DOE Considers $1 Billion Program to Spur Demand for Clean Hydrogen and Seeks Stakeholder Input

[This is the fifth post in our Hydrogen Blog Series. Read the rest of the series here.]

The Bipartisan Infrastructure Law appropriated $8 billion for developing Hydrogen Hubs—regional networks to produce, distribute, and use clean hydrogen to curb greenhouse gas emissions without the need to build long pipelines or develop other costly shipping infrastructure to transport hydrogen from one side of the country to the other.  (See our post on the Hydrogen Hubs program HERE for more .)  The Department of Energy (“DOE”) committed $7 billion of the $8 billion to fund six to ten regional hubs.  On July 5, 2023, DOE issued a Notice of Intent seeking stakeholder input on plans to deploy the remaining $1 billion to fund a program to boost demand for clean hydrogen.

It will be critical for stakeholders to weigh in on DOE’s proposal. Comments are due to DOE by July 24, 2023.

DOE’s Notice of Intent envisions a “demand-side support mechanism” that will “provide multi-year support for clean hydrogen produced by competitively selected projects” affiliated with the Hydrogen Hubs program:

It will facilitate bankable clean hydrogen demand from a diverse set of offtakers. It will help diverse entities leverage the full potential of clean hydrogen, including non-profits, local government, and Tribes, and facilitate the use of clean hydrogen across various sectors of the economy, such as in industrial processes, manufacturing and heavy-duty transportation.

Boosting demand will be essential to the success of clean hydrogen projects across the country.  Today, demand for hydrogen is largely limited to petroleum refining and chemicals manufacturing in just a handful of states.  Clean hydrogen could help decarbonize steel manufacturing and other heavy industrial processes, heavy-duty transportation, aviation, maritime shipping, and other difficult-to-decarbonize industries nationwide, but only if markets develop to support clean hydrogen produced in the regional hubs.

DOE’s notice lists seven questions for stakeholders to address. 

Category A: Most effective demand-side support measure to support H2Hubs

  1. What is the most effective way DOE could catalyze durable, bankable demand for clean hydrogen at DOE-funded H2Hubs? Which of the following potential mechanisms would be most impactful?
    • Pay-for-difference contracts that provide support to projects based on the price they can achieve in the market
    • Fixed level of support for projects (e.g., fixed $/kg amount) that stacks on top of other sources of revenue
    • Funding to support feasibility analysis from potential offtakers near H2Hubs
    • “Market-maker” for clean hydrogen to provide a ready purchaser/seller for clean hydrogen
    • Other (please specify)
  2. For eligible projects, what competitive process should be used to select projects that will receive demand-side support?
    • Reverse auction in which projects compete to bid the lowest level of support they need to make their project viable
    • Request for proposal-like process in which projects apply and are selected based on a variety of factors
    • Eligibility-based process in which all projects that meet certain threshold requirements receive some form of support
    • Other (please specify)
  3. How can DOE design demand-side support to account for other kinds of support that H2Hubs projects may receive (e.g., tax credits, state and local government incentives, DOE cooperative agreement funding)?
  4. How can DOE stucture demand-side support for H2Hubs to best catalyze the formation of a mature commodity market for clean hydrogen?
    • How can DOE structure demand-side support for H2Hubs to best catalyze the development of standard contract terms for clean hydrogen?
    • How can DOE structure demand-side support for H2Hubs to best catalyze the development of price transparency for clean hydrogen?

Category B: Implementation of demand-side support measures

  1. If DOE were to establish a demand-side support mechanism for H2Hubs with an independent implementing entity or entities, what capabilities and qualifications should DOE prioritize when selecting an entity or entities? Should DOE seek a single entity with national scope or several entities with regional scopes?
  2. For any or all of the program design factors selected in response Category A, what existing entities could administer and oversee the demand-side support mechanism? If no existing entity currently exists with the necessary capacity or expertise, how long would it take to establish such an entity or entities? What are the necessary areas of expertise for DOE to prioritize in selecting an independent entity?
  3. What are the risks to DOE in partnering with an independent entity to administer a demand-side support mechanism? What governance structures and guardrails should DOE consider in designing a demand-side support mechanism to help maximize impact and minimize implementation risk? Are there any models DOE should look to in establishing a governance structure?

This demand-side mechanism could contribute significantly to the success of the Hydrogen Hubs program.  Robust stakeholder input will help ensure that DOE gets this critical program right.

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