Choose your region and language



Clean hydrogen energy concept. Environment, eco friendly industry and alternative energy. Climate friendly energy solution in the future for net zero target. Reducing greenhouse gas emissions.

Seizing “clean hydrogen” projects in North America: How pioneers struggle and succeed

By Gian Schelling
31-08-2023 | 10 min read

Lessons learned from due-diligence support for a recent electrolysis project portfolio

The global market for green hydrogen (GH2), specifically electrolysis, is expected to grow exponentially to a global installed base of 550 GW of electrolyzers by 2030, up from less than 11 GW in 2022 (IEA, 2023).

North America has, largely through new incentives for “clean hydrogen” announced over the last six months, joined the race of China and Europe in their “green hydrogen” programs, including the now-confirmed EU RFNBO regulation (which we’ve explained in a much-consulted earlier article here).

However, clean electrolysis projects struggle in North America just like elsewhere. Novel hydrogen applications in heavy industries and long-distance transport currently account for only 0.1 percent of all hydrogen investments globally (IEA, 2023). Of all US clean hydrogen projects announced for 2022, which add up to 12.5 million metric tons (MMT), only 10 percent had reached financial investment decision (FID) by the end of 2022 (The White House, 2023).

The availability of - and capability to - effectively mobilize public financial incentives for clean hydrogen projects is thus as vital today as in the past, particularly in the early days of renewable energy expansion.

After several contributions in Europe, Hitachi Energy has recently supported a globally leading electrolysis original equipment manufacturer (OEM) and developer pioneer with project due diligence for North America, and we are happy to share some of our views  within this article.

North America going for clean hydrogen: Why and how?

With renewable energy expansion trending upwards, with interruptions, in North America for more than 20 years, North American electricity consumption is indeed increasingly decarbonized. The United States reached an impressive 40 percent reduction in carbon dioxide (CO2) emissions from the electricity sector  between 2005 and 2020, with the current administration targeting a 100 percent reduction by 2035 (CSIS, 2023).

Other sectors where electrification is more difficult - especially heavy industries or the heating of buildings - use even more energy than what’s currently consumed in the form of electricity. Hence, they require new approaches for decarbonization.

The usage of GH2 (or derived, easier-to-transport carrier fuels like Ammonia) produced using renewable electricity is the hope of the global energy sector to complement electricity and help decarbonize beyond sectors that are easier to electrify, such as railways, e-Mobility, or the cooling of buildings.

Likewise, North America has set up ambitious targets for hydrogen:

In the United States, the current administration published its first “National Clean Hydrogen Strategy and Roadmap” in June 2023, targeting 10 million metric tons (MMT) of clean hydrogen by 2030, 20 MMT by 2040, and 50 MMT by 2050 with an agreement to:

a. Invest $9.5 billion through the “US Bipartisan Infrastructure Law”, of which $1.5 billion is directed to electrolysis projects and $8.5 billion is directed to the “Regional Clean Hydrogen Hubs program”.

b. Offer a new clean hydrogen-specific Production Tax Credit (PTC) as part of the Inflation Reduction Act (IRA) with up to $3 per clean hydrogen kg tax incentive for projects with less than 0.45 kg CO2 per kg of hydrogen. 

c. Offer $300 billion of new soft loans for hydrogen projects, including hydrogen production projects.

d. Deploy $750 million in Department of Energy (DoE)-led research and development to reduce the levelized cost of hydrogen (LCOH) in the US from $3-6/kg to $1/kg.

Canada, matching some of the United States moves but being considerably more generous in CO2 emissions allowed for tax-credited hydrogen production offers:

a. Up to CA $3 billion in public grants (Invest in Canada, 2023) through the “Net Zero Accelerator” (NZA) as part of the “Strategic Innovation Fund (SIF)” (Government of Canada, 2023).

b. A clean hydrogen Investment Tax Credit (ITC) of 15-40 percent of the capex investment, depending on the carbon intensity of the hydrogen produced, where 40 percent ITC applies to projects with <0.75 kg of CO2e / kg H2, and projects with up to 4 kg of CO2e / kg H2 can still benefit from a 15 percent tax credit (Hydrogen Insights, 2023).

Now that we understand why North American governments want to increase their production of clean hydrogen and how they incentivize it, let’s look at some real-life project challenges we’ve encountered while helping a first mover with its project due diligence in North America.

Electrolysis project challenge No. 1: Electricity costs

The electricity costs represent 40-60 percent of the total H2 electrolysis project’s total cost of ownership (TCO), depending on where the project is built and what electricity is used to produce the hydrogen, including which sources.

The primary questions when it comes to the commercial viability of new projects, thus enabling much-needed FIDs, consist of:

  • What is the cost of the clean electricity required for green hydrogen- today,  one year from now, in 10 years, in 20 years?
  • Will costs vary at a specific planned site over the year and if yes, by how much?
  • Will costs vary during the day? If yes, at what hour and by what amount?

While forecasting can be extremely difficult, our Energy Portfolio Management (EPM) team has more than 15 years’ experience in fundamental forecasts of energy prices, and robust software stochastic and statistic analysis methodologies. The team has helped this pioneering client efforts to both understand and credibly communicate to financing partners - such as venture capital partners, banks, and institutional investors - the expected price developments for clean electricity for new hydrogen production facility projects.

