Green hydrogen projects could be profitable in “broad areas” of the United States, supported by new federal clean hydrogen tax credits, according to an economic modeling analysis by policy consultancy Energy Innovation.
Just months after that federal inflation reduction act (IRA), power plant owner-operator AES Corporation and industrial gas company Air Products announced A $4 billion joint venture build, own and operate a green hydrogen production plant Texas, which has 1.4 GW of solar and wind capacity that could be eligible clean hydrogen production tax credit under section 45V of the IRA.
The project to produce 200 tons of green hydrogen per day is “economically viable” even without a grid connection, says policy consultant Energy Innovation in its report.
To identify other locations where green hydrogen production can be profitable, Energy Innovation modeled project economics and found that in areas with “strong” wind capacity and “decent” solar capacity, these projects are “economically viable from the start.”
The broader focus of the report is an argument for the “smart design” of the clean hydrogen Section 45V production tax credit to ensure that it promotes both low emissions and the growth of the clean hydrogen industry.
The report discusses three types of clean hydrogen project designs that the authors suggest are eligible for tax credits by matching hourly renewable energy production and electrolyzer electricity consumption.
Electrolyzers use electricity to split water molecules into hydrogen and oxygen. The US Department of the Treasury is currently developing regulations to specify the conditions for the 45V tax credit.
In the simplest project design discussed in the report, only on-site renewable electricity would be used, as shown on the left of the adjacent image. The report also describes “export-only” projects that could sell excess renewable electricity to the grid and, during high market prices, shut down the electrolysis plant and sell all the electricity to the grid. The third project configuration, “decoupled”, would use grid power and could match its hourly power usage to the hourly calculation of grid electricity emissions.
For its economic analysis, Energy Innovation modeled export-only projects with “oversized” wind and solar capacity relative to electrolysis plant capacity. Oversizing the renewable generation can increase the utilization rate of the electrolysis plant, as shown in the adjacent figure. The figure also shows the sale of export electricity both in times of overproduction and when the market price of electricity is “premium”.
According to the report, “vast areas of the United States” can support profitable green hydrogen production, where the cost of electricity from new wind and solar capacity averages less than $25/MWh, as shown in the nearby map.
Energy Innovation map of hydrogen production in the United States.
For the three locations marked with a star on the map, Energy Innovation modeled project financing for an export-only green hydrogen plant. The most profitable was the West Texas location, achieving $143 profit/kW of electrolyzer capacity per year by powering a 1 MW electrolyzer plant with 3 MW of solar and 2 MW of wind. The next most profitable was a location near Houston, with a profit of $85 per kilowatt per year using higher solar and wind capacity. Southwest Minnesota was next, with a profit of $61 per kilowatt per year using 2 MW of solar and 4 MW of electricity. wind.
Energy Innovation assumed an electrolyzer capital cost of $1,400 per kilowatt. The revenue would include hydrogen revenue of $1/kg, as well as the IRA production tax credit and the sale of electricity. The price of water was not a factor in the analysis. In each location, about half of the electricity produced would be sold to the grid. According to the report, the need to connect an export-only hydrogen plant to the electricity grid is “a process that can cause high costs, delays and general uncertainty.”
As electrolyzer capital costs continue to decline, green hydrogen projects will become economical in more locations over time, according to the report. When those costs come down to the point where electrolyzers only need to run 20 to 30 percent of the time to be profitable, “solar projects become viable.” The report says that “this is a desirable long-term outcome” because electrolyzers that operate only “for very low-cost hours can help integrate larger shares of renewable energy into the grid.”
To enable the use of hydrogen for seasonal storage of renewable energy, Mitsubishi Power Americas and Magnum Development LLC are adding 300 GWh of hydrogen storage capacity to salt domes near the Intermountain Power Project in Utah, which sells electricity to a Los Angeles utility.
Current industrial uses of hydrogen include ammonia production, mainly for fertilizers, and oil refining. Ammonia could also be used as a marine fuel. The Green Hydrogen Coalition says that green hydrogen could also reduce the production of steel and cement from coal.
