Maximizing Economic Advantage in Low-Carbon Hydrogen Projects
Key Ideas
- Choosing the right end-use sector like mobility and power can lead to higher prices and better cost pass-through to consumers.
- Selecting Chinese electrolyser technology may reduce capital costs, but regulations against overreliance on overseas manufacturing could come into play.
- Co-locating with renewables for power sourcing can increase supply security and reduce price volatility, improving overall project economics.
- Amendments to US$3 per kilo incentive rules are being discussed to address concerns, aiming for a middle ground to avoid stifling industry growth.
Low-carbon hydrogen projects present various opportunities for developers to gain economic advantages over competitors. Targeting end-use sectors like mobility and power, rather than industrial heating, can lead to higher prices and easier cost pass-through to consumers. Opting for Chinese electrolyser technology may reduce capital costs, but potential regulations could limit overseas manufacturing reliance. Co-locating with renewables for power sourcing can enhance supply security and reduce price volatility. Additionally, integrating the end-use facilities with the hydrogen plant can cut operating costs by minimizing transport expenses. Ensuring the credibility of technology suppliers is crucial for project bankability and favorable financing terms. In the US, the US Inflation Reduction Act offers production tax credits of up to US$3 per kilo for low-carbon hydrogen, but uncertainties surrounding regulations are causing project development delays. Concerns about the stringent hourly matching requirement for green hydrogen production are being addressed through proposed amendments, including annual matching exemptions, delayed phase-in dates, and flexibility in power supply matching. The Biden Administration aims to finalize rules before the summer to avoid potential repeal, but the upcoming November election introduces further uncertainty for the industry.