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2024

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Proposed US clean hydrogen tax credit rules would 'more than double our first American H2 project's costs': Fortescue

Author:

Hydrogeninsight


 

The Australian developer argues for grandfathering clauses as a minimum during hearing on Treasury guidelines

 

The proposed guidelines for the 45V clean hydrogen production tax credit could “kill the rapid development of the green hydrogen industry by disadvantaging first movers”, Australian H2 producer Fortescue’s North America CEO Andrew Vesey told the government public hearing into the matter yesterday.

 

The company had last year taken its first final investment decision (FID) on a US green hydrogen project, the 80MW Phoenix Hydrogen Hub in Buckeye, Arizona.

 

However, Vesey warned that in order to qualify for the up-to-$3/kg tax credit, project costs could balloon beyond the $550m committed due to the requirement for renewable power and H2 production to be matched on an hourly basis from 2028.

 

“Due to the intermittent nature of renewables, hourly matching will require substantial additional [energy] storage capacity to meet the times when the wind isn’t blowing, and the sun isn’t shining,” Vesey said in his testimony.

 

“Adding battery storage to comply with hourly matching, could increase the costs at a facility the size of our Buckeye project by over 140%.”

 

The facility is set to source its power from new sources of wind and solar generation from utility Arizona Public Service.

 

Vesey added that switching from annual matching to hourly correlation would require purchasing “two and a half times more power” — while the technology to prove that hydrogen production is matched to this time frame is not readily available.

 

“The renewable energy provider for our Buckeye project is not set up to measure, track, and retire EACs [renewable energy attribute certificates] on an hourly basis,” Vesey said. “They have indicated that they will need several years to have this capability.”

 

Fortescue also opposes “incrementality”, also known as additionality, which requires hydrogen producers to only use power from renewables built within three years of the facility, which Vesey noted “significantly disadvantages zero-carbon electricity sources, like nuclear and hydropower”.

 

This would penalise the Australian firm’s likely second hydrogen production project in the US — a 300MW facility in the state of Washington, which is part of the Pacific Northwest Hydrogen Hub earmarked for up to $1bn in federal funding.

 

“This investment would not qualify for the tax credit, because we plan to use a mix of surplus hydropower and other renewables,” Vesey said, arguing that this power is “literally ‘water over the dam’” and would otherwise be curtailed.

 

He continued that under the current guidance, Fortescue would have to buy “significantly higher priced additional new renewable energy resources”, which could take five years to come on line, delaying the project and increasing power costs by 20%.

 

“We are the only industry that has been told we have to bring our own green electrons to the table,” he added. “Think about that. If the EV industry was required to do the same, there would most likely not be a single electric vehicle on the road today.”

 

Vesey also argued against the requirement to use the GREET model — a methodology to calculate lifecycle H2 project emissions — “or a successor model” each year of production creates the risk that updates could push a facility from qualifying for a certain rate one year to not qualifying the next, thus creating unnecessary project risk.

 

Instead, Fortescue calls for the version of the methodology to be locked in once a project is deemed eligible for the 45V tax credit over ten years.

 

The Australian firm also wants, at a minimum, the final guidance to include a grandfathering clause for projects that begin construction before 31 December 2029, which would exempt them from additionality and the switch from annual to hourly matching.

 

“I also want to note that a “phase in,” “slope,” or “glidepath” approach, which postpones the requirement for hourly matching, but ultimately requiring all facilities to comply within the ten-year credit window, does not help,” Vesey added.

 

“Hourly matching requires an entirely different facility design and level of operability than monthly or annual matching, so the only workable approach is to grandfather first-mover projects.”

 

Instead, Fortescue calls for the version of the methodology to be locked in once a project is deemed eligible for the 45V tax credit over ten years.

 

The Australian firm also wants, at a minimum, the final guidance to include a grandfathering clause for projects that begin construction before 31 December 2029, which would exempt them from additionality and the switch from annual to hourly matching.

 

“I also want to note that a “phase in,” “slope,” or “glidepath” approach, which postpones the requirement for hourly matching, but ultimately requiring all facilities to comply within the ten-year credit window, does not help,” Vesey added.

 

“Hourly matching requires an entirely different facility design and level of operability than monthly or annual matching, so the only workable approach is to grandfather first-mover projects.”

 

Source:Hydrogeninsight

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