US hydrogen sector updates: new proposed rules for 45V eligibility

Those of us working or interested in the world of sustainable energy and climate change have at a minimum been exposed to news and content about green (or “clean”) hydrogen technology and its potential to contribute to low-carbon economies. If you want to catch up on the basics of hydrogen, including its “green” and “clean” qualifiers, you can check out the first installment in Pivotal180’s hydrogen blog series. Hydrogen: A Key Player in the Net-Zero Race.

In the United States, energy professionals have been closely watching the hydrogen sector’s growth spurred by the passage of the Inflation Reduction Act (IRA) in August 2022 and subsequent updates and guidance from the US government. The IRA provided historic incentives for infrastructure investment and low-carbon energy development, including some of the most advantageous benefits for clean hydrogen globally. Specifically, the IRA introduced a Production Tax Credit (PTC), officially called 45V, for clean hydrogen projects, providing up to $3.00 per kg of clean (near-zero emission) hydrogen. 45V amounts to one of the most lucrative incentives for hydrogen worldwide, but the specifics of how to qualify for the tax credit were not immediately fleshed out at the time of the IRA’s passage. In the past year and a half, the market has waited and watched for further clarification from the US government regarding the final criteria for 45V eligibility.

Proposed rules for 45V released December 2023

In the thick of the December 2023 holiday season, hydrogen industry stakeholders received long awaited guidance from the Biden administration on the proposed rules for 45V. The proposed rules and requests for comment are publicly available to view here Credit for Production of Clean Hydrogen, Election to Treat Clean Hydrogen Production Facilities as Energy Property.

The proposed requirements have generated controversy and debate in the hydrogen and energy sector, and prompted nearly 30,000 comments before the period officially closed on February 26. So what does the proposed guidance actually entail?

Pivotal180 asked NovoHydrogen,a Colorado-based green hydrogen developer, for a quick summary of the key updates provided in December. Matt McMonagle, CEO and Founder, touched on both the impact of regulatory certainty and the key updates on 45V eligibility requirements:

“First, we now have clarity and commend Treasury for getting the proposed regulations out. Novo now has the certainty to accelerate the development of our portfolio and we are full speed ahead. Second, Treasury asked for comments and guidance on a large number of topics that we expect to be incorporated into the final guidance later this year. The proposed guidance requires strict adherence on incrementality, temporal matching, and geographic proximity. Specifically, Treasury asked for comments on alternate pathways to meet the incrementality requirement where the procurement of EACs [Energy Attribute Certificates] from existing resources would not induce emissions and therefore comply with the low carbon requirements to achieve the 45V PTC.”

If you haven’t watched Pivotal180’s In Conversation interview with Matt McMonagle and Manka Khanna of NovoHydrogen, you can watch here: Green Hydrogen Development and New Incentives in the US

Clean hydrogen’s “Three Pillars”

If you’re curious about what Novo describes as “temporal matching,” “incrementality,” and “geographic matching,” these terms align with the principles described in the “three pillars” that have played a central role in the debate around 45V eligibility. The intent of these principles is to ensure that clean hydrogen (and those projects benefiting from the 45V tax credit) are actually contributing to a net-zero energy pathway rather than increasing carbon emissions.

As described by the American Clean Power Association, the three pillars are 1) Time matching, 2) Additionality, and 3) Regionality. The time matching pillar stipulates that for hydrogen to qualify as “clean,” the renewable energy powering the electrolyzer must be procured according to a time profile that matches the electrolyzer’s demand. Time matching can be required at various periodicities, such as annually (to align with seasonal renewable energy generation profiles) or hourly (to match production and consumption throughout a 24 hour time profile).  “Additionality” requires that the renewable energy procured for hydrogen production is new (or additional) in order to truly offset the electrolyzer’s new load on the grid, instead of relying on existing sources of renewable generation. Lastly, the third pillar of “Regionality” means that the clean energy generation asset powering the electrolyzer must be located in the same geographic location (however defined) as the electrolyzer itself. An example of a scenario that would not meet the three pillars would be a hydrogen producer running an electrolyzer 24 hours/day to a grid reliant on fossil fuels, but purchasing renewable energy certificates (RECs) from existing power projects located in a totally different region and generating power during only specific hours.

Advocates of these principles were happy to learn that the proposed rules released in December 2023 do actually adhere to the “three pillars.” The proposal requires hydrogen projects to procure power from new renewable generation assets, meet hourly time matching requirements beginning in 2028, and also comply with geographic requirements for production.

Industry reaction and next steps

Many climate advocates and hydrogen producers who support the “three pillars” principles have deemed the new proposed rules a success, with other industry groups denouncing the strict requirements as an unnecessary barrier to the nascent clean hydrogen market. In the mind of some industry actors, looser requirements for accessing 45V would encourage further hydrogen development and provide a boost to the market overall, even if at the expense of carbon emissions targets.

Additionally, certain regions have “lost out” due to proposed eligibility requirements about the geographic proximity of power supply for hydrogen production. Namely, regions that can easily and quickly build solar or wind generation assets will see the most growth from clean hydrogen and the market spurred by 45V.

The Department of Treasury also provided a 60 day period for comment, where stakeholders can weigh in with reflections on the proposed rules, as well as provide their input on certain matters where the Treasury seeks guidance. The request for comment and guidance on specific matters was notable in this round of guidance, and technical and sector experts have already provided detailed input.

Matt McMonagle summarized NovoHydrogen’s comments as follows:

“At a high level we are recommending several commonsense adjustments such as locking in the GREET model [the methodology to calculate the lifecycle greenhouse gas emissions] at construction start for a clean hydrogen facility, allowing hourly accounting on carbon intensity calculations and therefore 45V PTC amounts as opposed to an annual average, and finally using “Placed in Service” not “Commercial Operations Date” to determine if a power generating resource meets the incrementality requirement. We believe these adjustments will not lead to any induced emissions, while supporting easier administration of the credits.”

These comments speak to the level of detail required to achieve full clarity for the clean hydrogen sector, as well as the nuance in determining what are fair and sensible requirements for reaching carbon emissions reduction. Read NovoHydrogen’s full comments here.

Written comments were due on February 26, and you can access the 29,976 comments here. A public hearing will be held on March 25, 2024, including topics and presentations suggested by the public.

For more Pivotal180 content on green hydrogen, check out our previous blog posts:

• ICYMI: US Department of Energy Announces 7 Clean Hydrogen Hubs
• Hydrogen: A Key Player in the Net-Zero Race
• Hydrogenating Storage
• A Hydrogen Economy with the Inflation Reduction Act

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