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Green Hydrogen Companies Gear Up for a Credits Bonanza


Green Hydrogen Companies Gear Up for a Credits Bonanza

The Inflation Reduction Act has companies scrambling to take advantage of tax credits. Solar and wind projects are earmarked as are new initiatives for batteries and green hydrogen that fuel the electric grid. Incentives matter, but money is finite which is giving rise to some interesting discourse as to what truly qualifies as green energy. 

The most talked about issue surrounds green hydrogen. Also known as “clean hydrogen,” machines called electrolyzers that run on electricity and are produced from a renewable source are vital inputs. Electrolyzers split water into hydrogen and oxygen. Yet, they consume an inordinate amount of energy to make a very small amount of hydrogen. Unless that energy is produced from renewable sources there is no point in emitting more CO2 for such a negligible trade-off.

The argument for offering incentives for green hydrogen companies is based on whether they’re using green power to produce clean hydrogen. The rules are being written, but firms like NextEra, the owner of one of the world’s largest renewable energy developers – Florida Power & Light – argue that more concessions are needed. The green hydrogen energy business is still very new and some are contending leniency is needed until the technology improves and/or the costs come down. 

Green hydrogen costs roughly $5 per kilogram to produce. Hydrogen produced from natural gas costs $1.50 per kilogram. That’s a significant difference and without a proposed tax credit of up to $3 per kilogram (and likely more), the economics will be unsustainable for some producers. Yet, those producers who can scale up immediately with less generous incentives are lobbying hard to move forward as is. Tighter standards, they argue, will allow them to capitalize on planned projects and not wait for potential competitors to enter the field. 

The unofficial estimate of the energy and climate package of the act is approximately $369 billion. The tax credits that companies receive are only valuable if the company registers taxable earnings. Many clean-energy companies are upstarts and/or too small to take competitive advantage of the credits. The tax credits could be used similarly to renewable energy certificates (RECs). Clean-energy facilities sell RECs to companies seeking to nail their climate targets. In 2021 in the US alone, S&P Global estimated that market being worth $11 billion.   

The upcoming 10 months will be fraught with debate and a big credit scramble. But we still don’t know if the aggregate outcome will end up being truly green power. 


green hydrogen

The European Hydrogen Market Benefits from Economic Recovery and Rising Demand for Alternative Fuels

Increasingly stringent environmental legislation and the emergence of new gigawatt-scale electrolyzers indicate that hydrogen fuel boasts the future potential to develop as a strong competitor to traditional energy resources.

Key Trends and Insights

EU hydrogen production declined sharply in April 2020 by -15% against March figures, due to lockdown and stagnation in the chemical industry. Production only recovered in Q4 and continues to increase as of the beginning of 2021.

189 countries are now committed to reducing greenhouse emissions under the terms of the Paris Agreement, indicating that the demand for sustainable fuels will increase. The hydrogen market demonstrates tangible prospects: hydrogen, irrespective of its current high production costs, constitutes an excellent sustainable fuel due to the fact that when being combusted, it transforms to just water, without any harmful exhaust gases or carbon.

In July 2020, the European Union adopted the EU Hydrogen Strategy, to promote the widespread use of hydrogen as an alternative fuel, and conducted research into hydrogen production in Europe to determine investment opportunities from 2020 to 2050. The European Clean Hydrogen Alliance was established at the same time to connect industry, government authorities and the public. A dedicated regulatory and legal framework, specifically the Trans-European Networks for Energy (TEN-E) and The Connecting Europe Facility (CEF) initiatives should further promote the use of hydrogen from the perspective of alternative energy.

In addition to the European Union, Japan, South Korea and New Zealand, amongst others, have already adopted their own hydrogen strategies. The UK carbon-free energy plan also envisages an increased role for hydrogen fuel, while in the U.S., a targeted program has yet to be developed.

Encouraged by the latest technological developments, commercial interest in hydrogen fuel increased over the past year. 96% of global hydrogen output is still generated from natural gas; this process emits considerable volumes of greenhouse gases. The production of ‘green’ hydrogen through water electrolysis represents a sustainable alternative to this synthesis method. The emergence of gigawatt-capacity electrolysis facilities will reduce production costs and make hydrogen more accessible.

The Netherlands Features the Largest Volumes of Consumption and Exports

Hydrogen consumption rose to 8.1B cubic meters in 2019, picking up by 3.8% on the previous year’s figure. The total consumption volume increased at an average annual rate of +1.9% from 2007 to 2019. The growth pace was the most rapid in 2008 with an increase of 26% against the previous year (IndexBox estimates).

The size of the hydrogen market in the European Union declined to $1.4B in 2019, approximately equating the previous year. This figure reflects the total revenues of producers and importers (excluding logistics costs, retail marketing costs, and retailers’ margins, which will be included in the final consumer price). In 2020, the value of the European hydrogen market was estimated at approx. the same figure (IndexBox estimates). .

The countries with the highest volumes of hydrogen consumption in 2019 were the Netherlands (2.6B cubic meters), Germany (2B cubic meters) and Spain (1.1B cubic meters), with a combined 70% share of total consumption. France, Finland, Italy and Hungary lagged somewhat behind, together comprising a further 24%.

From 2007 to 2019, the most notable rate of growth in terms of hydrogen consumption, amongst the key consuming countries, was attained by Finland, while consumption for the other leaders experienced more modest paces of growth.

The Netherlands represented the key exporter of hydrogen in the European Union, with the volume of exports reaching 301M cubic meters, which was near 73% (IndexBox estimates) of total exports in 2019. It was distantly followed by Belgium (78M cubic meters), mixing up a 19% share of total exports. Germany (14M cubic meters) held a little share of total exports.

The Netherlands was also the fastest-growing in terms of hydrogen exports, with a CAGR of +9.9% from 2007 to 2019. At the same time, Belgium (+1.4%) displayed positive paces of growth. Germany experienced a relatively flat trend pattern.

Source: IndexBox AI Platform