The US government is drawing up plans for a $1bn funding programme aimed at “jumpstarting” the hydrogen economy by stimulating demand, in a sign of its growing frustration with the sector’s pace of development.

The US Department of Energy (DoE) is consulting industry on the potential design of demand-side support aimed specifically at securing offtakers for hydrogen hubs to unlock private investment.

Later this year, the Biden-Harris administration is expected to announce the selection of 6–10 regional hubs, which are designed to co-locate hydrogen production and industrial end-users, to receive a total funding of up to $7bn.

The main hub programme, which is funded by President Biden’s Bipartisan Infrastructure Law, has previously been put at $8bn, implying the DoE is diverting $1bn to support the demand side rather than finding additional money.

“DoE is setting up a new initiative to help our private sector partners address bottlenecks and other project impediments” Granholm, US energy secretary

“Ensuring the US is the global leader in the next generation of clean energy technologies requires all of us—government and industry—coming together to confront shared challenges, particularly lack of market certainty for clean hydrogen that too often delays progress,” says US energy secretary Jennifer Granholm.

“That is why DoE is setting up a new initiative to help our private sector partners address bottlenecks and other project impediments—helping industry unlock the full potential of this incredibly versatile energy resource and supporting the long-term success of the H2Hubs.”

The DoE is consulting the market on a range of potential measures to help drive demand. These include the use of contracts for difference or fixed levels of support for projects, funding to support feasibility studies by potential offtakers near hubs, and the creation of a “market maker” to provide a central purchaser/seller of clean hydrogen. It is also consulting on the best competitive process to allocate demand-side funding.

Intervention

Granholm’s intervention implies an expected surge of investment in the US hydrogen sector—on the back of highly competitive tax credits offered under the Inflation Reduction Act (IRA)—has yet to materialise at the scale the DoE had hoped for.

This is despite widespread industry claims the IRA’s generous tax credits, which include up to $3/kg for green hydrogen, is diverting capital away from Europe and other regions to projects in the US.

“Now there is nowhere in the world compared to North America. If you are a responsible executive of any public company, then you will be putting your green energy dollars into North America,” Andrew Forrest, executive chairman and founder of Australia-based hydrogen project developer Fortescue Future Industries, told the recent FT Hydrogen Summit in London.

Global Energy Infrastructure’s hydrogen database is tracking 169 clean hydrogen projects (green and blue) at various stages of development in the US, the highest of all countries analysed. The UK is second with 135 projects, followed by Australia with 115 and Germany with 113.

Low-carbon hydrogen projects in all regions are struggling to secure the long-term offtake deals needed to make them bankable and able to reach FID, according to developers and financiers.

“Developing a hydrogen demand-side initiative is critical to ensuring the early commercial viability of a H2Hub, given that demand formation for a new energy source typically lags creation of reliable supply,” the DoE says. 

“This new initiative will support the growth and sustainability of the H2Hubs programme by providing the revenue certainty that hydrogen producers require to attract private sector investment.”

The demand-side support mechanisms will also aim to help end-users that prefer the flexibility to purchase hydrogen on shorter-term contracts but also require confidence in the long-term availability of clean hydrogen before making critical, long-term investments, the DoE says.

The new demand-side initiative draws on the findings of a DoE report published in March—titled Pathways to Commercial Liftoff: Clean Hydrogen—that highlighted “demand side challenges” as a barrier to growth.

“Bolstering demand and unlocking long-term offtake will support the current proliferation of hydrogen production project announcements and help those production projects reach FID,” the report says.

---

Author: Stuart Penson