirements on how RECs should be applied.
Adopt reasonable regional restrictions requiring renewable energy certificates (RECs) or energy attribute certificates (EACs) to be generated within the same interconnection region as the clean hydrogen production facility until 2030, and then narrowing to the 6 North American Electricity Reliability Council regions in 2030 and beyond.
Rationale against strict regionality
Clean power resources are unevenly distributed across the US. Strict regionality would require clean hydrogen producers to be located within the same narrow region as its renewable power sources.
This requirement discriminates against regions in the US that want clean hydrogen but don’t have sufficient clean power resources to support commercial clean hydrogen production. It will also increase the cost of clean hydrogen—reducing the efficacy of the production tax credit (PTC).
Argument against strict regionality
- Limits adoption of clean hydrogen
- Clean hydrogen production will become concentrated almost exclusively within regions with abundant clean power resources resulting in missed opportunities for the decarbonization of hard-to-abate industries in regions with insufficient clean power resources.
- Consumers in these resource poor regions will not have access to clean hydrogen without further buildout of transmission infrastructure which will increase hydrogen costs and cause further delays to clean hydrogen adoption.
Go Deeper: Read CHFC’s Full Position Paper Here
- What is time matching?
Time matching – matching hydrogen production to clean power generation within a specified time period (also known as temporal correlation or temporal matching).
- What is Additionality?
Allowing only new clean power generation to the power system to match demand increases from hydrogen production.
- What is Regionality?
Matching hydrogen production to clean power generation that is geographically nearby, such that the clean power source can be a credibly connected source of electrons (also referred to as geographic matching or deliverability).
- What is a Renewable Energy Certificate (REC)?
A renewable energy certificate is a market-based instrument that represents the property rights to the environmental, social, and other non-power attributes of renewable electricity generation.
Source: Renewable Energy Certificates (RECs) | US EPA
- What is an Energy Attribute Certificate (EAC)?
An energy attribute certificate is a market instrument that provides information an data on how electricity is generated and used.
Source: International Green Power Markets | US EPA
- Evaluating Impacts of the Inflation Reduction Act and Bipartisan Infrastructure Law on the U.S.
- The U.S. Hydrogen Demand Action Plan
- REPORT on the proposal for a regulation of the European Parliament and of the Council on the internal markets for renewable and natural gases and for hydrogen (recast)
- Scaling Green Hydrogen in a post-IRA World | Rhodium Group (rhg.com)