US extends hydrogen storage access to tax credits

Spanish Market: Hydrogen
05/12/24

Investment tax credits for hydrogen storage in the US will no longer be restricted to sites that store supply for energy production, based on updated guidance from the Treasury.

The Treasury on 4 December published its final updated guidance on the section 48 energy credit, which is primarily focused on projects for clean power production but will also provide investment tax credits for hydrogen storage.

Previous guidance from November 2023 had foreseen that hydrogen storage projects could only make use of the tax credits — which in most cases amount to 30pc of project costs — if they store hydrogen that is eventually used for energy production, such as electricity generation.

But the revised guidance removes this requirement, meaning that storage sites could also be eligible for the credits if they store hydrogen for other uses, including as feedstocks for fertiliser production or other chemicals.

Several respondents to the initial guidelines suggested that restricting the "end use" to energy purposes "is not in accord with legislative intent, would cause delays, is unworkable, and misaligns" with the US' hydrogen strategy, the Treasury said. The Treasury noted that one commenter said that the restriction would make the credit "largely useless" for supporting the deployment of storage in ramping up a hydrogen ecosystem in the US.

Industry bodies and other associations had lobbied for the access to tax credits to be expanded. Climate think-tank the Clean Air Task Force had said that the restrictions would be "difficult to administer, because hydrogen storage operators have limited mechanisms to track hydrogen after it exits their facility".

Industry body the Fuel Cell and Hydrogen Energy Association (FCHEA) said the changed rules are "a huge victory for the hydrogen industry" ensuring that the tax credits "will be utilised as intended".

FCHEA welcomed some other changes in the final guidelines, such as an extension of the equipment covered by the tax credits, which will now under some circumstances include pipelines connected to storage facilities and liquefaction equipment.

But the Treasury did not accommodate requests from some respondents to include equipment for storing hydrogen carriers such as ammonia or methanol under the investment tax credit rules, stressing that the relevant legislation "specifically references only hydrogen, not compounds containing hydrogen".

The Treasury clarified that storage facilities or equipment co-located with hydrogen production sites could receive the tax credits even if developers also make use of 45V production tax credits for the hydrogen output.

By Stefan Krumpelmann

Related news posts

Argus illuminates the markets by putting a lens on the areas that matter most to you. The market news and commentary we publish reveals vital insights that enable you to make stronger, well-informed decisions. Explore a selection of news stories related to this one.

06/12/24

US H2 hopes at risk with 45V uncertainty: Industry

Houston, 6 December (Argus) — US hydrogen industry developers need more clarity on federal production tax credits (PTC) before moving forward with projects but are hopeful they can convince the incoming administration of the benefits they represent. A raft of hydrogen projects were announced in the US after President Joe Biden announced billions of dollars in federal funding and tax credits for hydrogen within the 2022 Inflation Reduction Act. But much of that euphoria fizzled after the US Treasury last December proposed rules mimicking European standards that some in the industry argue are too stringent and would make many projects, especially those using natural gas, uneconomical. "Everyone looked at the US as a very promising market but the reality is that as time goes by uncertainty is growing," said Ana Quelhas, managing director of hydrogen at EDP, on a panel this week at the Reuters EnergyLive conference in Houston, Texas. "There's a big question mark related to the implementation of 45V and that's very bad for investors." The US still has the opportunity to be a leader in hydrogen if it can implement rules around how the 45V credit is applied correctly, said Tomeka McLeod, vice president of hydrogen at BP. If so-called blue projects — which make hydrogen from natural gas — can get the full $3/kg credit, "... it would make our projects some of the most competitive globally," McLeod said. Rules related to the use of renewable and certified natural gas in hydrogen production still need to be "hammered out," she said. BP aims to have 5-10 projects online by the end of decade but McLeod says they will be evaluated by the same internal standards of any other project. "We need to make sure that the economics of those projects work, they need to be able to compete within our portfolio," she said. BP is part of the Midwest Alliance for Clean Hydrogen (MachH2) that recently received $1bn in Department of Energy (DOE) funding and plans to produce hydrogen from natural gas with carbon capture to power its Whiting refinery in Indiana. Christmas gift or lump of coal Many of those gathered at the conference in Houston this week said they hoped further guidance would arrive "like a Christmas present" in the waning weeks of the year, and the Biden administration would sew up any lingering details before leaving office. Nonetheless, they still expect to be subjected to further scrutiny under the Trump administration, which has made clear its disdain for clean-energy mandates. Learning to speak to the concerns of the new administration will be crucial to success, industry leaders said, including explaining hydrogen's role in promoting national security and job creation. "We need to educate this incoming administration and collaborate and make sure that the momentum that is already here continues, and [show] that we can actually do the right thing from a national energy security perspective," said Sanjay Shrestha, president of Plug Power, a company that develops hydrogen fuel cells to replace conventional batteries. Keystate Energy chief executive Perry Babb, whose company is looking to produce clean hydrogen in Pennsylvania, said aligning with the administration's goals as well as a solid business case will be key to survival. "We will need to speak the language of the administration," Babb said. By Jasmina Kelemen Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Denmark's wind tender flop linked to H2 network doubts

