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Spotlight

Hydrogen Hubs Are Struggling. Why?

Explanations abound.

Hydrogen plant.
Shutterstock / Heatmap

Key projects for the Energy Department’s hydrogen hubs are dropping like flies. And it’s really not obvious why.

Three hubs DOE selected for potential federal support have lost projects that were linchpins. Industrial giant Fortescue is no longer publicly committing to a hydro-powered hydrogen production plant proposed in Washington state that was key to the Pacific Northwest hub. News of a pause at the project was previously reported, but the company notably declined to even say the project was still getting built when asked about it this week.

“While Fortescue will continue to maintain a portfolio of other projects for the future, our financial discipline always comes first. We will never do projects that are not currently economically viable,” the company said in a statement provided to me this morning.

Meanwhile CNX, a natural gas company, has indefinitely put the kibosh on a blue hydrogen ammonia plant in West Virginia crucial to the Appalachian hydrogen hub known as ARCH2. Marathon Petroleum’s midstream subsidiary MPLX also confirmed to me they’ve canceled a hydrogen storage facility planned for that hub, and Chemours is no longer involved with the hub either.

Another blue hydrogen ammonia plant in North Dakota crucial to a different hub – known as the Heartland hub – has been canceled by Marathon and TC Energy.

In other words: a year after the Biden administration made a big announcement about the seven hubs that could potentially receive billions of dollars in government funding, almost half of them are running into serious trouble.

The companies that have quietly pulled out or paused projects are laying blame on implementation of the federal hydrogen production tax credit, claiming rules enforcing the “three pillars” and carbon intensity requirements are too onerous. Meanwhile critics of the hydrogen hubs are seizing on project cancellations and delays to argue against their construction outright; the Ohio River Valley Institute, an environmental group opposed to the ARCH2 hydrogen hub, has received a lot of press in recent days for a report claiming the hub is “coming apart.”

I’m already hearing whispers from industry insiders in D.C. who are trying to spin these cancellations as evidence the credit implementation has been too favorable to climate activists and is constraining growth in the nascent hydrogen space.

But what’s really going on?

Conversations with experts and stakeholders indicate to me this could be evidence of broader macroeconomic issues hitting the hydrogen industry, from inflation pushing up the price of electrolyzers to the stubbornly low price of natural gas. We saw this with the Plug Power project in New York, which we were first to report problems with. These market issues may be overpowering the subsidies and demand-side benefits of the bipartisan infrastructure law and Inflation Reduction Act.

These hiccups may also be a calm before a storm of hydrogen investment and a reshuffling of capital that’ll become more evident after the IRA’s production tax credit is fully implemented with final regulations. Perhaps it’ll take final rules to see the companies supportive of the “three pillars” move more projects forward.

It could also be a mixture of these things and other factors, like issues with the specific sites companies had selected for their plants.

No matter the cause for these hubs stuttering, these projects falling out of the fold is a shock to no one, especially supporters of the “three pillars” approach to the tax credit. Though it may indicate flaws with a disorganized approach to the energy transition.

“I’m not surprised if at the end of the day some of the many projects supported by DOE are not viable in the end,” said Jesse Jenkins, an assistant professor at Princeton University and expert in energy systems engineering. In addition to co-hosting Heatmap’s Shift Key podcast, Jenkins leads the REPEAT Project, which produced influential policy analysis supporting the “three pillars” approach to Treasury’s implementation of the hydrogen production tax credit.

Irrespective of the reasons, it’s important to remember that on some level both industry and the Biden administration stumbled into this mess. That’s because Congress passed the bipartisan infrastructure law mandating the creation and financing of these hubs before the IRA was even introduced. The infrastructure law itself required DOE to start soliciting proposals for hub funding mere months after it was enacted. This means the hub program was crafted independent of a tax subsidy boosting supply.

The hubs may be lobbying for a specific version of the hydrogen production credit to be implemented, as many D.C. lobbyists like to point out, but the program wasn’t referenced in the tax credit’s statute either.

As Jenkins put it, any conflict between the hubs and tax credit provisions is evidence “that reflects that many of the projects [selected] are not compliant.”

Biden administration officials spoke to me for a half hour this morning about the canceled projects on the condition of anonymity to candidly discuss the tax credit and hubs. To them, this can be explained as the process working as intended, and they emphasized how the credit and hub are independent programs. They also expect more capital to be unleashed after the credit is finalized, as companies who’ve supported the “three pillars” get certainty to make final investment decisions.

