On Thursday, the Department of Energy (“DOE”) announced that the highly anticipated and several months delayed application window for $7 billion in clean hydrogen hub program (“H2Hub Program”) funding provided by the bipartisan Infrastructure Investment and Jobs Act (“IIJA”) is now open. Applicants must submit a concept paper for their proposed clean hydrogen hub (“H2Hub”) by November 7, 2022, in order to be invited to submit a full application due April 7, 2023. The $7 billion Funding Opportunity Announcement (“FOA”) is likely the largest ever public investment in clean hydrogen and one of the largest investments in DOE history. DOE anticipates funding 6–10 H2Hubs in amounts ranging from $400 million to $1.25 billion.
In addition to opening the H2Hub Program application process, DOE (i) provided its most detailed instructions to date on what it expects to see from competitive H2Hub Program applicants, (ii) issued draft guidance defining a clean hydrogen production standard (“CHPS”), and (iii) issued a draft DOE National Clean Hydrogen Strategy and Roadmap. In short, it was a big week for clean hydrogen at DOE. Below are some key takeaways from each.
Clean H2Hub Program FOA
The 20-page (maximum) concept paper due in six weeks requires, among other things, a succinct description of the proposed integrated H2Hub, a preliminary development plan (including a finance plan) and timeline, identification of necessary equipment and facilities, and a description of the proposed H2Hub’s team and qualifications. Timely submittal of a concept paper is a prerequisite to submitting a full application in April. Although DOE has clarified that applicants who do not receive an “encouraged” notification in response to their concept paper may nevertheless submit a full application, DOE explained that a lack of “encouraged” notification is intended to “convey its lack of programmatic interest in the proposed project….” Submitting a strong concept paper will thus be a critical first step for H2Hub Program applicants.
The H2Hub Program has a 50 percent cost share requirement that must be met both on the basis of total project costs and for project costs for each of the four funding phases. The portion of an applicant’s cost share—which may be a cash or in-kind contribution and can be derived from sub-applicants or other third parties—must come entirely from non-federal sources. Although DOE does not specifically indicate whether prohibited federal sources include the new Section 45V clean hydrogen production tax credit, it does state, consistent with federal regulations governing cost share, that “avoided costs such as tax credits may not be used as a cost share.” Given that 45V will account for a significant source of many H2Hub revenues, the fact that it appears unlikely to be eligible to support the 50 percent cost share requirement is disappointing.
The Section 45V credit—as the most generous clean hydrogen subsidy in the world—is likely to play a major role in scaling up the supply of clean hydrogen. Where the demand for this new and soon-to-be rather inexpensive clean hydrogen comes from is the more difficult part of the equation. DOE recognizes this challenge and has thus emphasized that “matching the scale-up of clean hydrogen production to a growing regional demand is a key pathway to achieving large-scale, commercially viable hydrogen ecosystems.” Additionally, given the significant costs associated with the long distance transport of hydrogen, DOE has suggested that H2Hubs should locate “supply and demand in close proximity.” Strong H2Hub applicants will thus need to demonstrate domestic demand for their clean hydrogen in their immediate region with, if possible, offtake agreements or commitments from end-users.
Buy America requirements
H2Hubs are subject to the Buy America requirements of the IIJA as further delineated by the Office of Management and Budget’s April 18, 2022, Guidance. However, the Buy America requirements do not apply to H2Hubs for which the prime recipient of H2Hub Program funding is a for-profit entity (although DOE has included as a factor in its evaluation of H2Hub Program applications an applicant’s commitment to procure US iron, steel, manufactured products, and construction materials). The Buy America requirements do apply to non-federal entities (e.g., state, local government, tribes) and to any sub-recipients—including for-profit entities—awarded funds under the umbrella of a non-federal entity.
Clean hydrogen production standard
DOE’s draft guidance proposes a CHPS as having lifecycle greenhouse gas emissions rate of 4 kg of CO2e to 1 kg of H2. This is not a regulatory standard and, even if it was, all colors of the clean hydrogen rainbow would be capable of meeting it. H2Hubs are not be required to meet the CHPS, although they will need to “demonstrably aid the achievement” of CHPS. What is perhaps most interesting about the draft guidance, is DOE’s request for feedback on whether RECs, PPAs, and other market structures can be used to reduce or offset the emissions intensity calculation for clean hydrogen. The same question is under consideration with respect to 45V by the Treasury Department and clean hydrogen developers.
National Clean Hydrogen Strategy and Roadmap
The draft DOE National Clean Hydrogen Strategy and Roadmap required by the IIJA proposes a three-part strategy for hydrogen to play in helping the US achieve net-zero emissions by 2050: (1) focus on hard-to-decarbonize sectors for the use of clean hydrogen, (2) drive down the cost of clean hydrogen, and (3) emphasize regional networks through H2Hubs and co-locating large scale clean hydrogen production with end-users. To help achieve these goals, DOE proposes to increase clean hydrogen production from nearly zero today to 10 million metric tonnes (“MMT”) per year by 2030, 20 MMT per year by 2040, and 50 MMT per year by 2050. Although this Roadmap is undoubtedly ambitious, with 45V and $9.5 billion in IIJA funding for clean hydrogen, the US has all the key policies in place to make it a reality.