06/12/24

Denmark's wind tender flop linked to H2 network doubts

London, 6 December (Argus) — Denmark's failure to attract bids in an offshore wind tender was partly caused by the country's lack of firm commitment to a hydrogen pipeline network, according to Danish and European hydrogen associations. For Denmark's hydrogen industry the failed tender is raising concerns that Copenhagen might resort to state aid for offshore wind, which could jeopardise renewable hydrogen production that is compliant with EU rules. Denmark unsuccessfully offered three areas totalling 3GW in a first part of the auction that ended on 5 December, and will offer another 3GW in a second part ending in April 2025. The "very disappointing" result will now be investigated by the Danish Energy Agency to discover why market participants failed to bid, energy minister Lars Aagaard said. Wind project developers may have worried that low electricity prices in an increasingly saturated power market and inadequate export routes — either via power cables or as hydrogen via pipeline — would deny a return on investments, industry participants said. Ample offshore wind potential could allow Denmark to generate power far in excess of its own needs. But in order to capitalise on this the country would need to find a way of getting the energy to demand markets. Turning offshore wind into renewable hydrogen for export was "a very attractive solution" for developers, Hydrogen Europe chief policy officer Daniel Fraile said, but would rely on timely construction of a network "all the way from the coast to Germany's hydrogen-hungry industry." Denmark's hydrogen network was recently pushed back to 2031-32 from an initial 2028, partly because of an impasse over funding that provoked anger from industry. The government has said it will only help fund the hydrogen transport network if there are sufficient capacity bookings guaranteeing its use. But this approach increases risks for developers, according to Fraile. "You need to handle the risk of winning the offshore tender, finding a hydrogen offtaker in Germany and commit to inject a large amount of hydrogen over several years. Then deliver the project on time and on cost," he said. "This is a hell of an undertaking." Industry association Hydrogen Denmark's chief executive Tejs Laustsen Jensen agreed, calling the failed tender "a gigantic setback". "The uncertainty about the hydrogen infrastructure has simply made the investment too uncertain for offshore wind developers," he said. "Now the task for politicians is to untie this Gordian knot." "Of course, the tender must now be re-run, but if the state does not guarantee in that process the establishment of hydrogen infrastructure, we risk ending up in the same place again," he said. The booking requirement as a prerequisite for funding the network "must be completely removed," Jensen said. Green energy association Green Power Denmark said "there is still considerable uncertainty about the feasibility of selling electricity in the form of hydrogen," but pointed to other factors that may have led to the tender failing to attract bids. Wind turbines and raw materials have become more expensive because of inflation while interest rates have risen sharply, reducing the viability of such projects, the group's chief executive Kristian Jensen said. Unlike some other countries, Denmark does not intend to fund grid connections or provide other subsidies, he said. Unwanted help Hydrogen Denmark's Jensen warned against the government resorting to subsidies to help get offshore wind farms built. "State support for offshore wind would be the death knell" for the hydrogen sector and would "de facto kill all possibilities for a green hydrogen adventure in Denmark," he said. Granting state support for offshore wind farms would mean these assets would not comply with the additionality requirement of the EU's definition for renewable fuels of non-biological origin (RFNBO), which are effectively renewable hydrogen and derivatives. EU rules state renewable assets are only considered 'additional' if they have "not received support in the form of operating aid or investment aid," although financial support for grid connections is exempt from this. "If state aid is provided for the offshore wind that is to be used to produce the hydrogen, we will lose the RFNBO stamp, and the Danish hydrogen cannot be used to meet the green EU ambitions for, among other things, industry and transport, and the business case is thus destroyed," Jensen said. By Aidan Lea and Stefan Krumpelmann Geographical divisions of Denmark's H2 network plan Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Newly agreed EU, Mercosur FTA faces uphill battle

