H2 Under Trump part 2 - beyond 45V and Hubs
Last post I talked about H2Hubs and 45V under the upcoming Trump presidency. This week I talk about H2 more broadly under President Trump 2.0. Trump has not made clear his intentions for most of H2. As a quick reminder, I worked in the US DOE on H2 with other agencies, so a lot of this is from experience. there will be some over-arching themes to look for over the coming year:
Remember the context - outside of H2 hubs, the Biden administration was a bit of a disaster for H2 – the delayed 45V debacle entirely shut down H2 development in the US for three years. The upcoming administration could either fix things or kill new H2 uses entirely – we’re obviously hoping they choose the fixing option
The composition of the Trump Administration staff will heavily determine the future path of hydrogen
Having a hydrogen expert in the Executive Office of the President could wrangle the various department goals and cut redundancy from major departments having their own hydrogen orgs
Pushing Congress to provide PHMSA with oversight into cross-state H2 pipelines so they enjoy the same regulation as natural gas pipelines would be extremely helpful
Recall that 99% of H2 end uses are for chemicals, refining, agriculture, and other core industrial activities – these won’t go away
Anything clean energy might be dismissed. IE renewable electrolytic H2 won’t receive further support
Current barriers to building H2 infrastructure may be reduced or removed
Some barriers could be increased, but that would hurt growing industrial end uses. There are, however, easy ways to make H2 more expensive to use over the road, but these would face court challenges
Clean hydrogen will remain in demand with allies and export markets – barriers to exporting H2 and derivatives could be reduced or removed
Book and claim with e-methane being sold into a large shipment of LNG is a very viable business opportunity going forward
Best case scenario – electrolysis and clean H2 (yes, that also means blue) are seen as related to increasing exports, providing energy security, and preventing China from entirely dominating yet another clean energy production market (electrolyzers).
Even better – and entirely unlikely –the IRA is fixed to force Buy America Build America and imports from foreign electrolyzers from non-allied countries don’t receive any credits – this would be easier under a Trump administration than repealing IRA or 45V would be
Elon might have a lot of sway on all things energy – this is a major wildcard
A major driver will likely be can the clean H2 show profit or reduce costs to consumers now. If there is a pathway to lower costs in 2030, investment now to get there won’t be pushed unless there is a security reason or clear economic reason.
Adversarial states (IE China) are pushing forward with H2 for security reasons – why import fuel when they can create their own from their low-cost low-permit-burden renewables? In the event of conflict, having a secure supply of locally produced fuel would be extremely helpful. This may end up being a major driver to keep pushing H2 – electrolyzer security in the west
Here’s a helpful flowchart of how to look at your potential hydrogen investment or project:
What these boxes all mean
Clean technology
Trump made very clear that he is against clean technology, especially if it makes energy costs for end users more expensive. There are valid arguments on both sides of this once we move past rhetoric, and there is a lot of misinformation from both sides about how much clean energy costs.
Instead of spending an entire article on each of these, I am going to give some very high-level highlights. Details with analysis will come in future articles.
The cost of power
If any clean energy results in a higher delivered cost of power, President Trump and a majority red congress will not put new funding out. They may try to block some existing clean energy funding from being implemented, which is why DOE is rushing to get projects to award – once they are under contract it is harder to wind back.
Overall, the cost of reliably delivered power is not the same as cost to produce power. Powerneeds to be used or stored when produced, or it goes away. Renewables don’t produce power reliably, so backup power is needed. In most of the US, this means fossil fuel plants. So in many areas we are building fossil fuel plants to back up renewables when they don’t operate. The CapEx portion of the power cost stack from those fossil goes higher because they aren’t utilized as much. For those of you not in energy, that means a fossil plant that is used half as often will need to charge almost twice as much for each kwh of power produced in order to pay for itself.
There are cases where renewables will make the average cost of reliably delivered power cost less, and there are places where renewables will increase the price for everyone in that region. The new administration places no value on clean power, so projects will need to be more selective to receive federal funding. Any place where extra renewables will lead to higher cost will not see support in the new government.
Expense compared to current technology now
There are pathways to much lower cost clean power. That means many of these clean technologies require support or mandates to achieve cost-downs. If government support is required to reach cost-parity, don’t expect it in the next two years, and probably not in the next four years since even with a flipped congress any funding like this will be vetoed.
Elon Musk’s view
It is unclear how much Elon Musk will remain close to President Trump and what he will be advising on. Given Trump’s flip from bashing electric vehicles to bashing hydrogen cars, it looks like he may have some steer on what is investable in clean energy.
High magnitude issues
These tend to be issues where we could make money and support partners. Here are two major examples where Hydrogen may be seen as a “win even though it may cost taxpayers some money up front”
Exception 1: export of clean products
Foreign allies remain interested in decarbonization. Hydrogen is necessary for creating nearly all low carbon fuels (commonly called hydrogen derivatives) and can directly be used to decarbonize as H2. Low carbon hydrogen and derivative fuels will be more expensive than standard hydrogen and won’t see additional support in the US. If allies are clamoring for it, however, it may get support to improve export markets and see the US take a leading role in exporting clean H2. In this case, the US will still rely heavily on reformation H2 and current fuel mixes rather than H2 derivatives, and clean fuels will be used for export to foreign countries and blue states with clean energy mandates.
