In the quest for sustainable energy solutions, hydrogen has emerged as a promising contender. However, its widespread adoption hinges greatly on production costs. With new investment opportunities arising to advance your hydrogen energy initiatives, we break down the latest insights on funding opportunities and resources for your utility.
Cost of Hydrogen Production
The cost of hydrogen significantly impacts the utilization and expansion of the energy source. Currently, gray hydrogen costs $0.98-$2.93 per kilogram to produce while green hydrogen costs $4.5-$12 per kilogram to produce (Bloomberg). The high cost of green hydrogen is one of the main barriers to adoption and expansion of this market. Existing hydrogen consumers will often choose the lower cost option, while new hydrogen markets are hesitant to pay the high cost associated with green hydrogen. Governments around the world recognize these market dynamics and have been working to reduce this cost differential by incentivizing green hydrogen innovation through tax credits and funding opportunities. The current goal is to bring green hydrogen to the cost parity of gray hydrogen, close to $1-$2/kg (Department of Energy).
US Inflation Reduction Act
The United States Federal government released hydrogen and fuel cell project incentives through the Inflation Reduction Act (IRA) of 2022, which “includes clean energy tax credits and other provisions that would increase domestic renewable energy production” (DoE). The IRA consists of multiple sections, specifically among these sections are:
- Advanced Energy Project Credit
- Alternative Fuel Refueling Property Credit
- Carbon Capture and Sequestration Tax Credit
- Clean Hydrogen Production Tax Credit
- Clean Vehicle Tax Credit
- Elective Payment for Energy Property
- Energy Credit
- Energy Storage Credit
- Qualified Commercial Clean Vehicles Tax Credit
The above listed sections contain credits for upgrading buildings or manufacturers that are looking to reduce carbon emissions and intensity, but also for fuel cell vehicle purchases. Specifically, the Clean Hydrogen Production Tax Credit will reduce the price of hydrogen per kilogram based on the carbon intensity during production as illustrated in figure 1. Although the tax credit outlines specific restrictions, it is a 10-year incentive plan to lower the cost in hopes of increasing usage. To learn more information about the outlined tax credits, please visit the Department of Energy website here.
Figure 1: Tax credits provided through the IRA based on hydrogen production carbon intensity (DoE)
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US Hydrogen Hubs
In addition to the IRA, the new Bipartisan Infrastructure law has consolidated $8 billion for Regional Clean Hydrogen Hubs Program that was approved in October 2023. The goal of the hubs is to promote the development of “clean” hydrogen through production, delivery, and usage (The White House). The regional hydrogen hubs are in negotiations with the Department of Energy to determine the amount of funding each hub will receive. The hubs will use the funding to decarbonize certain sectors to reduce carbon emissions to lessen climate change effects. This reduces carbon dioxide emissions by as much as 9 million metric tons per year (DoE). The hydrogen hubs target the heavy-duty transport industry, industrial processes, marine fuel, develop hydrogen pipelines, establish fueling stations, etc. In addition to targeting carbon emission intensive sectors, the hydrogen hubs expect to provide local communities with permanent jobs and partner with local universities and organizations.
Canada Clean Hydrogen Investment Tax Credit
Canada released the Clean Hydrogen Investment Tax Credit (CHITC) in spring of 2023 and released the first round of credits at the end of 2023. The program reimburses green and blue hydrogen developers, though the amount of reimbursements is correlated to the carbon dioxide equivalent (CO2e) per kilogram of hydrogen produced (Hydrogen Insight). Those technologies with a lower (CO2e) will receive a higher credit. This program is aligned with Canada’s national hydrogen strategy.
European Union Hydrogen Bank
In the European Union, they are working to subsidize hydrogen prices through the Hydrogen Bank (Europa.eu). The European Commission launched the first auction, that awarded subsidies to hydrogen producers, in the Fall of 2023 as part of the EU Innovation Fund. This auction released €800 million in funds to producers in the form of subsidies based on kilograms of hydrogen produced (EU Innovation Fund).
The Future of Hydrogen Funding
Governments across the globe are expanding investments and incentives related to hydrogen innovation. These investments are aligned with country-to-country strategies on hydrogen production and technology. This investment level is similar to what was seen with solar energy in the early 2000s and will hopefully lead to similar technology advancements and cost reductions across the hydrogen industry. The hydrogen industry will continue to see expanding investment both from the public and private sectors.
