The hydrogen revolution continues. As part of it, the United States plans to invest $8 billion into “hydrogen hubs.”
These are networks of hydrogen production, infrastructure, and consumption.
On April 7th, the US Department of Energy closed applications for the first round of funding as part of its $8 billion program.
As a result of the program, the country plans to build ten such hydrogen hubs.
Why Is the US Government Doing This?
These hubs are part of a bigger push toward electrification and decarbonization.
The ultimate goal here is to lower emissions and transform the country’s infrastructure and industry so that they produce and run on clean energy.
Hydrogen is the perfect solution for the emissions problem.
If produced in an environmentally responsible way (what we refer to as “green hydrogen”), it has no carbon footprint whatsoever. And when it is used, it emits only oxygen and water.
This kind of hydrogen could be more expensive to produce than its “grey,” “blue,” or “turquoise” variants that involve greenhouse gases at certain stages of production.
To make green hydrogen cheaper to its final consumers, the US government introduced tax credits of up to $3 per kilogram of clean hydrogen.
These credits will lower private investors’ costs of clean hydrogen project development and operation.
They will also help clean hydrogen projects reach “scale” and compete with “dirty” energy projects more efficiently.
Besides, they could also turn the US into a hydrogen-exporting powerhouse. Right now, the US is the world’s third-largest exporter of oil. We will not be surprised to see it become one of the world’s leaders in hydrogen export.
What’s Next?
The Department of Energy received about 79 applications and encouraged 33 of them.
They are spread over the Gulf Coast, Northeast, West Coast, and other regions.
California, in fact, was one of the regions that started developing its own clean energy projects even before the $8 billion federal program was announced.
For example, the Los Angeles Department of Water and Power plans to replace natural gas with clean hydrogen for peak electricity generation.
This measure is part of the city’s plans to generate 100% zero-carbon electricity by 2035.
Right now, hydrogen is in the same spot where solar energy was back in the 1970s.
It relies on government subsidies to improve the economics of energy generation, but as the cost of producing clean hydrogen falls, it will become an economically viable source of power.
In the United States, clean energy measures enjoy support from both Republicans and Democrats.
This tells us that even though the next US president is Republican, the climate measures introduced by the Inflation Reduction Act will remain in place.
Private investors should start exploring this space.
On the one hand, hydrogen fuel technology that would lower the cost of energy production is an excellent area to start doing fundamental research on.
The companies that will drive the cost of green hydrogen down could enjoy both government support and increased investor interest.
On the other hand, private companies have already started planning on locating their production facilities close to the likely areas where the future hydrogen hubs will be developed. Given the extent of government subsidies available, these companies will likely be competitive even before technology drives down the cost of green hydrogen.
Finally, private companies developing hydrogen-fueled vehicles could benefit from billions of dollars in government support and investments. Watch out for startups developing hydrogen-fueled trucks, ships, and planes.
Thank you for your loyal readership,
The Financial Star team