We may be at an advantage here with reformation H2 with CCS – we have extensive experience with carbon capture for enhanced oil recovery. These techniques and our geology could provide an advantage if this is a chosen path of the next administration.
Exception 2 – energy security for us and our allies
At some point eletrolyzers will come down enough in cost that they will allow for delivery of low-cost low-carbon hydrogen from distributed renewable electrolysis. With the IRA, the US had a chance to have the competitive electrolyzers. In its current form, we have ceded that chance to China. Without any changes, any expansion of the hydrogen economy will be through the Chinese manufacturing base.
The Trump administration could push for more rational 45V credits and bring additional manufacturing and cost reduction to the US electrolyzers to assure that China is not the sole source of low cost electrolysis and to assure we maintain jobs in the sector.
Keep in mind that this was not happening under the Biden administration. Strict 45V and the stalling of roll-out had the opposite effect – it stalling project investment decisions in H2 and pushing hydrogen companies to the brink of bankrupty.
Re-regulation and de-regulation of H2 infrastructure
A focus on smart regulation and de-regulation of the energy space could accelerate hydrogen deployment in the US. First would be permitting reform in general to reduce the massive overhead to build a project. Second would be specific H2 reform. Right now PHMSA oversees natural gas pipelines, but it does not have a mandate to oversee H2 pipelines. That means it can be a lot more difficult to build interstate pipelines to move H2. Granting PHMSA rights to oversee the pipelines and ensuring they do it in a smart, low-regulatory way would be a massive boon for H2 as well as many other clean energy projects – while decreasing costs of power for end consumers. Right now most of these decisions are left of to states - and building through a patchwork of state rulings isn’t feasible.
PHSMA oversight would come with open access hydrogen pipelines. These will allow for low-cost reliable delivery of H2 – removing the last major bottleneck for new H2 deployment.
Reducing redundancy by having smart H2 understanding in the Executive Office of the President
While at the DOE I worked with the Biden administrations Executive Office of the President on H2 matters. They knew nothing about H2 and really messed up H2 development as a result. Under Biden, plans for H2 flourished across all of the government and action on H2 was low. This means a lot of hiring happened to get nothing done - in part because the administration itself stalled out the entire industry with it’s fumble of 45V guidance.
So now the Department of Transportation, EPA, State, DOD, and other departments are completely misaligned on H2. Each department has its own staff and view on H2 that is uncoordinated, duplicative, and often just plain wrong. An aligned approach led by the Executive Office of the President could reduce some of these redundancies and provide meaningful alignment while reducing current massive regulatory burdens in the space. The key here would be to not staff the energy team of the EOP with lifelong bureaucrats and management consultants with no commercial energy experience. Without a specific focus on H2 by the upcoming administration, however, this will not happen.
If the EOP did include H2 expertise, it would allow alignment of goals and policy across orgs with shared oversight of H2 – reducing the current massive cost and time sink to get new H2 equipment and projects moving forward.
One major point – LPO
LPO has distributed very few loans in clean energy. Most of their loans are conditional, IE the recipients must meet certain requirements. Until this happens, the chance of loans becoming finalized lowers under a new congress. Moreover, the LPO is staffed heavily by contractors – a group with no job protections. Expect a lot of the conditional loan guarantees to never transition to loans and also expect a significant chunk of LPO roles to be cut in the next several months. This could slow or stall the release of funding from IRA in terms of loans.
If the Plug loan isn’t finalized in the next few months, I would expect it to not come out. Other H2 related loans are questionable as well – the pipeline of projects will have far fewer folks in LPO to push them forward.
How to prepare for this
Developers
45V is likely safe. If it comes out less stringent, then even in the event of a court overturn of the final guidance your project is likely competitive.
Exception: if reformation H2 can get $3/kg from book-and-claim, Congress will likely revisit 45V and then everything could be on the chopping block
New incentives won’t be coming at the federal level. Work with organizations to get state funding
Now is the time to push for smart regulation on permitting and pipelines
Stock Investors
Be ready to move money into and out of investments
Group investments them by inputs (renewables, natural gas), end uses (existing use cases, future export with demand pull like EU, new domestic derivates, new direct use), and special cases (security reasons, export endorsed by federal govt, 45V comes rational)
Be careful with your shorts in the first few months – things could move on a dime
Project Development Investment
The direction of the federal government with support to H2 will shake out in the next few months depending on the cabinet and who is in the Executive Office of the President
Long-term changes like permit reform or PHMSA getting oversight of H2 pipelines will be helpful
H2Hubs – watch these and see which ones end up announcing pipelines – these will be major opportunities
