Cost of Hydrogen Production

The largest barrier to hydrogen adoption is its cost compared to fossil fuel alternatives. In 2030, the greatest proportion of hydrogen production cost components will be feedstock energy costs (70-90%).⁵¹ In addition to production cost, the overall cost includes transport and storage expenses (levelized cost of hydrogen or LCOH). To make clean hydrogen a viable alternative for most business cases, cost reductions along the supply chain must be realized. This can be achieved through government policy, technology innovation, and scaling up the supply chain to realize economies of scale. The DOE’s Hydrogen Shot program is designed to reduce the cost of clean hydrogen to $1 per 1 kilogram in 1 decade to speed up hydrogen’s ability to scale and amplify the generational investment available for hydrogen infrastructure development.

Price Transparency/Consistency

Currently, there is not a transparent market price for hydrogen in the United States, which means that individually negotiated bi-lateral contracts are utilized for most hydrogen transactions. The lack of transparent public pricing impacts smaller players in the market, making it difficult to develop an ecosystem with diverse market participants. The cost of hydrogen supply will vary vastly depending upon several factors, including duration of contract agreement, exclusivity, associated transportation costs, and state of hydrogen (liquid or gaseous).

Developing a transparent, fungible commodity market can be enabled by developing an exchange that facilitates the purchase and sale of standardized contracts for hydrogen. Price transparency provided by such an exchange will reduce the risk for hydrogen producers and off-takers and increase market participation.

Standards and Certifications

Establishing a robust hydrogen economy also requires harmonizing codes and standards across local, state, and federal agencies. Accelerating renewable energy expansion and implementing dedicated market mechanisms for hydrogen production, such as guarantees of origin, will help achieve these goals. It is also critical to establish a transparent and standardized process that clarifies carbon intensity for hydrogen produced. A tracking framework will allow for proper valuation of hydrogen’s ability to lower GHG emissions.

Stability of Hydrogen Supply and Demand

Demand off-takers need assurances of sufficient hydrogen supply. A stable market for both supply and demand are foundational for the long-term investments required to develop a functioning hydrogen economy. Along with regulatory and policy support, stakeholders across the hydrogen value chain should collaborate and form partnerships to match supply and demand to de-risk investments.

Infrastructure

Transportation and storage infrastructure is needed to support hydrogen use cases in areas that cannot be served by onsite production. To facilitate significant market adoption of hydrogen-based solutions, it is critical to develop the infrastructure required to connect hydrogen producers with end users, forming a reliable and robust marketplace. In the early stages of development, trucking can serve these needs. As scale and demand grow, the region will evaluate the business case for underground pipelines and storage infrastructure, resulting in economies of scale and increased supply reliability.

Strategic Partnerships

Creating a hydrogen ecosystem requires connecting technology providers and equipment manufacturers to demand and connecting that demand to reliable production through a network of distribution and storage assets. It is critical to identify stakeholders across the hydrogen value chain and form strategic partnerships to accelerate the market adoption of hydrogen-based solutions in the DMV. Bringing those stakeholders together to pursue a shared vision and strategy will help the region identify projects, optimize investments, and reduce risk for all stakeholders. The National Capital Hydrogen Center is establishing a platform to foster collaboration and support all stakeholders to overcome barriers and establish a sustainable hydrogen ecosystem in the DMV. The Center is also leading strategic collaboration with other regions and hydrogen ecosystems in the US and across the globe.

Investment Risk Management

Funding mechanisms are needed to enable companies and financial institutions to invest in the hydrogen ecosystem in a commercially viable way while also reducing risk. Contracts for Difference (CfDs) can incentivize existing companies to switch to hydrogen by reducing the cost of capital needed to develop production assets. These tools enable a fixed rate to be paid for energy produced, thereby reducing investment risk. In addition, tax credits can reduce costs associated with, for example, transitioning fleet vehicles to hydrogen technologies, and Renewable Fuel Standards (RFS) can provide tax credits to increase renewable energy production. The Renewable Electricity Production Tax Credit (PTC) and Investment Tax Credit (ITC) are two established federal resources that help reduce capital costs. Concessionary loans enable private lenders to reduce individual risk. Finally, tools such as Price Support and Consumption Quotas can provide guarantee demand, thereby incentivizing the development of hydrogen production.⁵² The Center will support the region’s financing needs by working with stakeholders to identify and structure potential funding alternatives.

Phased Approach

Hydrogen ecosystems will evolve with the addition of new stakeholders as the market develops and attracts additional entrants. It is important to ensure that the demand of key partners drives the development of the ecosystem and that it scales over time to maximize investment. Starting with market-ready technologies with an existing viable business case allows for experience to be gained across the value chain, which future market participants can leverage. As the hydrogen ecosystem develops, the Center will coordinate a strategic view for the region to ensure assets can be scaled to lead to additional use cases and market entrants. By coordinating the development of projects in close geographic proximity to others, the region can benefit from first movers and ensure that initial small-scale applications focus on building a scalable foundation for the region, in addition to achieving the specific project’s technological and financial objectives.

Workforce Development

Creating a workforce pipeline is essential to ensure that a qualified labor pool exists to support market growth. The development of a hydrogen hub at scale in the DMV, as illustrated in the Greenprint, results in the creation of more than 8,900 direct, indirect, and induced jobs in 2030. Strong workforce development programs will close the skill gaps in the renewables and hydrogen transition. The District of Columbia, Maryland, and Virginia are home to over 100 higher learning institutions. The DMV needs to establish sector partnerships to align potential workforce and education partners to the growing need for workers to support hydrogen development across the value chain.

Creating a coordinated workforce development and training plan will allow all residents access to the skills necessary to benefit from the economic development driven by the new hydrogen economy. The Center will foster collaboration and ongoing engagement across all sectors of the region’s economy, including government entities, educational institutions, labor unions, industry, and community-based organizations, to develop sufficient skilled workers to support increasing employment opportunities in the hydrogen industry.

Policy and Regulation

The biggest challenge to rapid adoption of clean hydrogen is cost. To accelerate the adoption of hydrogen and facilitate a market transformation away from fossil fuels, it is important to develop policies that make hydrogen competitive. This can be done through several policy levers, including new incentives, implementing a carbon tax, and targets.

Hydrogen production tax credit (PTC) – a tax credit based on the amount of clean hydrogen produced by qualified facilities over a set amount of time. This incentive design encourages the development and operation of clean hydrogen production capacity. PTCs are an effective policy tool to encourage private sector investment and were successfully used to spur development in renewable energy generation.

Carbon tax – a tax levied on carbon emissions intended to include the social cost of carbon emissions. Carbon taxes can reduce emissions by increasing the cost of burning fossil fuel and making alternative fuel solutions such as hydrogen more competitive. A carbon tax of $200/kg would make pipeline blending cost-effective and a carbon tax of $100/kg would make medium- and heavy-duty transportation applications cost-competitive.⁵³

Low carbon fuel standard – a policy that requires transportation fuel to meet a certain energy-related GHG target (e.g., a specific carbon intensity) within a specified jurisdiction and timeframe. An LCFS could support adoption of hydrogen in the aviation and transportation sectors.

The Center will convene a broad group of stakeholders to review the policies, codes, and standards that drive hydrogen adoption to develop appropriate action plans to accelerate market scaling.