The administration’s view sounded akin to the optimistic vision relayed to me by Clean Air Task Force’s Conrad Schneider: “This is what progress looks like. It’s slow, it’s steady. It’s not [a] steady state though.”

My take? This is further proof we live in a disorganized energy transition. So far in The Fight, we’ve covered the struggles to get projects built because of opposing forces at a grassroots level. That same dynamic applies to the federal climate programs incentivizing a switch from carbon-intensive business practices. And sometimes, there’ll be tug-of-war competing interests between the climate programs themselves.

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Hotspots

Agri-Voltaics Anguish, Offshore Wind Wailing

And more of the week’s most important conflicts around renewable energy.

Map.
Heatmap Illustration

1. Douglas County, Kansas – A legal headache is consuming Kansas Sky Energy Center, a 159-megawatt solar project proposed by Savion and Invenergy… and showcasing how “agri-voltaics” may not be the community engagement panacea some in industry are praying for, according to legal filings reviewed by Heatmap.

  • The Douglas Board of County Commissioners approved the project earlier this year unanimously in spite of a petition from nearly property owners to oppose the project. After that, landowners and the small neighboring community of Grant Township sued the county commissioners to invalidate the approval.
  • The litigation accuses the Board Chair Karen Willey of essentially orchestrating the approval and the solar project’s agri-voltaics plans without meaningful local consultation, per the most recent amended complaint filed by the aggrieved community members.
  • The complaint gets ugly real fast, citing texts and emails to allege some sort of conspiracy between Willey, Savion employees, and The Nature Conservancy, the environmental nonprofit, which was brought in to assist with the agri-voltaics plans.
  • “Commissioner Karen Willey, a well-known opponent of production farming and a critic of the accepted farming principles that enable Kansas farmers to feed the world,” states the complaint filed in August, “orchestrated the request and approval process to fulfill her pre-set personal agenda.”
  • Willey and the rest of the board have denied all of the wrongdoing alleged in the suit and are fighting it vigorously.
  • Irrespective of the merits, this one’s a headache, and must be eating up lots of time and money for developers and the local government. Yesterday a federal judge sent the case to state court after a prolonged fight over jurisdiction.
  • This can be a fraught place to develop solar, as NextEra Energy has experienced with its West Gardner solar project.

2. Worcester County, Maryland – We finally get to see the contours of the legal strategy against the Maryland Offshore Wind Project, after Ocean City and surrounding local business and government officials filed their lawsuit last week.

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Policy Watch

Offshore Wind’s Sign of Resilience

And more of the week’s top policy news around renewable energy.

Wind turbines.
Heatmap Illustration/Getty Images

1. Offshore wind lease win – Two companies, Avangrid and Invenergy, purchased four of the eight leases up for grabs yesterday at the first floating offshore wind sale in the Gulf of Maine, according to the Bureau of Ocean Energy Management.

  • I’ve previously chronicled how offshore wind is particularly vulnerable to the whims of the federal government and how if Donald Trump wins the presidency again, the entire U.S. sector could grind to a shrieking halt.
  • That’s why, as my colleague Emily Pontecorvo noted, the fact any leases were purchased at all is a surprise sign that not all momentum has stalled ahead of this consequential election.
  • “The fact that two developers took the leap now rather than waiting for 2028 – which is when the next lease sale in the Gulf of Maine is scheduled – shows some level of confidence in the long-term prospects for the industry,” she writes.

2. Community benefit plans – The Energy Department’s Loan Programs Office is letting the public in on its community benefit agreements, publishing three plans for a wire harness plant in Texas, a solar-plus-storage project on tribal lands in California, and the revived Holtec Palisades nuclear plant in Michigan.

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Q&A

The CEO of GE Vernova Wants Less Talk, More Action

A conversation with Scott Strazik about NIMBYs, the Inflation Reduction Act, and manufacturing problems.

The CEO of GE Vernova Wants Less Talk, More Action

Last week at Greentown Labs’ startup summit in Boston I interviewed Scott Strazik, CEO of GE Vernova, the energy equipment manufacturing arm of General Electric formerly known as GE Renewables and GE Power.

GE Vernova has been at the forefront of a tech and public relations crisis in the offshore wind sector after one of the blades it constructed for the Vineyard Wind farm collapsed into the Atlantic Ocean. Last week, the company reported it found more issues with blades and recorded $700 million in financial losses from offshore wind contracts largely tied to blade issues.

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