Summary of the webinar on the development of green hydrogen following the IRA

Green hydrogen is a developing industry in the United States. The Inflation Reduction Act of 2022 (IRA), which includes $369 billion in energy and climate spending, even introduces a clean hydrogen production tax (PTC) credit and expands the credit for existing investment tax (ITC) to apply to hydrogen projects.

In the latest webinar in our Navigating the New Energy Landscape series, partners Heather Cooper and Christopher Gladbach were joined by Ivana Jemelkova from FTI Consulting, Ulrich Reinhard from Air Liquide and Tommy Gerrity from Ørsted for a discussion on the future of development of green hydrogen following the Passage of the IRA.

Below are the main takeaways from the discussion:

1. The IRA introduces a new PTC for hydrogen produced after 2022 for a period of 10 years from the date of commissioning of the project concerned. The credit is calculated as a percentage of $0.60/kg based on the resulting life cycle greenhouse gas emission rate and can be multiplied by five to satisfy the rules for salary and apprenticeship (slightly modified from the standard salary and apprenticeship tax credit). rules). To qualify for this PTC, the hydrogen must be produced in the United States in the ordinary course of trade or business for sale or use, and the production must be verified by an unrelated person.

2. The IRA also introduces a new ITC equal to the energy percentage of the cost base of each specified clean hydrogen production facility brought into service during a tax year based on the emissions rate of greenhouse gases resulting from the life cycle. Credit can also be multiplied by five for meeting salary and apprenticeship rules and is eligible for credit adders for home content and energy community bonuses. To be eligible for this ITC, construction of the specified clean hydrogen production facility in question must begin before 2025.

3. Although hydrogen tax incentives are new, the hydrogen industry has been around for more than a century. Yet it is only recently that hydrogen generation technologies have been seen as a clean energy solution. As such, there has been a visible increase in the delivery of hydrogen via (1) renewable energy sources, such as wind and solar (called green hydrogen), and (2) other energy sources, such as natural gas, backed by carbon capture and storage technology (called blue hydrogen). This trend will be further reinforced by the IRA, which strives to minimize the carbon impact throughout the life cycle of hydrogen production from various energy sources and technologies.

4. With the United States being the second largest consumer in the world, industry experts believe that there will be no shortage of hydrogen demand and hydrogen-related technologies in the near future, especially in the near future. light of the promulgation of the IRA. Yet, despite the growing opportunities associated with hydrogen (g., its use to power large utility vehicles with minimal carbon emissions), there are still some challenges to meet this ever-increasing need. In particular, the lack of physical infrastructure, such as storage terminals and transmission pipelines, coupled with uncertainties regarding the affordability of large-scale hydrogen projects, may impose certain obstacles.

5. So what’s the next step? Industry stakeholders collaborate and form coalitions to create roadmaps for hydrogen market development and success. These strategies include co-locating hydrogen generation technologies with other power generation facilities and decarbonizing existing hydrogen generation operations to capitalize on tax credits and funded hydrogen-related programs. by the US Department of Energy. Similarly, it is expected that there will be an increase in bank financing and possibly tax equity financing as the industry continues to grow and hydrogen projects become slightly more commoditized. Regardless of the challenges presented by today’s market, it is clear that the hydrogen industry is undergoing significant transformation and growth as it continues to forge its way into the clean energy space.

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