The nascent hydrogen economy is one step closer to liftoff; DOE selects hydrogen hubs

On October 13, 2023, the US Department of Energy (DOE) announced the selection of seven regional hydrogen hubs to enter negotiations to receive up to $7 billion in Bipartisan Infrastructure Law funding as part of the Regional Clean Hydrogen Hubs (H2Hubs) program. The DOE’s H2Hubs program is intended to be the first step toward the creation of a national network of clean hydrogen producers, customers and connective infrastructure that could drive down the cost of clean hydrogen and accelerate its commercial-scale deployment. The seven hubs are expected to enter into final award negotiations with the DOE beginning this fall.

The selections provide some insight into how DOE sees the market for hydrogen unfolding over the coming years.  For instance, while the Bipartisan Infrastructure Law only required the selection of at least one H2Hub that would demonstrate the production of hydrogen from fossil fuels (so-called “blue hydrogen”), four of the H2Hubs selected by DOE have plans to produce blue hydrogen.  The selections also reflect a range of end-uses for the hydrogen produced at the H2Hubs, from shipping in the case of ARCHES, to fertilizer production in the case of the Heartland H2Hub.  However, many of the details regarding the H2Hubs selected by DOE still remain unknown and will be subject to negotiations between each H2Hub and DOE.  Similarly, final selection of the specific projects that would be undertaken in each hub with the DOE’s funding is an ongoing selection process that is still being discussed internally by the relevant hubs. 

The H2Hubs selected by DOE for negotiations are the following:

1. Appalachian Hydrogen Hub (Appalachian Regional Clean Hydrogen Hub (ARCH2)) – Funding up to $925 million

The Appalachian Hydrogen Hub encompasses Ohio, West Virginia and Pennsylvania, and will leverage the abundant natural gas in the region to produce low-cost clean hydrogen and permanently store the associated carbon emissions. This hub is expected to benefit from the hub’s location in a major natural gas-producing region to develop hydrogen pipelines, multiple hydrogen fueling stations, and permanent CO²storage.

2. California Hydrogen Hub (Alliance for Renewable Clean Hydrogen Energy Systems (ARCHES)) – Funding up to $1.2 billion

The California Hydrogen Hub spans the state of California, including the major ports of Los Angeles, Long Beach and Oakland, and will produce hydrogen exclusively from renewable energy and biomass. The California Hydrogen Hub is expected to provide a blueprint for decarbonizing shipping, drayage and port operations, which are key emissions drivers in the state.

3. Gulf Coast Hydrogen Hub (HyVelocity Hydrogen Hub) – Funding up to $1.2 billion

The Gulf Coast Hydrogen Hub will be located in the Houston area, home to the world’s largest concentration of existing hydrogen production infrastructure, including a network of 48 hydrogen production plants and over 1,000 miles of hydrogen pipelines. The Gulf Coast Hydrogen Hub is expected to leverage these assets and the regions abundant natural gas and renewable energy supply to produce low-cost hydrogen, both through natural gas with carbon capture and renewables-powered electrolysis. The Gulf Coast Hydrogen Hub will use the hydrogen for fuel cell electric trucks, industrial processes, ammonia, refineries and petrochemicals, and marine fuel (e-Methanol).

4. Heartland Hydrogen Hub (HH2H) – Funding up to $925 million

The Heartland Hydrogen Hub encompasses Minnesota, North Dakota and South Dakota, and aims to decarbonize the agricultural sector’s production of fertilizer and advance the use of clean hydrogen in power generation. This hub is expected to use the region’s abundant wind resources and the existing nuclear power capacity to produce hydrogen.

5. Mid-Atlantic Hydrogen Hub (Mid-Atlantic Clean Hydrogen Hub (MACH2)) – Funding up to $750 million

The Mid-Atlantic Hydrogen Hub encompasses parts of Pennsylvania, Delaware and New Jersey, and will produce hydrogen through electrolysis using renewable energy sources such as wind and solar power, as well as nuclear power. It also plans to expand hydrogen infrastructure by repurposing historic oil infrastructure and existing rights-of-way, upgrade bus mechanic depots, and develop fueling stations to facilitate hydrogen distribution. It aims to expand hydrogen application to industries including heavy transportation (e.g., trucks, buses, refuse trucks, and street sweepers), manufacturing and industrial process improvements, and combined heat and power.

6. Midwest Hydrogen Hub (Midwest Alliance for Clean Hydrogen (MachH2)) – Funding up to $1 billion

The Midwest Hydrogen Hub includes Illinois, Indiana and Michigan, and will produce hydrogen with renewables, natural gas and nuclear energy. It aims to help decarbonize steel and glass production, power generation, refining, heavy-duty transportation and sustainable aviation fuel.

7. Pacific Northwest Hydrogen Hub (PNW H2) – Funding up to $1 billion

The Pacific Northwest Hydrogen Hub includes Washington, Oregon and Montana, and plans to produce hydrogen from renewable energy. It intends to use hydrogen for heavy duty transportation in conjunction with the California ARCHES H2Hub, with the goal of developing a West Coast freight network that addresses refueling gaps.  Other uses include fertilizer production, data centers, refineries, seaports, and aviation.

It is important to note that the announcement of these selections does not reflect a funding commitment by DOE, and that these hubs still have significant steps to complete before the full amount of such funding is made available. Following negotiations with DOE and final award thereby, the hubs will enter into a “detailed project planning phase” (or Phase 1), which is anticipated to take at least a year, followed by a “project development, permitting, and financing phase” (or Phase 2) focused on setting up commercial agreements and securing financing, a process that could span two to three years. Only after navigating these prior stages will the hubs proceed to the “installation, integration, and construction phase” (Phase 3), during which the majority of the funding will be deployed.  The anticipated duration of each one of these phases is a clear sign of the complexities (including technical, commercial, financial and legal challenges) that each one of these hubs will need to overcome.  The final stage will be the “ramp-up and sustained operations phase” (or Phase 4), and in this stage the hubs will transition into full operation.

Further development of the nascent hydrogen economy is still subject to several unknown factors within and outside the US, including the release of the highly anticipated IRA guidelines¹, which are expected to tackle, among other issues, the so called “three pillars” – deliverability, additionality and time-matching.  However, there is no doubt that the announcement by the DOE of the selection of seven regional hydrogen hubs is a clear sign of the US government’s commitment to the development of a hydrogen market in the US and we expect the creation of these seven hydrogen hubs to kick start the development of multiple new projects.

Drawing on more than a century of practice in the energy industry, Hunton Andrews Kurth LLP has the experience to guide clients in developing and implementing innovative results-based approaches for attaining sustainability and fulfilling economic goals in the energy transition.  Our energy transition team advises on diverse topics across a range of law service areas, helping clients to navigate through all the legal challenges to build durable energy transition solutions. Subject matter areas include renewable energy; new technology development; carbon capture and sequestration; environmental, social, and governance principles; climate change; natural resources; project financing; asset and company acquisitions and dispositions; federal and state regulatory considerations; intellectual property; tax consideration and planning, permitting, compliance counseling, enforcement defense, and litigation.

 

¹At this time, these guidelines are expected to be released on or around December 2023.