In the final week of the Biden administration, the Department of Energy released an update on the state of clean hydrogen. In short, it’s an industry grappling with the challenges of reaching commercial scale: capacity and investment increasing, even as production costs remain high — and even get higher.
The report is an update to DOE’s clean hydrogen liftoff report, originally published nearly two years ago.
The dominant theme of that period is limbo, as the industry waited for clarity on rules governing potential tax credits put in place by the Inflation Reduction Act, known as section 45V. The draft version of the rules, released in December 2023, reflected a strict definition of clean hydrogen, requiring that electrolyzers be powered by renewable energy produced under highly specific conditions.
The draft rules resulted in outcry from parts of the industry that argued that the stringency would slow the industry’s growth — and certain producers even said that the rules would knock projects off the map. But it was the lack of certainty that caused just as much delay in 2024, especially given questions about what a potential Trump administration would mean for the industry.
The final rules, released earlier this month, are softened somewhat, but maintain much of the original structure of 45V. The increased flexibility, some argue, should reduce the risk of litigation — and even more uncertainty about what rules producers should observe.
(The updated report was completed after those draft 45V rules were announced, but before the somewhat softened final rules were announced earlier this month. The impact of the final rules will be reflected in future reports.)
Despite the uncertainty, the Biden administration has brought significant changes to the industry nonetheless. The updated liftoff report captures three intersecting trends.
Increasing capacity
On the one hand, planned clean hydrogen capacity increased substantially.
According to DOE, the total announced clean hydrogen production capacity increased 26% over the last year alone, to 14 million metric tons per year. (That capacity does not include the additional 3 million MT from the DOE-funded hydrogen hubs.)
Roughly 7.9 million MT per year, or 60% of that capacity, comes from low-carbon reformation projects and 6 million MT per year come from electrolysis. And two technology pathways are emerging as the clear favorites among producers: autothermal methane reformation (or ATR) new builds that use carbon capture for the reformation projects, and proton exchange membrane (PEM) for the electrolysis projects.
More than half (55%) of that electrolytic production relies on wind, solar, or some combination of the two; less than 1% relies on nuclear power, and the rest are either to-be-announced or rely on some other energy source.
The preponderance of the projects announced in the last year are clustering in places with relatively low production costs; nearly 75% are located in either Louisiana and Texas.
Investment increasing
This increase in capacity is buoyed by an increase in funding. Overall investment in clean hydrogen has nearly doubled in the last year alone, the report found.
As a result, DOE’s estimate of the investment gap to reach commercial “liftoff” by 2030 has shrunk substantially. The March 2023 report estimated that it would be between $85 billion and $215 billion; today, it has shrunk to the (still very wide) range of $30 billion to $150 billion.
This analysis, again, does not include the roughly $50 million that the Biden administration has invented in the hydrogen hubs. Those “hub” projects, the first of which were announced in October 2023, use a range of clean hydrogen production methods, and rely on money from the bipartisan infrastructure law.
However, this isn’t the only money that the Biden administration has devoted to clean hydrogen. DOE’s Loan Programs Office has also supported the industry’s growth via loans. Just yesterday, Plug Power secured a loan guarantee for $1.66 billion to finance the construction of up to six projects to produce and liquify zero- or low-carbon hydrogen, starting with its Graham, Texas facility.
Production costs increasing
The industry is evidently growing quickly. That said, the state of production is complicated.
The costs of electrolytic hydrogen production have increased in the last year, from between $3 and $6 per kilogram in 2023, to between $5 and $7 by the end of 2024. This estimate does not factor in the 45V tax credits.
This is in part due to the higher costs of electrolyzer installation and plant design changes needed to comply with 45V. But there are also economy-wide factors, including higher energy costs and higher financing costs.
However, these costs “are projected to decline as electricity prices drop, as electrolyzer capex decreases, and as interest rates and other inflationary pressures abate,” DOE found.
Ultimately, DOE expects the industry to achieve liftoff by 2030, though the timeline varies by subsector. Industrial and chemical use cases (ammonia and petrochemical production, for instance), have the potential to expand significantly as soon as 2026, while mobility and transportation use cases have a longer path to liftoff because of the cost reductions and infrastructure required.
