HYDROGEN LADDER

CLEAN HYDROGEN LADDER: CLIMBING THE STEPS TO COMPETITIVE SUCCESS

by Floyd March

With the hydrogen sector in the unprecedented situation of having to grow multiple parts of the sector simultaneously, it is worth grading each sector on merit in terms of unavoidability and competitiveness.

Hydrogen will be used in some form or another across most sectors, but Michael Liebrich, through Liebreich Associates, has worked on a tiered system, breaking down each sector that will utilise hydrogen in the coming years.

Focussing on chemicals and processes, power systems, transport and heating, ratings were given for A-G, similar to that seen in an EPC rating chart. Additionally, the ladder is based on peerreviewed research. It brings together all the different factors that will decide the success of clean hydrogen solutions, including thermodynamics, micro- and macro-economics, safety, resilience and geopolitics.

Chemicals and processes as a subsector were the highest rated in terms of unavoidability, which comes as little surprise. Fertilisers, hydrogenation, methanol, and desulphurisation were rated ‘A’, the highest possible on the list. This is regarded as unavoidable as the hydrogen industry must transition away from grey to green hydrogen on an industrial scale to really boost the green hydrogen economy and reduce emissions.

Chemicals and processes are undoubtedly unavoidable

Globally, the use of hydrogen in processes such as fertilisers, oil refining and petrochemicals production currently accounts for around 2% of global CO 2 emissions. Clean hydrogen could find its biggest wins in this sector, which will have compounded benefits for other sectors by creating a business case, proving the viability and establishing the supply chain.

Steel is an interesting position, rated ‘B’ on the scale, as there has been recent investment interest between Sweden and the UK. However, the future for clean hydrogen in steel production is not a dead cert.

This is due to competitive alternatives such as molten oxide electrolysis, which is better positioned as it currently stands. Michael Liebreich added to this: “As clean hydrogen gets cheaper, and if cheap CO 2 becomes available via direct air capture (unlikely) or as a byproduct of biogas production (more likely), we could start to see it used to make a range of chemical feedstocks.”

Power systems will have a unique relationship with hydrogen

Increasing the use of clean hydrogen in power systems is also a high priority. Unlike chemicals and processes, the merited use case is more of a mixed response. In terms of long-term storage, rated ‘B’, there are huge opportunities for clean hydrogen to be utilised.

Michael explained that: “The economy of the future, which is going to be vastly more deeply electrified than today, needs longterm storage. It’s not just about providing backup for issues regarding intermittency; it is also going to be about providing deep resilience.”

Hydrogen can be stored in salt caverns, depleted gas fields or as compressed gas at various strategic points. It can be converted back into electricity centrally at 60% or more electrical efficiency via fuel cells, providing the required level of grid resilience.

Moving on, the clean hydrogen ladder theory focused on the transport sector. The biggest winner in this category was trains, rated ‘C’. Trains are uniquely positioned to use hydrogen, as they are fit for long-distance travelling and are particularly useful where parts of the railway are difficult to electrify.

Hydrogen for heating has the potential over industrial, commercial and domestic settings

Heating is another sector that is featured on the clean hydrogen ladder, split between industrial, commercial and domestic. Again, through the Liebreich Associates, it was a mixed bag of results, but there is cautious optimism that they could climb the ladder as the hydrogen economy evolves.

Michael had a bold statement regarding hydrogen for domestic heating: “Heat pumps multiply, hydrogen divides. If you are looking at using the UK’s primary winter source of zero-carbon energy, offshore wind, heat pumps are about six times more efficient.”

Using wind power to generate hydrogen and then using that for heat would have a system efficiency of around 50%. Using the same power via a heat pump would have an average coefficient of performance of 3.

Industrial heat is another interesting one. Low-and mid-temperature industrial heat - up to 160C and perhaps higher - will be much more cheaply and precisely supplied by heat pumps. Many people seem to think that high-temperature industrial heat has to be delivered by gas.

The race to competitive success in the industrial sector could go either way and will likely see a split between the two, case by case. However, with grey hydrogen being used for a lot of processes, it may be more appealing to go with the technology already known by the sector.

Finally, commercial heating was rated an ‘E’, and it was added: “It is just possible we might use hybrid heating in commercial properties, using electricity most of the time but switching to hydrogen to relieve the grid during specific times of stress.

by Floyd March

Different countries have been making varying decisions about the level of commitment to green hydrogen production over the coming decades. Arguably, Joe Biden’s America is leading the way through the IRA, cleared in 2022.

The $369 billion committed to spending on energy and climate saw the introduction of a clean hydrogen production tax credit, otherwise known as a PTC. The aim of the tax credit is an expansion of the investment tax credit (ITC) in Section 48 of the Internal Revenue Code and will apply to any hydrogen project or storage technology. The legislation strengthens the hydrogen economy by permitting taxpayers to combine additional credits and take advantage of direct payment. Additionally, it permits the transfer of tax credits related to hydrogen.

The US leads the way for hydrogen incentivisation

Other countries are yet to match this level of investment in hydrogen, which has led to the first major commitment and is slowly shaping what the global hydrogen market may look like. Others will undoubtedly look to follow the US and amend their own versions of internal revenue codes.

This specific Act amended the Code to create Section 45V for a 10-year period, allowing for ‘qualified clean hydrogen’ to be produced and has been split into a four-tiered incentive programme.

It is calculated through each taxable year at an amount equalling $0.60/kg of clean hydrogen which is then multiplied by an applicable percentage according to the lifecycle ghg rate shown in the table below.

Naturally, the success of the Act hangs in the balance unless a clear definition of ‘qualified clean hydrogen’ is found. Additionally, there are further complications with these definitions as the EU sets their rules for what is considered clean.

Differences in international definitions could cause issues

This could cause issues when it comes to importing and exporting hydrogen, as there needs to be relative synergy between nations, states and unions.

However, this Act defines it as: “Produced through a process that results in a lifecycle greenhouse gas emissions rate not greater than four kilograms of CO2e per kilogram of hydrogen.”

All hydrogen must be produced within the use, complying with the ordinary course of trade for sale, and all hydrogen produced will be verified by a third party with no ties to the company producing the hydrogen.

Pre-existing PTCs cannot be crossed over and used in tandem with one another, specifically the carbon capture tax credit through Section 45Q. This will prevent a taxpayer from stacking both Section 45V and 45Q credits and the funding going directly to carbon capture when other credits are available.

Ways to claim PTC have evolved from the past

In a shake-up of how money can be claimed back through the tax credit system, there can be claims for the value of the clean hydrogen PTC as described in Section 45V through a tax refund as if they had overpaid tax.

This is a change from the traditional credits, where direct pay can only be applied through certain non-taxable entities. In theory, this practice will allow for developers to gain more benefits for tax credits specifically related to hydrogen than sharing and transferring between tax equity investors.

In further attempts to reduce associated costs with production facilities, the Act will see credits have permission to be transferred to an unrelated person in a non-taxable cash sale.

When operating in conjunction with one another, the provisions put in place by the IRA are expected to provide substantial incentives for people looking to operate in the hydrogen field.

On an international scale, it could see people moving from operations in the UK and transitioning across as clearer definitions and tax credits are set out.

Either way, the US is very strongly positioned through the support scheme, and many countries may be looking to incentivise the markets in their countries as the race to be global exporters of hydrogen continues.