08

2024

-

03

Proposed US tax credit rules will keep green hydrogen expensive and hinder sector growth, warns Fitch Ratings

Author:

Hydrogeninsight


 

Credit rating agency warns that ‘three pillars’ of additionality, time-matching and geographic correlation will come with increased risk and project costs

 

Proposed guidelines for the US clean hydrogen production tax credit might mean “truly green” H2 is rewarded but will hinder the market’s growth due to increased risk and project costs, US credit rating agency Fitch Ratings warns.

 

The 45V tax credit offers up to $3/kg, which Fitch notes could represent a 50-75% reduction in the likely cost of green H2 production.

 

But Fitch says that the US Treasury's proposed regulations for the tax credits (see panel below) — which aim to ensure that green hydrogen projects cannot draw clean electricity from the grid that would have to be replaced by fossil-fuel power, thus driving up emissions — “are likely to increase project scope and capital costs while reducing efficiency, limiting project credit upside”.

 

The credit rating agency warns that the requirement for “additionality” — ie, new renewables projects — means that developers will either have to put extra capital toward building their own power supply, or work with third parties to build and operate new zero-carbon generators, “which elevates counterparty risk”.

 

 

Hourly matching, meanwhile, would mean electrolysers are operated for fewer hours, thus increasing the levelised cost of H2 production. Fitch cites Wood Mackenzie figures that estimate electrolyser capacity factors would be 46-72% with hourly matching, depending on the region, while annual matching would allow full utilisation.

 

The credit rating agency also warns: “Projects supplied with solar energy would not be able to produce during overnight hours and would see capacity factors ramp down during the day. A hydrogen project may need to rely on two or more solar projects to acquire sufficient energy to operate at maximum capacity during daylight hours.”

 

Geographic correlation — referred to in the draft guidance for the tax credit as “deliverability” — meanwhile would limit the locations where hydrogen can be produced to where renewable power potential is high, requiring extra infrastructure to be built in order to transport H2 to where it is actually used.

 

The credit rating agency warns that additionality means that developers will either have to put extra capital toward building their own power supply, or work with third-parties to build and operate new zero-carbon generators, “which elevates counterparty risk”.

 

Hourly matching meanwhile would mean electrolysers are operated for fewer hours, necessarily increasing the levelised cost of H2 production. Fitch cites Wood Mackenzie figures which estimate electrolyser capacity factors would be 46-72% with hourly matching, depending on the region, while annual matching would allow full utilisation.

 

The credit rating agency also warns: “Projects supplied with solar energy would not be able to produce during overnight hours and would see capacity factors ramp down during the day. A hydrogen project may need to rely on two or more solar projects to acquire sufficient energy to operate at maximum capacity during daylight hours.”

 

Deliverability, meanwhile, would limit the places where hydrogen can be produced to those locations where renewable power potential is high, requiring extra infrastructure to be built in order to transport H2 to where it is actually used.

 

“New pipeline networks will add to project scope, costs, and timelines, all elevating completion risk,” Fitch notes.

 

The agency also warns that water could be a potential concern when it comes to location. “Even if large volumes of water are available at a favorable renewable energy site, longer-term water availability and cost to support forecast production are key credit concerns, particularly for projects in areas with stressed water supply such as Texas and California.”

 

Fitch argues that all of these extra costs mean that the “revenue/expense gap is likely to persist” and limit how much credit developers can access, “absent offtakers willing to pay a much higher price, developers willing to put in a lot more equity, or final policy rules that ease restrictions on energy supply”.

 

source:Hydrogeninsight

Hot News

FuelCellChina Interviews