Top steel producer threatens to ditch US hydrogen plans over 45V rules

One of the world’s biggest steel producers has reportedly threatened to pull back from its U.S. hydrogen investments over the Biden administration’s implementation of 45V production tax credits.

• The top line: The debate over who should qualify for the tax credit for clean hydrogen production under the Inflation Reduction Act continues to divide the hydrogen industry. Australian mining giant Fortescue, which just this week began construction on a $550 million green hydrogen facility in Arizona, has come down on the side of those who say the strict rules are too much, too soon. In recent years, the company has been making significant investments in clean energy and green hydrogen, and had initially said that it expected its Arizona plant to qualify for tax credits under the IRA.
• The market grounding: Treasury released proposed guidelines for the tax credit in late December, and at the end of March heard comments from nearly 100 hydrogen industry stakeholders. While some developers say the guidelines are already hurting projects, others say the strict rules will ultimately benefit the domestic industry, and ensure that billions of dollars in IRA tax credits won’t benefit projects that are adding emissions rather than removing them.
• The current take: While the United States has made some “serious strides” in attracting green hydrogen investment from abroad, the proposed guidelines are poised to impede that progress, Fortescue founder and executive chair Andrew Forrest said at the groundbreaking of the company’s Arizona plant last week. “I support the Biden Administration’s goal to produce hydrogen in a way that prioritizes sustainability,” Forrest said. “However, 45V in its current form is a straitjacket on the industry and works against the Biden Administration’s own climate goals.”

Fortescue’s Arizona plant is slated to produce up to 11,000 tons of green hydrogen annually, and targets heavy-duty transport sectors as offtakers. But that project and others could be “suspended” over the tax credit problem, Forrest told Axios earlier this week.

The Australian company is far from alone in its position on the guidelines, which have split the industry since their release late last year. Many players, both large and small, are worried that requiring the so-called “three pillars” for electricity used to generate hydrogen — additionality, deliverability, and hourly matching — will push certain projects off the map and drag the domestic hydrogen industry down. 

Under the proposed guidelines, the electricity that powers a hydrogen facility must have come online within 36 months of the n facility itself — the idea being that green hydrogen production shouldn’t be taking clean electricity away from other loads on the grid.

The renewable energy must also be generated in the same region as the hydrogen production facility, to avoid causing grid congestion. 

But perhaps the most contentious of the pillars is hourly matching, which requires that starting in 2028, electrolysis at a given facility must be powered by renewable energy that is produced that very same hour.

The industry split

Despite opposition from several major players, there are those in the hydrogen industry that say strict guidelines around tax credit eligibility are essential to building a truly green economy.

Many developers have long been planning for the challenges associated with hourly matching, for example, by connecting directly to renewable energy sources behind the meter, or by using electrolyzers more suited to the variability of wind and solar.

A coalition of hydrogen suppliers, renewables developers and electrolyzer manufacturers, told Treasury in a December letter that they not only supported the guidelines, but also had a pipeline of more than 50 gigawatts of domestic electrolyzer projects — sufficient to produce over 6 million metric tons of clean hydrogen each year. 

That should be “ample volume” to bring down the cost of electrolyzers, incentivize investments, and ensure “cost-competitiveness,” the group wrote.