The number of hydrogen projects reaching FID in Europe and in the US is unlikely to start rising significantly until late this year or early 2024 as strengthened policy support announced in 2022 could take time to materialise.

The EU’s first awards for hydrogen-related Important Projects of Common European Interest (IPCEI) schemes and announcement of a €3bn ($3.2bn) hydrogen bank, as well as the passage of the Inflation Reduction Act (IRA) in the US, were key policy breakthroughs for the industry. They are expected to unlock investment in a sector that is long on project proposals but short on FIDs.

Last year, the EU approved state aid worth a combined €10.6bn under two IPCEIs—the first focused on technology and equipment manufacturing, the second on infrastructure for production, storage, transportation and end-use.

“There are a few players who most likely would have taken FID on projects regardless but have opted to wait until government funding is in hand” Collins, Hyarc

“In some cases, IPCEIs are key to companies announcing FID. There are a few players who most likely would have taken FID on projects regardless but have opted to wait until government funding is in hand,” says Adam Collins, founder at consultancy Hyarc Advisors, adding that further awards are expected this year.

However, the timeline for future IPCEIs is unclear. While the European Commission tells Hydrogen Economist that it is “actively cooperating with all interested member states towards possible upcoming IPCEIs in the field of hydrogen”, the process is ultimately driven by these states and as such, no timelines have been disclosed.

The European Hydrogen Bank is expected to start its first contracts-for-difference scheme this year, which could stimulate offtake needed for projects to take FID.

Tax uncertainty

In the US, the country’s Internal Revenue Service is not due to publish regulations for clean hydrogen production tax credits set out under the IRA until this autumn, with the announcement of regional hubs funded by the Infrastructure Investment and Jobs Act to take place in a similar timeframe.

“In Q1 of 2024, we would expect a swell of FIDs for electrolytic hydrogen projects,” says Drake Hernandez, senior associate in the energy practice of consultancy Charles Rivers Associates.

“It is likely that there will be traction for blue hydrogen projects before then,” he notes. The IRA $3/kg clean hydrogen production tax credit, and associated methodology for the calculation of emissions intensity, are “ambiguous” until codification by the IRS, he says.

By contrast, the 45Q tax credit for CCS already stipulates $85/t of CO₂ captured, with defined adjustments based on method of capture.

“When it comes to actually structuring a deal, if you have this $85/t tax credit and a clear stream of CO₂, you can start to look at the revenues there and how the project will ultimately come together,” Hernandez says.

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Author: Polly Martin