Clean Hydrogen is a Major Beneficiary of the Inflation Reduction Act of 2022 (IRA)

 The CEO of Bloom Energy, KR Sridhar, kicked off his second quarter earnings call by enumerating nine benefits of the IRA to his Company. These ranged from tax credits that will directly spur demand for Bloom’s hydrogen electrolyzers to secondary effects such as investment tax credits that benefit biogas to hydrogen projects as well as tax credit transferability features that will increase financing options for hydrogen-related projects.

As it relates to hydrogen, the heart of the IRA is Section 45V which creates a production tax credit (PTC) for clean hydrogen (defined as less than .45kg of CO2 emission equivalent per kg of hydrogen produced). The credit lasts for 10 years from the time the facility is put into service. The base credit is $0.60/kg but can be increased by 500% to $3.00/kg if certain requirements are met including prevailing wage and apprenticeship thresholds.  If more suitable for the business model, the taxpayer may elect an Investment Tax Credit (ITC) of 6% with up to a 500% multiplier in place of the PTC.

Bonus credits are available subject to locating the production facility in an “energy community” as well as certain domestic content requirements. The credit is still available but is reduced on a graduated basis if the CO2 emission equivalent per kg of hydrogen ranges from 0.45kg to 4kg. The hydrogen PTC cannot be used if the facility is using a separate carbon capture tax credit. The credits are intended to be agnostic between so called “green” and “blue” hydrogen.

In addition to the PTC, hydrogen storage facilities become eligible for the same energy storage ITC that is also available to other renewable energy storage facilities using batteries, for example. The 6% ITC is subject to multipliers and bonuses in line with the percentages and conditions outlined for the PTC above.

There are also various hydrogen favorable provisions in sections of the bill that promote low-emission vehicles. Especially notable is a 15% credit ($40,000 cap) against the cost of low-emission commercial vehicles over 14,000 lbs, a mobility sector that is especially suitable for hydrogen. The bill also includes a 30% ITC ($100,000 cap) per fueling unit at a hydrogen fueling station.

Based on comments made to the press and analysts, many hydrogen companies including Plug Power, Bloom Energy, FuelCell Energy and others believe their businesses are part of a value chain that will benefit from the full $3/kg PTC. Moreover, this formulation may result in the lowest cost clean hydrogen in the world spurring demand and possibly creating a virtuous cycle of competition around the globe. There are already signs that Europe is considering streamlining hydrogen production regulations to keep pace with the IRA.