by Tom Banse, Washington State Standard
August 12, 2024
The multi-billion plan to build out clean hydrogen production and distribution facilities across the Pacific Northwest is getting dealt wild cards out of the gate, with a key project in southwest Washington stalled, uncertainty over a tax credit that’s supposed to catalyze the upstart industry, and a lack of affordable renewable electricity.
Even so, backers of the Pacific Northwest Clean Hydrogen Hub are pressing ahead with confidence that things will pan out. New details are emerging about hub components, including plans to fuel heavy-duty trucks and clean up a cement plant in eastern Oregon with a long history of air pollution.
“Over the next few years, we are going to continue to see changes…we’re going to see this kind of bumpy takeoff,” said Chris Green, president of the Pacific Northwest Hydrogen Association, the hub’s ringleader. “But I still believe vehemently that this is all going to work. There is a lot invested here. There is a lot of intent and desire.”
Hydrogen proponents view it as a key source of clean energy to help reduce climate-warming emissions from tough-to-electrify sectors. The regional hydrogen hub – a public-private partnership championed by the Biden administration and state governors – promised to kickstart wider adoption of the fuel here in the Northwest.
The ambitions and details became clearer when the proponents signed a formal grant contract in July with the U.S. Department of Energy, unlocking federal subsidies and freeing investors to speak about their projects.
Hydrogen plant on hold, power too pricey
One of the bigger bumps so far is that a multinational mining and energy giant decided to pause a green hydrogen factory proposed for Centralia, Washington.
The plant was to be one of the main high-volume hydrogen production sites within the Northwest hub. Australia-based developer Fortescue cited high electricity prices for shifting the Centralia project to the back burner along with a larger proposed plant in British Columbia.
“Fortescue is steadfast in our commitment to green hydrogen,” energy division CEO Mark Hutchinson told analysts on a teleconference in late July. “However, our financial discipline always comes first. We will never do projects that are not economically viable.”
Fortescue said the demoted projects would be kept on hold until the economics improved and the company saw increased global demand for hydrogen. In North America, Hutchinson said the one project greenlighted is a plant which has already broken ground outside Phoenix.
“We are realistic about the pace of the current global energy transition and that is why our initial focus is on four green hydrogen projects across Australia, the United States, Norway and Brazil,” Hutchinson said.
During the investor teleconference, Hutchinson said the cost for renewable electricity has to be in the $30 per megawatt-hour range for green hydrogen production to be viable. Market prices for green power are considerably above that target in the Northwest currently.
For example, the wholesale rate for hydropower supplied by the Bonneville Power Administration to public utilities in the Northwest is around $35/MWh. That preferential rate is unavailable to a new industrial customer such as Fortescue. It can be safely assumed the hydrogen developer received much higher quotes from other potential energy providers, though a company spokesperson declined to confirm how much higher.
Green appeared to take the news in stride when asked about it in an interview. He said clean power availability and affordability are an ongoing challenge given the extremely energy-intensive production process of making green hydrogen.
“Fortescue is not leaving the hub,” Green said. “They’ll probably need some grace to sort out what makes sense. We want them to be successful and we’ll step through that.”
The back-burnered Centralia project called for a 300MW electrolyzer plant, which would have consumed more electricity than all of the existing utility customers in Lewis County combined. The planned location on the grounds of the soon-to-close TransAlta coal power plant symbolized a promise to return high-wage union jobs through the green energy transition.
Fortescue’s decision had an immediate domino effect on a previously unreported plan by Puget Sound Energy to co-locate a “peaker” plant in Centralia. That generating plant would have used stored hydrogen as a flexible, carbon-free fuel source to make electricity during power crunches.
“With their project on hold, we have also put an indefinite hold on our project at that location,” Puget Sound Energy said in an emailed statement. “We are open and interested in exploring other opportunities and locations within the PNWH2 footprint but at this time have no concrete plans.”
Green said his near-term focus right now is to nail down subcontracts with more than a dozen other private partners in the regional hydrogen hub so that he can distribute shares of the first tranche of federal funding. Last fall, the bi-state bid by Washington and Oregon was chosen as one of seven winners in a hotly contested national competition to split $7 billion in infrastructure money to grow the production and use of green hydrogen.
