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The Growth of Hydrogen and CCUS

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In 2020, amid the chaos of the COVID-19 pandemic, turbulent energy markets, and the U.S. presidential election, policymakers and industry participants took steps to advance projects and lay foundations for the growth of the hydrogen and carbon capture, use and storage (CCUS) industries.

Hydrogen

At the federal level, legislative and administrative actions encouraged the development of hydrogen markets in the United States. On December 21, 2020, the Senate and the House passed H.R. 133, the Consolidated Appropriations Act, 2021. In addition to providing relief related to the effects of COVID-19, the legislation also contains crucial provisions for the fuel cell and hydrogen industry, including appropriations funding, policy authorizations, and tax incentives. The Consolidated Appropriations Act appropriates $150,000,000 for the Hydrogen and Fuel Cell Technologies Office located within the Office of Energy Efficiency and Renewable Energy. The legislation also provides for $30,000,000 in funding for the Solid Oxide Fuel Cell Program within the Office of Fossil Energy.  The legislation also authorizes various hydrogen and fuel cell related policies, including appropriations for programs to modernize and improve nuclear facilities (with a focus area on hydrogen production), technical assistance and grants for energy storage and microgrid projects, and demonstration program for gas turbines that run with high proportions of hydrogen.  The legislation also directs the Department of Energy (DOE) to conduct a study on research and development needs for blue hydrogen technology.

In July 2020, the DOE announced that it had appropriated funding for 18 projects for the storage, distribution, and use of hydrogen. This appropriation, totaling $64 million, was made pursuant to the Department of Energy’s [email protected] initiative and funded through the Office of Energy Efficiency and Renewable Energy’s (EERE) Hydrogen and Fuel Cell Technologies Office (HFTO). Projects funded include a project for the development of high-strength carbon fiber for hydrogen storage tanks, fuel cell systems, and vehicle components.

Private sector activity in 2020 included merger and acquisition activity and increased investment, growing adoption of technologies for utilizing hydrogen for power generation, and the announcement of at least one pilot project to blend hydrogen in the natural gas stream.  In a pair of transactions that were emblematic of global interest in the hydrogen industry, Plug Power Inc. in July 2020 finalized its acquisition of United Hydrogen Group Inc. and in November 2020 raised approximately $1 billion through the sale of shares underwritten by Morgan Stanley.  With these transactions, Plug Power intends to grow its vertically integrated hydrogen supply chain and advance its ambitions to grow the hydrogen economy and broaden the use of hydrogen fuel cells. 

Several companies advanced plans to partially or fully convert hydrocarbon-based thermal generation to carbon-free hydrogen in 2020.  Long Ride Energy Terminal and New Fortress Energy announced plans to convert a 485 MW combined-cycle power plant in Ohio to run on hydrogen.  Mitsubishi Power Americas Inc. announced sales of hydrogen-compatible power turbines equivalent to 3.3 gigawatts to customers in Virginia, Ohio, and New York.  Progress continued on the ACES project in Utah, in which existing thermal generation will transition from coal-fired to natural gas and, eventually, to hydrogen.

Finally, in November 2020, San Diego Gas & Electric and Southern California Gas Co. announced a pilot project to blend up to twenty percent in the gas stream to reduce carbon emissions.  This project follows initiatives overseas, such as the HyDeploy project in the UK, another pilot project testing the blending of hydrogen into the natural gas grid in England.

CCUS

The CCUS industry made advances in 2020, both in terms of government incentives and private activities.

The Consolidated Appropriations Act authorized research, development, and demonstration program and large-scale pilot program for carbon capture and sequestration that includes hydrogen steam methane reformation plants and fuel cell technologies for modular power systems. For this purpose, the legislation authorized $1,050,000,000 in each of FY 2021 and 2022, $900,000,000 in each of FY 2023 and 2024, and $450,000,000 in FY 2025.  The legislation also extended renewable and clean energy tax credits, including an extension by two years (to January 1, 2026) the deadline for beginning construction of a carbon capture facility eligible for the credit under section 45Q of the Internal Revenue Code.

The DOE conducts a funding program for the sharing of costs of research and development of technologies for the development and advancement of carbon capture, use and sequestration.  In 2020, the DOE made several funding opportunity announcements (FOAs) for CCUS projects.  The various FOAs issued in 2020 included $71 million for projects relating to the industrial capture of carbon from industrial sources, including coal- and natural gas-based flue gas, and projects developing technology for direct air capture of CO2.  Other FOAs included $131 million for projects relating to the permanent sequestration of CO2.

In May 2020, the Treasury Department and the IRS issued  proposed regulations intended to clarify certain matters under the tax credit available under Section 45Q of the Internal Revenue Code for CCUS activities.  Among the issues addressed were the meaning of “geologic storage,” what party can claim the credit for CCUS, the process for transferring the credit, and the circumstances in which recapture of the credit can occur. Click here for Section 45Q tax developments in 2020.

In 2020, Wyoming gained primacy from the U.S. Environmental Protection Agency for the ability to regulate “Class VI” injection wells for permanent sequestration of CO2.   Wyoming is only the second state to take primacy over the regulation of Class VI wells.  North Dakota became the primary regulator of Class VI injection wells in the state in 2018.

Private sector actors advanced hydrogen and CCUS projects in 2020.  Prompted by the credits for carbon storage under Section 45Q, interest in permanent geologic sequestration of CO2 increased in the United States.  In October Gulf Coast Sequestration submitted filings with the EPA to commence the process for obtaining permits to permanently store up to 2.7 million tons of CO2 per year in sequestration wells in Louisiana.

 

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