Major Hydrogen Project Breaks Ground in Arizona, While Dispute Over Tax Credit Looms
An Australia-based global metal mining and green energy company has broken ground on a major hydrogen production project in Arizona, part of what the group’s founder said could be several planned clean energy investments in North America.
Dr. Andrew Forrest, executive chair and founder of Fortescue, at the May 3 groundbreaking for the Arizona Hydrogen facility praised U.S. officials for supporting projects to produce hydrogen and support decarbonization, while also saying some Biden administration policies could stall investment. The Arizona Hydrogen plant, located in Buckeye, is a $550 million project that would produce 11,000 tons of hydrogen annually using 80 MW of renewable energy generation capacity.
Fortescue is working on other U.S. projects, including a manufacturing plant in Detroit, Michigan for electrolyzers, batteries, and electric vehicle chargers. The company also is working with the U.S. Dept. of Energy to build a Pacific Northwest Hydrogen Hub that would include a Fortescue green hydrogen production facility in Centralia, Washington.
“The U.S. has made serious strides in attracting global investment in green hydrogen and decarbonization projects, like Fortescue’s solar and wind-powered Arizona Hydrogen facility. Fortescue is unashamedly a first-mover in this space, [and] the world needs us to move quickly,” said Andrew Forrest, Fortescue’s founder and executive chairman. “But we need to be encouraged to that, not punished. There are rules right now under consideration with the Biden administration that would make already announced projects like this one dramatically more expensive and smaller, resulting in fewer economic opportunities and slower progress on decarbonization. I support the Biden administration’s goal to produce hydrogen in a way that prioritizes sustainability, however 45V, in its current form, is a straitjacket on the industry and works against the Biden administration’s own climate goals.”
Debate About Tax Credit
The 45V tax credit, also known as the Clean Hydrogen Production Tax Credit, is a tax credit for the production of clean hydrogen. It is among the credits included in the Inflation Reduction Act, and provides a credit of up to $3 per kilogram of clean hydrogen produced. The payout is based on carbon intensity, with the lower the greenhouse gas emissions associated with production, the higher the credit.
Some hydrogen producers have warned that implementation of 45V could be derailed by counterproductive rulemaking. They note that while 45V is technology-neutral, rules from the U.S. Treasury and Internal Revenue Service (IRS) would preclude some methods of hydrogen production from qualifying for the credit. Treasury and IRS established “three pillars” around qualifications for 45V—deliverability, temporal matching, and incrementality requirements—which some producers argue go beyond the intent of the original law.
The guidance proposes that producers would need to show that electricity generation is time-matched to the period during which the electrolyzer is operating. The time-matching would begin on an annual basis, then move to an hourly basis as tracking systems improve. The guidance also says power for the electrolyzer must be coming from the same grid region, and be incremental to existing generation resources. Forrest and other hydrogen production groups argue those are among the requirements that would raise production costs.
Shelley Moore Capito, a Republican U.S. Senator from West Virginia, earlier in a statement said, “The 45V credit is technology neutral and accessible to project sponsors regardless of their particular hydrogen production pathway as long as they meet certain carbon emissivity requirements.” Capito, ranking member of the Senate’s Environment and Public Works Committee, noted, though, that “the requirements of the IRS guidance preclude certain means of hydrogen production from qualifying for the credit.” Capito’s office in a statement said one hydrogen source that would not receive the credit under that guidance would be blue hydrogen, which is produced from natural gas and paired with carbon capture technology.
Many of the U.S. hydrogen hubs being established by a $7 billion investment from the Bipartisan Infrastructure and Jobs Act rely natural gas to produce hydrogen. Forrest has said his company would likely reduce its U.S. investment strategy if the 45V structure is not changed.
Oman Project
Fortescue, meanwhile, is working on several major projects outside the U.S., including a green hydrogen and ammonia production project in Oman.
Hydrogen Oman SPC, known as Hydrom, on April 29 awarded rights to develop a manufacturing facility to Actis and Fortescue. The companies were announced as the winning bidders in the second round of a green hydrogen tender process.
Hydrom is an independent entity founded by the Omani government to manage that country’s green hydrogen strategy. Officials at a signing ceremony last week in Muscat, the capital of Oman, said the project could produce as much as 200,000 tonnes of green hydrogen annually from the use of 4.5 GW of wind and solar power generation capacity.
Officials from London, UK-based Actis said the new plant is part of the company’s $4.7 billion Actis Energy 5 fund, which is supporting several energy projects. Actis in a news release said the hydrogen from the project is expected to be sold to local industrial groups, and processed into derivatives—including ammonia—for export.
HE Eng Salim bin Nasser Al Aufi, minister of Energy and Minerals and chairman of Hydrom, said: “Oman is strategically located between two key green hydrogen demand centers in Europe and Asia. This, in addition to, our tier-1 infrastructure and logistics capabilities have enabled us to leverage our first mover advantage in the global hydrogen industry. The availability of renewable natural resources in Oman coupled with the country’s favorable geopolitical positioning, investor-friendly policies and progressive energy transition strategies make it one of the most suitable countries for green hydrogen production. I would like to congratulate Actis and Fortescue on their awarding and look forward to working together to realize our collective vision.”
Actis has about 21 GW of renewable energy generation capacity either in operation or under construction. Fortescue has a pipeline of projects worldwide, including in the U.S. Both companies have said they are committed to helping move the world away from fossil fuels, and support the decarbonization of hard-to-abate industries.
Moataz Kandil, MENA (Middle East and North Africa) president at Fortescue, said, “Actis and Fortescue are completely in sync with our ambitions to decarbonize and create a new green energy industry globally. We share a common vision for the pivotal role that green hydrogen and green ammonia will play in forging a sustainable future. Oman not only has great natural resources, but it is also in an ideal location for export and has set up the structures and regulations needed to help enable this industry to flourish. This strategic partnership between Hydrom, Actis and Fortescue will not only help to drive the development of a large-scale green hydrogen project in Oman, but will lead the way for others around the world to follow, cementing Oman as a powerhouse in green molecules.”
—Darrell Proctor is a senior associate editor for POWER (@POWERmagazine).