US Weighs $1 Billion Hydrogen Demand Program to Boost Industry

The Energy Department would spend $1 billion to boost demand for clean hydrogen under a new plan to provide initial revenue for the first large-scale producers and provide certainty for potential buyers.

The department plans to issue a notice of intent Wednesday that explores an initiative to make demand-side commitments to hydrogen producers as part of its much-anticipated $8 billion regional hydrogen hub program launched last September.

The notice, shared in advance with Bloomberg Law, seeks answers to seven questions about how to implement the program and about the best mechanisms to strengthen demand for hydrogen. Those mechanisms could include pay-for-delivery contracts, off-take backstops, and feasibility funding to support analysis by off-takers, which would be implemented by an independent entity outside the federal government, according to the notice.

The program addresses a key challenge in scaling up a hydrogen industry—and other nascent clean energy technologies—as part of the Biden administration’s goal of achieving net-zero greenhouse gas emissions across the US economy by 2050.

Energy industry buyers are naturally conservative and hesitant to dramatically shake up their procurement strategies amid questions about supply, price, and technology costs, said David Crane, the department’s under secretary of infrastructure, in an interview with Bloomberg Law.

“We hear there’s a lot of interest among people who want to go zero-carbon in using clean hydrogen, but they’re going to wait to see that it’s there,” Crane said. Demand has lagged supply in other countries that have more mature hydrogen industries, such as Germany, the United Kingdom, Australia, and Japan, he said.

“No supply-side procurement professional ever lost their job by buying energy exactly the same way they bought it last year,” said Crane, who once served as president and CEO of power giant NRG Energy. “You lose your job when you try and do something that’s unreliable.”

The government should serve as a “short-to-medium-term bridge” until enough hydrogen production facilities are operating to form a critical mass of customers, Crane said. Those customers—heavy-duty trucking, steel, cement, chemicals, and other hard-to-decarbonize industries—would have to make capital-intensive upgrades to their plants or fleet to use hydrogen, he said.

Public comments, due by 5 p.m. Eastern on July 24, will inform how the DOE sets up the program, the notice said.

Riskier Investments

Hydrogen production could increase from almost zero today to 10 million metric tons by 2030, with the potential to add 100,000 net new jobs in that timeframe, according to the department’s National Clean Hydrogen Strategy and Roadmap released last month. Production could reach 50 million metric tons by 2050.

Small amounts of hydrogen historically have been produced by a carbon-emitting “gray” process powered by natural gas. The government considers clean hydrogen to include several types of production methods—renewable energy, nuclear energy and natural gas using carbon capture and storage.

“Green” hydrogen uses renewable electricity to split water into oxygen and hydrogen molecules without releasing carbon. “Pink” hydrogen splits water using nuclear energy. Green hydrogen has been three to six times more expensive to produce than gray hydrogen.

The industry so far has seen unprecedented federal incentives to boost supply.

This fall, the department plans to announce up to $7 billion for six to 10 regional hubs across the country. The hubs are expected to include a mix of green hydrogen produced by renewable energy; one from “blue” hydrogen sourced from natural gas and using carbon capture and storage; and one nuclear-powered hydrogen project.

Meanwhile, Treasury Department officials are working on guidance for a new hydrogen production tax credit for up to $3 per kilogram of clean hydrogen in the Inflation Reduction Act passed in August 2022. The climate-and-tax law provided the Energy Department with more than $300 billion of additional loan authority to finance clean energy projects, including hydrogen production. The 2021 bipartisan infrastructure law included $1.5 billion to support hydrogen electrolysis, and the White House invoked the Defense Production Act in June 2022 to support US production of electrolyzers.

But the industry is confronting feasibility challenges and a debate over emissions from the electricity required to power hydrogen production. And uncertainty around pipeline and storage capacity necessary to transport hydrogen to customers are major barriers the industry hopes to clear through “learning-by-doing,” the White House Council of Economic Advisers wrote in an issue brief released Wednesday in support of the DOE’s program.

Demand-side incentives are crucial to avoid broad market failures, the council said. While hydrogen production projects totaling about 12 million metric tons per year of capacity were announced as of late 2022, only 10% have been major financial commitments, the council found.

“Lack of near-term demand certainty can make clean hydrogen projects a riskier investment, inhibiting the flow of private capital into production and mid-stream infrastructure,” the council wrote.

Familiar Path

The department is following a familiar path to scale up new technology, Crane said. The DOE looked to other countries with hydrogen industries. It also drew inspiration from a DOE funding program for photovoltaics in the late-1970s and 1980s that helped to bring down the price of solar panels.

Today, the department’s nuclear office is advancing similar measures to spur production of highly enriched uranium needed for advanced nuclear reactors. Its HALEU Availability Program seeks to provide enrichment facilities with purchase commitments needed to start up production until the next-generation reactors begin operating, as soon as the end of the decade.

The department is talking to other parts of the government, including the Defense Department, about possible hydrogen procurement needs, Crane said. “We’re going to pull every lever that we have.”

Defense officials have expressed interest.

Last month, Rachel Jacobson, assistant secretary of the Army for installations, energy and environment, spoke in front of a hydrogen-fueled emergency response vehicle parked outside the Energy Department headquarters.

“We are the people who are putting out that demand signal,” Meredith Berger, assistant secretary of the Navy for energy, installations, and environment, said in a May 31 interview.

As the DOD looks at advanced technologies, it is “working hand in hand with industry to make sure that, as we send out that signal, we are working with them to get that response that really is tailored to shift where the market goes,” Berger said.

—Stephen Lee contributed to this report.