HYDROGEN ECONOMY ~ Imagine Getting Gas in Your Tank and Pie in the Sky

What Do Hydrogen-Hub Proposers Want? ~ Comments to US DOE

>>> From an Article by Yuri Zhu & Alan Krupnik, Resources for the Future, September 14, 2022

More than 300 groups submitted comments to the US Department of Energy with suggestions about the design of the agency’s hydrogen hubs program. RFF scholars have evaluated one group so far and expect to see more installments in the future.

Recently, the US Department of Energy (DOE) announced a request for information to collect feedback that can help inform the design of its hydrogen hubs (H2Hubs) program. This program, created under the Infrastructure Investment and Jobs Act, allocates $8 billion to support the creation of multiple hubs that will bring together consumers, producers, and the necessary infrastructure to support clean hydrogen in this country. Over 300 groups responded to the request for information ahead of the funding opportunity announcement, which is expected by October this year. This article will be the first in a series of blog posts that discuss the key insights gleaned from respondents.

In this first installment of the blog series, we examine the responses from leading organizations that are representing the hub groups. Of the 27 publicly announced H2Hub groups that scholars at Resources for the Future have been tracking, 21 have submitted responses to DOE’s request for information. By and large, we have not included comments from groups that are likely to be members of these hubs, for the sake of categorizing stakeholder groups according to their unique needs. We will analyze the comments of hub members separately in later installments. Below, we highlight some suggestions and concerns that these organizations have raised, with a focus on the key differences between these comments and DOE’s established plans.

The Need for Additional Federal Support ~ In their responses, several H2Hub groups ask for federal support on various key issues, primarily driven by the competencies of their members or authorities that have input on the hub projects.

One consistent concern is the need for guidance on safety standards around the production and transportation of hydrogen, especially because many state and local jurisdictions lack experience in this area. In the same vein, several groups identify a need for assistance with permitting. While certain H2Hub groups in well-prepared regions like Houston and California have long-standing experience with developing hydrogen projects, many other groups comprise member organizations and governments that lack experience with the hydrogen-related permitting process, which could lead to significant delays or barriers.

To address these issues, several H2Hub groups suggest utilizing federal resources, like the Hydrogen Safety Panel, to harmonize safety standards and provide outreach, education, or direct assistance on permitting to governments and organizations. H2Hub groups also broadly agree that the National Laboratories have a wealth of knowledge and could provide support by sharing technical specifications, best practices, and access to their networks. The respondents note that other federal agencies, such as the Occupational Safety and Health Administration and the Pipeline and Hazardous Materials Safety Administration, could be valuable resources for clarifying safety policies and regulations.

On the demand side, some H2Hub groups note the need for federal support on formulating and signing long-term agreements to sell hydrogen to end users, often referred to as “offtake agreements.” Several respondents suggest that making the agreements public, open source, and with standardized terms could alleviate some of the administrative burden of designing the contracts. To secure private-sector financing for projects, hubs will need to sign these offtake agreements with reputable, investment-grade partners. However, finding established financial partners is a substantial challenge for nascent hydrogen markets.

H2Hub groups describe several federal tools that could address this issue. While most agreements will be signed with end users who have investment-grade credit and a low risk of defaulting, one respondent suggests including support from DOE that could protect a hub in case of nonpayment. This added support could enable end users with sub-investment-grade credit to participate in the program.

Tension between Collaboration and Competition ~ These considerations tie into a broader theme on the need for collaboration and information sharing among H2Hub groups, which can be facilitated by DOE and other federal agencies. While the agencies and tools suggested by respondents would be helpful, some H2Hub groups are concerned that DOE resources may end up being spread too thin across hub proposals. As a supplement, some respondents encourage greater collaboration, especially given the varying levels of competency across groups. For instance, H2Hub groups with members that are experienced in hydrogen production may have greater knowledge of industry-driven programs for workforce development, safety standards, or end-use offtake agreements. This expertise could be a resource for other H2Hub groups whose members lack experience in these areas.