06/12/24

Newly agreed EU, Mercosur FTA faces uphill battle

Montevideo, 6 December (Argus) — The EU and South America's Mercosur closed a free-trade agreement (FTA) nearly 25 years in the making, but there is still a long road to ratification. Uruguayan president Luis Lacalle and European Commission president Ursula von der Leyen announced the deal at a Mercosur summit in Montevideo, the Uruguayan capital. The presidents of the three other Mercosur founding members — Argentina, Brazil and Paraguay — were present. The FTA will remove tariffs on more than 90pc of goods among the members. Von der Leyen called the agreement a historic milestone that would benefit 700mn consumers. She said the agreement "is not only a trade agreement, but also a political necessity." Lacalle said "an agreement of this kind is not a magical solution, but an opportunity." Leaders recognized that the agreement still has major hurdles to clear as it requires approval from member states. The agreement will go to legal review and translation in the next month in view of its future signing, according to the Mercosur-EU declaration. While the Mercosur countries are in favor of the agreement, opposition is strong in France, Poland and several smaller EU states. Argentinian president Javier Milei, who supports the agreement, criticized Mercosur as a block. "Mercosur, which was born with the idea of deepening our commercial ties, ended up like a prison that does not allow its members to take advantage of their comparative advantages or export potential," he said. Van der Leyen said that more than 60,000 businesses, half of them small, export to Mercosur. The EU exported $59bn to Mercosur in 2023, while Mercosur's four founding members shipped $57bn to the EU. She also stressed the importance of EU investment in Mercosur, including in sustainable mining, renewable energy and sustainable forestry. Brazilian president Luiz Lula da Silva said during the summit that the region had to take advantage of its resources, including agriculture and energy. The four Mercosur countries are major food producers, including crops such as corn, soy and sugarcane, used for biofuels. Brazil is the world's top soy producer, while Argentina is third, Paraguay sixth and Uruguay in the 14th spot. Bolivia, which joined Mercosur in July, is the 10th producer. Brazil is a major mineral producer and Argentina is slowly beginning to strengthen its mining sector. It has the world's second-largest lithium resources. Argentina is also beginning to monetize its unconventional gas formation, Vaca Muerta, the second largest in the world with 308 trillion cf of reserves. It is working on different LNG projects, with a focus on exports to Europe. The Mercosur countries also have in common plans for low-carbon hydrogen production, which also see the EU as an export market for value-added products, such as fertilizers. By Lucien Chauvin Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

German 2030 coal phase-out called into question

03/12/24

German 2030 coal phase-out called into question

London, 3 December (Argus) — Germany's coal phase-out targets are being reassessed owing to the likelihood of further delays to the passing of the power plant security act (KWSG), as well as decisions already taken on the future design of the electricity market. Germany has pledged to phase out coal and lignite-fired generation by 2038 at the latest, but energy ministry BMWK said an earlier, market-driven phase-out by 2030 is possible . Grid regulator Bnetza said 21GW of new gas-fired capacity — which should in the future be hydrogen-ready — would be needed by 2031 for a complete coal phase-out. Utility Leag said it does not see the current government changing the legal phase-out deadline. But "any further delay" to adding controllable replacement capacities would create an "urgent" situation, it said. And utility EnBW told Argus that it remains committed to phasing out coal by 2038 at the latest, while adding that "security of supply must not be jeopardised". At a transmission system operators' (TSO) forum held in November, TSO Amprion's Peter Lopion said the KWSG is vital to encourage plant construction in the south, where more gas-fired capacity is crucial if coal is to be phased out. He also raised concerns about Germany's target to phase out gas-fired power by 2045 — the year in which the country aims to reach climate neutrality — given the lack of a hydrogen economy and hydrogen production. Earlier this month, the CDU/CSU opposition parties commissioned an investigation into the feasibility of reactivating decommissioned nuclear plants, seeing the shutdown of Germany's final nuclear plant in April 2023 as "ideologically wrong". EnBW has told Argus that the decommissioning of its 1.4GW GKN II plant — the dismantling of which began in May 2023 — is "virtually irreversible". By Bea Leverett and John Horstmann Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

