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The Rise of Hydrogen Hubs in North America

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Cyann Fielding

Journalist at Tank Storage Magazine.

Cyann Fielding asks the experts at EY about the emergence of North American hydrogen hubs following the Inflation Reduction Act and governmental funding


The United States is paving its way towards the energy transition. Propelled by the Inflation Reduction Act (IRA) and the Department of Energy’s (DoE) robust financial commitment to advancing the energy transition, the nation is poised to take a prominent role in shaping a greener future. The shift in thinking extends across traditional energy giants, power utilities, and emerging players, all eyeing the potential of hydrogen as a game-changer. Until about 14 months ago, hydrogen projects in the US were somewhat scarce and lacked scalability. However, the introduction of the IRA, the investment climate for hydrogen projects has become markedly more enticing. Hydrogen, a key technology in the global energy landscape, is now firmly on the American agenda. This new-found capital has established a flurry of hydrogen- related projects and initiatives over the past year.


What a Hydrogen Hub looks like in North America

A hydrogen hub is a geographic clustering of hydrogen producers, transporters, and consumers that are all committed to involving low carbon intensity hydrogen. Sean Heinroth, principal, EY-Parthenon, comments: ‘It’s important that nobody’s getting into hydrogen for the sake of hydrogen. Here in the US, it is part of their corporate strategies, their objectives that they’re pursuing on behalf of their stakeholders.’

He adds: ‘It is part of the solution in some cases. These hubs in the short term, are going to take on entirely different forms, as determined by the natural advantages that are immediately available to them.’ Natural advantages, such as renewable electricity and water resources for green hydrogen, methane gas and carbon capture infrastructure for blue hydrogen, will situate the development of hydrogen projects at different rates. However, as the hubs are built out, development will even out. ‘These regional hubs are not all created equal,’ says Greg Matlock, EY Global and Americas energy and resources tax leader and EY Americas energy transition and renewable energy leader. ‘They mainly require three components: demand, supply and infrastructure.’ The balance of these will determine a hub’s rate of development.

In the US, hubs will be able to advance, thanks to new investments. However, Matlock notes: ‘This advancement will be in different stages of maturity. Some of these hubs are going to advance a little quicker, either because they have the resources or infrastructure, or because they already have a built-in capability or capacity for offtake. So you’ll see these projects advance at different speeds.’


The Journey to Net-Zero

Increased incentives are just one aspect of a broader push to either create energy from lower carbon intense sources or to operate in cleaner and more efficient manners. However, the US also needs energy stability and security, but where possible it needs to be cleaner and more efficient. Both Matlock and Heinroth predict there will be a lot more lower carbon intensity activities taking place in an attempt to meet the net zero carbon emissions targets set in the US. Hydrogen hubs are just one part of this movement.

The Inflation Reduction Act is specific to the US, and it was designed primarily to increase domestic content, bring job stability and to increase the options for alternative energy. Many of the products can be used and made into other things such as ammonia – which results in lower carbon intense products globally.

If hydrogen projects are capital intensive, it means individuals are going to need diverse sources of capital to speed adoption. The IRA, particularly its tax credit provisions, significantly reduces the per-kilogram cost of clean hydrogen production in the US, making it an enticing prospect for investors and project developers. This legislative act is poised to have a substantial impact on individual projects and the broader development of hydrogen hubs. Heinroth comments: ‘The idea that we’re simply going to electrify everything is probably not a short term reality for us, even if capital was not a consideration. So when you start looking at how we decarbonize some of the transportation fuels, hydrogen lends itself more readily to some of those applications. There’s just a technical limit. Hydrogen lends itself in the forms of ammonia and methanol, especially to be burned in a traditional combustion fuel engine. And so you maximize the lives of those investments without continuing down the path of a carbon intensive fuel.’


Department of Energy Funding

The DoE’s decision and commitment to provide funds is always going to be helpful as projects or geographies are looking to build and develop markets around hydrogen. Matlock and Heinroth believe this will come in two or three different types of buckets. Matlock explains: ‘The largest impact, which shouldn’t deteriorate from the DoE funding, is the tax credit in the IRA. The ability to get up to a $3 per kilogram tax credit for hydrogen produced in the US is by far the largest economic incentive, not only for non-US money, but global investment to look at producing hydrogen in the US. So the IRA contains a massive incentive that is driving a lot of discussions. And the DoE’s funding commitment, likewise, is going to help. It shows a collective commitment from our government to build, develop and expand hydrogen as a resource in the US.’


The Impact of Geography
The vast expanse of the US brings both advantages and challenges. Geography plays a pivotal role the availability of natural resources and populations needed to establish hydrogen hubs. Regions with abundant solar and wind resources are prime locations for green hydrogen production, while areas with existing grey hydrogen infrastructure are well-suited for blue hydrogen projects. These geographical advantages or disadvantages influence project decisions and investments. Heinroth notes that: ‘There are naturally advantageous spots in the US. These will likely align with the initial winners in the race to establish hydrogen hubs.’


The Current Hydrogen Market

Whilst hydrogen hubs are yet to fully materialize, there are over 50 projects currently either producing hydrogen, or on their way to producing hydrogen. Creating a geographical ecosystem that consists of low carbon intensity, hydrogen producers, transporters and off takers, still remains aspirational, yet attainable, according to Heinroth. Heinroth comments: ‘What does exist in the landscape primarily is, aside from these points, solutions, something that mirrors a hydrogen hub – the network that runs along the Gulf Coast, from Sweeny, Texas, all the way to New Orleans.’ Although it does not represent the ultimate potential of hydrogen hubs, it serves as a promising model, especially considering its decades-long development.


What Needs to Happen Next?

Amidst these developments, the need to measure carbon intensity has arisen as a critical consideration. Currently, the responsibility for measuring carbon levels primarily falls on hydrogen producers themselves. However, there’s a growing consensus that independent, audit- worthy entities should assess and verify these measurements instead. As the hydrogen market evolves, standards for measuring carbon intensity will likely emerge, potentially involving third-party verification to ensure transparency and accountability.

The emergence of hydrogen hubs in North America is driven by a confluence of legislative support, financial incentives, and a commitment to sustainable energy solutions. These hubs represent a critical step toward a greener future, where hydrogen plays a pivotal role in achieving cleaner, more efficient energy systems.

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