To bridge the information gap, some respondents suggest establishing a cross-cutting industry clearinghouse to manage information and technology transfers among H2Hubs. This strategy would facilitate the transfer of data, standards, and lessons learned. Other respondents suggest holding an annual H2Hub Summit, similar to the ARPA-E Summit, in order to build a stronger community among H2Hub groups.

Dedicated pipeline and storage infrastructure will be necessary as the market develops ~ By overbuilding connective capacity today, H2Hubs could reduce the costs and logistical barriers associated with future expansions.

While collaboration and information sharing can help ensure the long-term sustainability and growth of the hubs beyond the initial federal funding period, the funding process is inherently competitive. With 27 groups bidding, and perhaps at most 10 (or as few as four) getting significant funding for infrastructure and/or operations, the groups may have little incentive for such cooperation until the winners are announced. But announcing the winners is a multi-phase process as outlined by the H2Hubs program, with a much larger group likely making it through the first (planning) stage. One potential solution that could spur cooperation would be to ask proposers to develop a cooperative information-sharing plan as part of their initial proposal, recognizing that the plan wouldn’t go into effect until the final winners are known. In any event, once the funding opportunity announcement is released, DOE needs to address this tension and help ensure that cooperation can make the overall program more successful.

Cost-Share Requirements Remain a Contentious Issue among Hub Groups ~ DOE has indicated a cost-share requirement for hub projects, such that 50 percent of the total funding for each project must come from non-federal resources. The request for information asked respondents for input on the requirement that meeting this cost-share must happen on an invoice-by-invoice basis.

All respondents believe that the overall cost-share requirement regarding 50 percent of project funding is feasible; however, many urge greater flexibility around the invoice-by-invoice requirement and around requiring this level of cost-sharing for certain activities. One respondent warns of potential cash-flow issues that could cause a project to develop unevenly or face challenges in project financing in the early stages. Some note that the cost-sharing requirement could be a roadblock for supportive or preconstruction activities. These respondents request that DOE reduce the cost-share requirement for supportive activities, such as research and academic collaboration, while removing the requirement completely in other cases, such as with training, workforce development, and environmental justice.

Building a Hydrogen Economy ~ Beyond the physical infrastructure necessary for the actual production of hydrogen, many H2Hub groups emphasize the need to build additional connective infrastructure that can support a clean hydrogen economy. While a demonstration of the production of clean hydrogen at scale will be invaluable, the connection of the hydrogen supply to a diverse set of end users through storage and connective infrastructure will be crucial for the long-term viability of H2Hubs.

Certain methods for transportation and end use, such as hydrogen blending in existing natural gas pipelines, offer a short-term solution. However, dedicated pipeline and storage infrastructure will be necessary as the market develops, especially given DOE’s end goal of creating a national hydrogen network, which can be taken to mean linking geographically adjacent hubs. By overbuilding connective capacity today, H2Hubs could reduce the costs and logistical barriers associated with future expansions. One respondent emphasizes that storage is the most critical infrastructural element for maintaining supply and meeting demand as the hubs scale. Storage will be particularly relevant for hubs that face potential intermittency of generation or seasonality of demand.

How Many Hubs Should the Department of Energy Fund? ~ The H2Hub groups are divided evenly on whether DOE should fund four large hubs or spread the funding across six to ten hubs of varying sizes. Some respondents argue that larger, better-funded projects would improve economies of scale and impact, while also allowing for greater complexity.

On the other hand, funding more hubs of varying sizes could ease the pathway toward a national network and diversify certain technological, financial, and economic risks across the funded hubs. Some hubs that lack the size and scale of multi-state or public-private-partnership hub groups note their potential for being “connector” hubs. These hubs could link up, enabling adjacent regions to work together and toward a national network.

Conclusions ~ Overall, the breadth of responses to the DOE’s request for information about the H2Hubs program offers important insights about how H2Hub groups are engaging with and approaching the funding process. DOE and other federal agencies should continue to provide support in areas such as safety, permitting, and collaboration among H2Hubs. At the same time, additional clarity and adjustments are needed with respect to the cost-share requirements and the optimal number of H2Hubs that receive funding.

Source ~ https://www.resources.org/common-resources/what-do-hydrogen-hub-proposers-want-weve-summarized-their-comments-to-the-department-of-energy/