Intelligence

IRA incentives expected to put green hydrogen in the black

byMaurice Smith

Generous incentives are set to give a jolt to the green hydrogen sector, though it could be a limited-time offer. The 2022 U.S. Inflation Reduction Act’s 45V PTC, a clean hydrogen production tax credit, meaningfully bolsters economics and drives positive returns for green hydrogen generation projects, Enverus Intelligence® | Research (EIR) concludes in its latest hydrogen report. But project operators will likely need to renegotiate cheaper renewable power purchase agreements, gain additional green hydrogen premiums or hope for an extension of the 45V PTC beyond its 10-year expiry date to remain economic in the long term.

“The Inflation Reduction Act provides a much-needed boost to green hydrogen production economics,” EIR Senior Associate Alex Nevokshonoff said. “Projects claiming the 45V PTC have the potential to yield favorable returns and even outpace gray hydrogen economics in certain situations. Nevertheless, developers and investors continue to wait on additional guidance surrounding the use of grid electricity paired with renewable energy credits to determine eligibility for the incentives.”

Based on current technology assumptions, EIR found that of the two most commonly used technologies, alkaline electrolyzers are more economical than proton exchange membrane electrolyzers. PEM projects tend to incorporate more expensive cell stacks and have lower electrical efficiency than alkaline, which increases power consumption. However, PEM technology is less mature and stands to achieve faster cost reductions by managing material and operational constraints to achieve faster capacity growth.

Since capex represents a small percentage of overall green hydrogen project costs, 48 ITC, the clean energy investment tax credit, offers a more limited incentive compared to the 45V PTC and fails to drive positive returns, according to EIR. Electricity accounts for an estimated 60-67% of the levelized costs of hydrogen, assuming a flat $40/MWh cost. This reinforces the need to secure competitive renewable power purchase agreements and maximize energy efficiency.

Enverus Intelligence® | Research explores green hydrogen production technology and incentives available in the U.S. and models the resulting project-level economics. Click here for the full report (available to EIR subscribers).

About Enverus Intelligence Publications
Enverus Intelligence Publications presents the news as it happens with impactful, concise articles, cutting through the clutter to deliver timely perspectives and insights on various topics from writers who provide deep context to the energy sector.

Maurice Smith

Maurice Smith

Maurice Smith is a senior editor at Enverus Intelligence® | Research and has been covering the energy industry for more than 20 years. He is a graduate of the Mount Royal College school of journalism.

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