By now the green hydrogen hype cycle is well understood. Still, project announcements without much merit often face little scrutiny.
For years, green hydrogen has been billed as a silver bullet for the energy transition— a solution for the most difficult to decarbonize sectors. Press releases frequently tout multi-billion dollar plans, though the parties involved are typically shielded from accountability by non-binding memorandums of understanding.
Global energy giant AES and Air Products, an industrial gas company, are moving forward with a plan to invest $4 billion to build, own, and operate a green hydrogen production facility in Wilbarger County, Texas, west of Wichita Falls. The project would be supported by 1.4 GW of new wind and solar power generation, along with electrolyzer capacity capable of producing over 200 metric tons per day of green hydrogen.
The agreement between AES and Air Products is firm. No MOUs. Contracts are signed.
Air Products and AES said they will jointly and equally own the renewable energy and electrolyzer assets, with Air Products serving as the exclusive off-taker and marketer of the green hydrogen under a 30-year contract.
The project is expected to begin commercial operations in 2027.
The companies said in a press release that the green hydrogen project will "serve growing demand for zero-carbon intensity fuels for the mobility market as well as other industrial markets."
"We have been working on the development of this project with AES for many years and it will be competitive on a world-scale while bringing significant tax, job and energy security benefits to Texas," Air Products CEO Seifi Ghasemi said.
Check out a recent episode of the Factor This! podcast that examined the future of green hydrogen, featuring experts from Generate Capital, EDP Renewables, and the National Renewable Energy Laboratory. Subscribe today wherever you get your podcasts.
Climate law brings green hydrogen 'in the money'
When produced from renewable energy sources, hydrogen could provide clean fuel for shipping, long-duration energy storage, and other areas that are difficult to decarbonize.
But factors such as scale, scope, and affordability have so far stalled deployment.
Green hydrogen's outlook, though, has been completely shifted by incentives in the Inflation Reduction Act. The climate law provides a green hydrogen production credit of $3 per kilogram of hydrogen produced with zero emissions.
The tax credit levels the playing field between fossil fuel-produced hydrogen and the more costly green hydrogen, which typically runs between $5-10 per kilogram. The Biden administration, meanwhile, wants to reduce the cost of green hydrogen by 80%, or $1/kg, by the end of the decade.
Today, nearly all hydrogen produced globally comes from fossil fuels.
According to the International Energy Agency, 80% of hydrogen is produced using emission-intensive natural gas reforming or coal gasification. The global capacity of electrolyzers, the key technology for green hydrogen production, stood at just 300 MW in 2020.Global installed electrolysis capacity by region, 2015-2020Source: International Energy Agency A green hydrogen market is born
Beyond the cost barrier, green hydrogen has struggled to reach its potential due to the absence of a clear market for the product.
Many companies have made commitments, agreements, or announcements that have contributed to green hydrogen hype cycles in the past.
Ana Quelhas, EDP Renewables' managing director for hydrogen, told the Factor This! podcast from Renewable Energy World that companies often approach EDP about interest in green hydrogen, but those conversations seldomly result in long-term offtake agreements.
Quelhas, speaking before the Inflation Reduction Act legislation was unveiled, said inadequate market certainty and policy support was holding back green hydrogen adoption.
AES and Air Products were able to establish market certainty through a 30-year offtake agreement, and now have the policy support of the Inflation Reduction Act, though neither company mentioned the climate law in their announcement.