Electrolysis project challenge No. 2: Grid connection for sufficient electricity supply

Key questions of our client pioneering electrolysis investments in North America included:

  • Where will grid connections and the availability of renewable electricity at specific nodes be available during the whole 20-plus-year lifetime of the electrolysis projects?
  • Where will sites be curtailed or load-shed even if not today, potentially in year five and onwards?

The increasing influx of renewable electricity into US transmission grids that are lacking expansion and upgrade investments, for example, may result in curtailments for identified current or future renewable energy projects. That is, grid operators may implement temporary short- or longer term output deratings  to protect transmission or distribution grid stability; therefore, limiting the available renewable electricity for new planned hydrogen production facilities.

Our EPM teams leveraged their more than 15 years of curtailment forecasts in North America to provide detailed forecasts, down to the nodal level, about the likelihood and intensity of such curtailments happening. The forecasts were applied to scenarios calculated as a function of expectable regulation, weather, and grid build-out expansion plans, among others, successfully informing our client’s expansion and investment decisions for North American clean hydrogen projects.

Electrolysis project challenge No. 3: Tracking and certifying the “cleanliness” of hydrogen

With all the incentives explained above, one question remains unanswered by North American governments: What’s “clean” hydrogen? Or for North America specifically, how do we define and calculate the CO2 emission intensity of hydrogen?

In the United States (in contrast to Europe), it’s not yet fully clarified whether the additionality of clean energy resources (mainly renewables) will be required to consider renewable energy production used for clean hydrogen production CO2 intensity calculation, while environmentalists lobby The Treasury accordingly.

If so, that would avoid the greenwashing of hydrogen, e.g. simply using existing renewable electricity production capacity for new hydrogen production, when this renewable electricity would have been part of the “electricity mix” already serving US households.

We estimate that such additionality will be required, just as it is required in Europe, given the United States’ relatively low amount (20 percent) of renewables in its electricity mix as of 2022 (EIA, 2023), along with the government’s target to expand such share to 80 percent by 2030.

Neither is it confirmed whether hourly matching will be required; that is, producing clean H2 at the same time as renewables are produced. Here, a forecast of what regulation will be deployed is more difficult, considering the United States’ challenges with integrating new renewable electricity into grids, where hourly matching would be of great support.

However, power grids differ vastly between states, and hourly matching is a particularly hard requirement and is difficult to prove. Nevertheless, eleven reputable green energy and hydrogen companies signed a letter in June 2023, requesting such hourly matching to be a prerequisite for receiving tax credits (Utility Dive, 2023).

In Canada, the definitions are even further away from being decided. Proving the carbon intensity of each kilogram of clean hydrogen produced is even more difficult at the current stage.

Clean hydrogen production pioneers therefore partner with Hitachi Energy’s Energy Portfolio Management (EPM) team, closely following developments in regulation and adapting energy procurement software offerings to comply with such new regulations.

How Hitachi Energy’s Energy Porfolio Management team supports you

Having led the North American renewable energy sector for more than ten years, our team of year-long focused energy market forecast and energy trading specialists is increasingly busy supporting clean hydrogen developers around the globe.

Their expertise ranges from project-specific advisory services to the supply of regular, highly specialized energy market outlooks that specifically address project originators, financial project modeling experts, equity financiers, banks, institutional investors, and insurance.

Some of our most relevant offerings are:

  • Power Reference Case: Market-trusted, easy-to-consume, and advanced fundamental long-term forecasts of electricity markets, including hourly pricing, renewable energy certificate pricing, congestion risks, and levelized cost of hydrogen (LCOH).
  • Velocity Suite: Our North American market-leading database and software suite enables clients’ in-house energy market fundamentals to support forecasting and valuation, which supports our own production of Power Reference Case or Advisory Services. For more than 15 years, Velocity Suite has been deployed by most leading renewables developers, owners, operators, banks, investors, and insurers, including for the above-mentioned North American clean hydrogen pioneers’ project development and due diligence work.
  • Advisory Services: Project-specific expert advice, enhancing IPPs’, utilities’, developers’ or financiers’ in-house project origination, development, or due-diligence departments in a client- and project-customized fashion. Such Advisory Services have also been utilized for the above-mentioned pioneering green hydrogen developer.
  • RECTracker: A built-for-purpose software solution that provides functionality to manage the increasing volumes of Renewable Energy Certificates (RECs) while mitigating the risks with trading. RECTracker automates the end-to-end REC tracking and management of processes from generation to assignment and retirement or expiration, with the ability to capture registry attributes to facilitate matching based on certificate specifications. Hitachi has been a contributor to the EnergyTag initiative for the support of hourly matching—a mechanism to “tag” electricity with the time and source of production so consumers can match their consumption with clean energy hour by hour - which RECTracker will support and where we are engaging with pioneering companies in pilot projects.

In addition to the list above, our teams help with electricity procurement and trading software, which we’re happy to consult on in a specific manner, customized for your clean hydrogen project.

If you have any questions on how you can leverage the North American governments’ new incentives to play a role in the clean hydrogen economy, please get in touch with us here

High mountain in morning time. Beautiful natural landscape

It’s time to accelerate the energy transition.

    Gian Schelling

    Global Business Development Manager Renewables, Hitachi Energy Grid Automation, has worked for various Wind, Solar and Battery Energy Storage Systems OEMs, integrators and a utility. Under Gian’s leadership, Hitachi Energy’s automation business of integrating Renewables and BESS into energy markets, power grids and asset management has grown 5 times since 2018. Together with his dedicated expert colleagues, Gian is now also developing our global hydrogen business. You can connect or follow Gian here.