The proposed US production tax credit (PTC) for clean hydrogen production “would instantly make green and blue H2 competitive with grey”, but its fate is uncertain, according to analyst BloombergNEF.
The ten-year PTC — which would reduce company’s tax bills to the equivalent of $3 per kg of green hydrogen produced, and a maximum of $1/kg for blue H2 — is contained within the Build Back Better (BBB) Act, which is in limbo due to opposition from Democratic Senator Joe Manchin.
Due to the 50-50 split between Republicans and Democrats in the US Senate, Manchin’s vote is needed for the BBB to pass, yet he rejected the bill in December due to its cost, and confirmed last week that it is “dead”.
He has, however, indicated willingness to support parts of BBB’s clean energy and climate provisions, and US commerce secretary Gina Raimondo said she was optimistic that Manchin would support a revised package.
“The proposed tax credit for H2 goes up as the producer’s emissions go down and rewards producers for meeting certain wage requirements,” the analyst explains in its new 1H 2022 Hydrogen Market Outlook report.
“BNEF estimates that green H2 projects can receive $3 per kg if they meet those requirements, while blue H2 projects could receive $1/kg. Projects would get the credit for the first 10 years of operation so long as they come online before 2027. The PTC would instantly make green and blue H2 competitive with grey.
“A 20-year green H2 project built in 2022 receiving $3/kg for 10 years from the PTC would see its levelized cost of hydrogen (LCOH2) fall by $1.90/kg. For example, a Texan wind-powered project’s LCOH2 would fall from $3.10/kg to $1.20/kg. A 20-year blue H2 project built in 2022 getting a $1/kg PTC for 10 years would see its LCOH2 fall by $0.63/kg, to just under $1/kg.”
The analyst puts the cost of US grey hydrogen — produced from unabated natural gas — at roughly $0.85-1.40/kg, according to a chart in the document.
“The bill could still pass if amended to suit Manchin,” the report continues. “The PTC could stay intact in such a scenario, as it was one of the bill’s least-contested parts.”
The Build Back Better bill — along with the hydrogen PTC — was approved by the House of Representatives back in November last year.