German stakeholders doubt power plant strategy passing

03/12/24

German stakeholders doubt power plant strategy passing

London, 3 December (Argus) — The collapse of the German government on 6 November has led to uncertainty over the future of Germany's power market, particularly with regard to the passing of the power plant strategy (KWSG) before federal elections scheduled for 23 February. Under the power plant strategy, economic and climate ministry BMWK proposed tenders for the construction of 12.5GW of power plant capacity and 500MW of long-term storage over the next few years. This includes 10GW of hydrogen-ready gas-fired capacity, of which 5GW was planned to be offered next year, with the government aiming to hold tenders in early 2025 . Renewables association BEE announced on 26 November that BMWK had submitted a KWSG draft for industry consultation over 72 hours, indicating the minority government's urgent desire to enact the law before the elections. Incumbent energy minister Robert Habeck previously said politicians from the opposition CDU party had been "constantly" writing letters to ask when the power plant strategy would "finally" be passed. But the deputy head of the CDU/CSU, Jens Spahn, told an industry event last week that owing to the former coalition's sidelining of the opposition when drawing up the strategy, the CDU/CSU cannot be expected to support it. Utility EnBW told Argus in November that it expects the KWSG to be "supported" under the next government owing to a cross-party consensus on the need for more capacity. EnBW said it would be prepared to take part in the tenders "if the conditions allow it", whereas utility Leag told Argus that while "considerable progress" had been made in its preparations for the tenders, it is unable to do anything "concrete" until the regulatory framework has been clarified. But it voiced doubts over whether the KWSG will be passed before the elections. And utility RWE told Argus that while it would not "speculate" on the KWSG's passing, it will "not put planning efforts on hold" and will "proceed as usual" in its preparations. Vattenfall declined to comment, while Uniper was not immediately available. At an electricity market forum hosted by the country's four transmission system operators last month, grid regulator Bnetza's Tobias Lengner-Ludwig said that Bnetza and potential investors will need at least six months to prepare for the tenders, which could cause further delays. But in its position paper on the KWSG in response to BMWK's consultation, energy and water association BDEW said investing in the tenders in their current form is unattractive, as risks are too high owing to a potential lack of hydrogen supply, possible delays in the setting up of hydrogen infrastructure and short implementation timeframes. And while BEE told Argus that it does not expect the KWSG to be passed in this legislative period, it is not demanding its passage, as it views the proposal to invest in hydrogen-ready gas-fired plants unfavourably. Such a strong commitment to hydrogen risks fossil fuel lock-ins and high electricity prices, it said, particularly owing to the initially limited availability of green hydrogen. It said the government should focus on adding flexible renewable capacity by maximising the potential of existing sources, including hydropower, geothermal, battery storage and combined heat and power. German solar association BSW told Argus that alternatives to conventional generation — such as flexible bioenergy and storage systems — should be expanded to add dispatchable capacity. Even if the KWSG were passed in this legislative period, it would only have an impact in the early 2030s, it said. While clean spark spreads for lower-efficiency units for each year to 2027 have remained mostly negative this year, clean spark spreads for higher-efficiency units for 2025 turned negative in September after being in the money for most of 2024. And clean spark spreads for higher-efficiency units for 2026 and 2027 have averaged around €0.25/MWh and minus €1.40/MWh this year, despite the latter almost consistently being positive since the start of September. By Bea Leverett and John Horstmann Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Business intelligence reports

Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.

Learn more