Support measures to “catalyze durable, bankable demand”
The US Department of Energy has launched a new scheme to complement the soon-to-be-announced funding of regional Hydrogen Hubs across the USA. Given that demand is critical to ensuring commercial viability in the early stages of new projects, the new program seeks to create “revenue certainty” for new hydrogen producers, which will help attract private investment. It will also:
…help meet the needs of end users who often prefer the flexibility to purchase hydrogen on shorter-term contracts and require confidence in the long-term availability of clean hydrogen before making critical, long-term investments.Biden-Harris Administration to Jumpstart Clean Hydrogen Economy with New Initiative to Provide Market Certainty And Unlock Private Investment, 5 July 2023
In a briefing paper, the White House notes that demand-side measures for hydrogen are being developed across the globe (eg. Japan, Germany and the EU), and will play a crucial role in pushing production projects to FID.
…supply-side investments can be complemented by programs that mitigate the risk of demand-side market challenges, which could inhibit developers from accessing financing to further scale up production…As of late 2022, there have been announcements for roughly 12 million metric tons per annum of clean hydrogen capacity, yet only around 10 percent of this capacity has reached the Final Investment Decision stage…Lack of near-term demand certainty can make clean hydrogen projects a riskier investment, inhibiting the flow of private capital into production and mid-stream infrastructure. This underscores the importance of demand-side policies in accelerating the early-stage development of this industry.From The Economics of Demand-Side Support for the Department of Energy’s Clean Hydrogen Hubs, White House briefing paper, 5 July 2023
As for the measures the US government could implement, the DoE suggests a number of possibilities. The request for information notice includes potential measures such as:
• Pay-for-difference contracts that provide support to projects based on the price they can achieve in the marketFrom DE-NOI-0202301: Bipartisan Infrastructure Law: Additional Clean Hydrogen Programs (Section 40313): Regional Clean Hydrogen Hubs, 5 July 2023
• Fixed level of support for projects (e.g., fixed $/kg amount) that stacks on top of other sources of revenue (“offtake backstops”)
• Funding to support feasibility analysis from potential offtakers near H2Hubs
• “Market-maker” for clean hydrogen to provide a ready purchaser/seller for clean hydrogen
Feedback is also requested for the best way to select which projects should receive incentives (reverse auctions, proposal-based applications, eligibility guidelines etc.).
RFIs due 24 July
Responses to the DoE’s request for information are due by 5PM ET on Monday 24 July. An announcement for which regional Hydrogen Hubs have been selected to share in $7 billion of DoE funding is expected in the coming months.