The Pacific Northwest hub could net up to $1 billion from the Energy Department over the next decade. Green said the first phase starts small with $27.5 million to spend over the next 12-18 months on necessary preliminaries such as project design, engineering, environmental review preparation and community outreach. Construction funding is expected to come in the second phase.
The who, what and where become clearer
The Energy Department just published the most in-depth narrative yet released about the Pacific Northwest hub, detailing the elements that its private partners propose to construct at eight “nodes” spread across Washington, Oregon and at one location in far western Montana. The project narrative describes a variety of uses for the hydrogen output including to make oil refining cleaner, green fertilizer production and for energy storage by utilities. The most commonly cited end use though is fuel for big trucks.
Heavy-duty trucks are tougher to electrify than passenger vehicles because the amount of batteries needed onboard and the time to recharge makes battery electric power impractical for trucking companies.
The emerging plan for the Northwest hub contemplates a string of hydrogen refueling stations for trucks and buses along Interstates 5, 84 and 90. These would be supplied from production depots in Boardman and Baker County, Oregon, Ferndale and Centralia/Chehalis, Washington, and St. Regis, Montana.
A Colorado-based startup named NovoHydrogen proposed the facility to make zero-carbon truck fuel in tiny Durkee, Oregon. CEO Matt McMonagle said the plan is to start small using green power supplied by the local electric utility and later scale up when demand justifies.
Durkee is located astride I-84 in eastern Oregon, but its core attraction is the cement plant and adjacent limestone quarrying operation there. Ash Grove Cement’s Durkee plant has long held a spot on Oregon’s top 10 list of highest emitting point sources of greenhouse gas pollution.
“We have to have a customer” with the ability to sign a long-term contract for hydrogen, McMonagle said. “Obviously, industrial mine vehicles and cement are a huge market globally,” with the enticing prospect if it works out in Durkee to “rinse and repeat.”
Ash Grove’s Durkee plant manager Phillip Teintze in an emailed statement said that “solutions for low carbon cement manufacturing are significantly challenging, in terms of processes and expense.”
“As hydrogen becomes environmentally and economically viable, we believe our facility could act as a distribution site, and potentially utilize hydrogen as a fuel to displace traditional fossil fuels,” Teintze added.
A chicken-and-egg problem
Green hydrogen has a “chicken-and-egg problem,” acknowledged Oregon Department of Energy Director Janine Benner during an interim briefing for state senators.
For example, fleet owners hesitate to convert trucks to hydrogen power without the assurance that they can refuel along their routes. Conversely, prospective hydrogen suppliers hesitate to dive in without assurance that there are customers out there to buy their fuel.
The hydrogen hub strategy leans into spurring along the hydrogen supply side of the market with development subsidies. Separately and jointly, the U.S. Department of Energy is funding multiple programs to induce demand as well as support zero emission truck technology innovation.
Federal subsidies for design, permitting and construction are attractive for investors. But executives at green hydrogen producers testified that a generous federal tax credit currently in limbo is even more important for making the economics work – and to drive down hydrogen’s high price.
The federal production tax credit was part of President Biden’s signature climate policy cornucopia passed in 2022. Congress left it to the Treasury Department to draft rules to ensure that green hydrogen was produced by truly “green” processes.
Last December, the Treasury Department proposed strict requirements to qualify for the maximum hydrogen production tax credit, which then inspired pushback from industry and influential members of Congress. Washington U.S. Sen. Maria Cantwell, a Democrat, co-led a bipartisan Senate letter writing campaign to warn that the nascent hydrogen industry would be stymied without changes in the rules.
“Treasury’s guidance would jeopardize billions of dollars of investment in clean hydrogen projects, render the cleanest forms of hydrogen uneconomical, and imperil efforts to decarbonize hard-to-abate sectors of our economy,” the senators wrote in an open letter to Treasury Secretary Janet Yellen last month.
“We have one more chance to get this right,” said the group of thirteen senators, which included Washington’s Patty Murray as well.
Green, the Northwest hydrogen hub leader, said he tries to keep sight of the big picture.
“It does seem to me that this really is the moment when we can make some real progress on finding replacements for natural gas and diesel fuels,” Green said. “So, it doesn’t occur to me that one thing here or there, one project here or there, you know one person gets elected here or there, is going to derail that. Because we are really talking about a twenty or thirty year process here to get this market going.”
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