By Mark Rigby
On October 13, 2023, the Biden Administration announced an ambitious set of Department of Energy (DOE) grants to advance the administration’s goal to promote the development of the renewable hydrogen industry. Grants ranging from $750 million to $1.2 billion were awarded to seven regional renewable hydrogen hubs. Stillwater is following the program’s progress and is publishing a series of interviews with program participants. Our initial interview was conducted with Mote, a member of the California ARCHES hub. Our most recent interview focused on the Midwest Hydrogen Hub (Midwest Alliance for Clean Hydrogen (MachH2) and one of its university participants, the University of Michigan (the University). To conduct the discussion, Stillwater met with Todd Allen, co-director of MI Hydrogen (the University’s hydrogen initiative which represents the school within MachH2). Todd is the Department Chair of Nuclear Engineering and Radiological Sciences at the University. The interview was conducted on July 1st at Todd’s offices in Ann Arbor, Michigan.
University of Michigan and the MachH2 Hydrogen Hub
Todd began by explaining the genesis of MI Hydrogen and why the head of the nuclear engineering department, which may appear to be an unlikely candidate, was asked to co-lead MI Hydrogen and be the University’s representative for MachH2. MI Hydrogen was formed in 2022 to coordinate the multiple interested disciplines within the University with regional organizations also interested in the hydrogen economy such as community groups, governments and industry. The University correctly anticipated that DOE would be releasing regional funding opportunities to advance renewable hydrogen and began to prepare for a response. DOE expressed an interest in having a nuclear component in at least one of the hubs, and given the Midwest is home to several strong utilities with nuclear power plants, locating a hub in the Midwest incorporating nuclear power made sense. Also, the region is home to many basic industries that are seeking to decarbonize such as the steel, energy, transportation, chemical and fertilizer sectors. Given the nuclear focus, having a nuclear department head be involved also made sense.
Will Treasury 45V Guidance Imperil Renewable Hydrogen Development?
We discussed how the MachH2 team is progressing on the negotiations of the principal DOE funding document, termed the Cooperative Agreement. Todd commented, as we have heard from others, that progress has been slow with an expectation of completing the agreement this fall. Unlike some of the other hubs, MachH2 did not select a participant member as the prime contractor. Instead, a management team was formed through seconding executives from a few of the seventy MachH2 alliance organizations. Nine alliance members are developing projects which anticipate sharing in the DOE-granted funds of one billion dollars. In addition to grant funds, the projects are reliant on the IRS Section 45V tax credits created under the Inflation Reduction Act to achieve their financial goals. The U.S. Treasury Department released proposed guidance on qualifying for the credits last December. In response, many parties expressed concern on the impact that the proposed requirements could have on development of the industry. A coalition of the hubs submitted comments to Treasury focused on the specifications for using and tracking renewable power to produce renewable hydrogen. Tax practitioners following the guidance process expect it to be finalized later this year. Pending finalization of the rules, some MachH2 developers have slowed down their project timelines, and depending on the final form of the guidance, may drop out of MachH2.
Higher Education’s Contributions to Commercializing Renewable Hydrogen
The University is one of sixteen universities or colleges that are members of MachH2. While a major research institution, fostering research was not the University’s motivation to join MachH2. DOE’s hydrogen hub program is intended to accelerate the commercialization of renewable hydrogen, and grant funds are not to be used for research purposes. (DOE supports research through many other programs.) The University envisions its role to include supporting project sponsors with technoeconomic analysis (TEA) and lifecycle analysis (LCA), participating in the MachH2 advisory board, supporting community outreach activities such as workforce development, assisting in the determinization of benefits for affected disadvantaged communities, strengthening related supply chain elements and facilitating use of new technologies. The University has already been playing a role connecting industry parties with each other which has strengthened its industry relationships.
Defining Success
When asked his view on what defines success for DOE’s Hydrogen Hub program, Todd responded with a couple of thoughts. Getting past the “chicken or the egg problem” is one issue faced by potential hydrogen suppliers and consumers. The parties are in a codependent situation with neither desiring to go forward unless their counterparty also commits. Some hub members, such as the city of Flint, Michigan, are addressing the problem by self-producing renewable hydrogen for their municipal bus fleet while others are negotiating supply contracts in parallel with development of their hydrogen facilities. In the longer term, success will be defined by having a commercially viable renewable hydrogen industry, not reliant on government support–maybe ten to twelve years into the future. Finally, community acceptance will also signal success–from both project host communities and the public at large. A key component of community acceptance will be the initial demonstration projects going well. Skeptical communities will need to see the value-to-risk ratio as favorable as a condition to supporting conversion to hydrogen.
As for what defines success for the University’s participation, Todd identified several goals. While the DOE’s funding opportunity announcement concentrated on existing technology, Todd sees the greatest contributions from the University as advancing new technologies within the hydrogen ecosystem that will result in achieving the cost reductions necessary for hydrogen to be commercially viable in all the envisioned applications. In addition, the University hopes to be an integral component of the community engagement plans of the alliance members.
Challenges
When asked about the largest challenges to overcome, Todd cited achieving cost reductions required to compete with today’s production costs for hydrogen which returned our discussion to Treasury finalizing its 45V tax credit guidance. Todd suggested “purity is getting in the way of success” with the conditions being placed on renewable hydrogen producers to use new sources of renewable power to qualify for the tax credit. He contrasted the proposed requirement with the electric vehicle tax credit. Electric car purchasers are not required to use new sources of green power to charge their EVs to qualify for the EV tax credit. The EV car industry has its challenges, but requirements around sourcing green power is not one of them. While the guidance’s intent is understandable, the result may fall short of the aspirations for transforming the transportation system.
Given the feedback we are hearing from hydrogen hub participants, we wondered whether Treasury and DOE are aligned on their objectives—issuing reasonable guidance will be critical for the hydrogen program’s success. (DOE continues to be nonresponsive to Stillwater’s interview requests.) Another key challenge is community support. If strong community outreach programs are not implemented, community acceptance could be as significant a challenge as the economics. Finally, siting hydrogen production near its consumption to avoid transportation challenges will also be critical and should foster community support.
Stay tuned for future interviews with other hydrogen hub members. As the fall approaches, cooperative agreements are expected to be finalized which should energize their progress.
Editor’s Note: After we published this interview, the U.S. Department of Energy announced the completion of its first cooperative agreement and initial funding of the ARCHES Hydrogen Hub in California, making ARCHES the first of the proposed hubs to reach this milestone.
