Adds information on state-specific additionality rules in paragraphs 6-8.
The US Treasury Department has issued long-awaited tweaks to 45V hydrogen production tax credit (PTC) guidelines, relaxing rules in a bid to make it easier for producers to benefit from the subsidy.
The final guidance released today retains the fundamental approach from the preliminary rules set out in December for the tax credits of up to $3/kg. The "three pillars" of additionality, temporal matching and regional deliverability remain in place for electrolytic hydrogen, but the Treasury has tweaked certain aspects.
The additionality rule prescribes that hydrogen production facilities can only use electricity from clean power generation capacity that predated them by 36 months or less to encourage a further build-out of such capacity. But under the final rules, hydrogen made with power from existing nuclear plants can qualify for the credits under certain circumstances. Hydrogen producers can access the credits if nuclear power companies demonstrate that adding hydrogen production to their revenue stream extends the life of reactors otherwise slated for shutdown.
Companies such as utility Constellation Energy have argued that using some of their nuclear capacity for hydrogen would provide a pathway for future relicensing of their reactors, but that this would hinge on access to the tax credits.
The final guidelines now also consider existing fossil fuel-based power plants where carbon capture capabilities have been retrofitted within the 36-month window prior to starting up hydrogen production as additional capacity. This makes hydrogen output using electricity from these plants eligible for the tax credits.
The guidelines also introduce a rule under which hydrogen production in certain states is eligible for the tax credit even if it is based on clean power generated from existing assets that do not meet the 36-month window.
"Electricity generated in states with robust greenhouse gas emissions caps paired with clean electricity standards or renewable portfolio standards" that meet specific criteria will automatically be considered as additional, the Treasury said. This is because in these states "the new electricity load" from electrolysers "is highly unlikely to cause induced grid emissions," it said, adding that rules on temporal matching and regional deliverability still apply.
For now, "California and Washington are qualifying states under these final regulations," but other states could qualify in the future, according to the Treasury.
Hourly matching — which prescribes that hydrogen has to be made from clean power produced within the same hour to avoid increased grid emissions — will now be required only from the start of 2030 onwards rather than from 2028. Annual matching will continue to apply until the end of 2029.
The new phase-in date for hourly matching at the start of 2030 brings it in line with EU rules, although the bloc requires monthly rather than annual matching before then.
US industry participants have repeatedly argued that the hourly matching rules drive up production costs and stymie the nascent industry's development, while environmentalists have warned that strict rules are necessary to curb greenhouse gas (GHG) emissions.
The regional deliverability rules require electrolysers to source clean power from within their operating region — as defined by the Department of Energy — to avoid grid congestions between regions resulting in use of emissions-intensive power for hydrogen production.
But the final guidelines would allow for direct "cross-region delivery" of power for hydrogen production where this "can be tracked and verified… on an hour-to-hour or more frequent basis". Under certain circumstances, US hydrogen producers could now even be eligible for the tax credits if they use electricity generated in Canada or Mexico, the Treasury said.
‘Significant improvements'
A lobbying group representing the interests of hydrogen producers called the updated guidance "significant improvements" and said it would allow the industry to move forward to the next planning stage.
"After years of strategic engagement and persistent advocacy, the issuance of this final rule now affords project developers the basis for evaluating opportunities to scale clean hydrogen deployments," Fuel Cell and Hydrogen Energy Association chief executive Frank Wolak said.
A raft of hydrogen projects were announced in the US after President Joe Biden announced billions of dollars in funding and tax credits for hydrogen with the 2022 Inflation Reduction Act. But much of that euphoria fizzled out during the long wait for clarity on the rules and concerns that the Treasury's guidelines would be too strict to allow competitive production.
Many would-be producers paused or cancelled US plans in 2024 because of widespread uncertainty over which projects would qualify for PTC, leaving companies unable to make long-term investment decisions.
