March2023PathwaystoCommercialLiftoff:CleanHydrogenThisreportwaspreparedasanaccountofworksponsoredbyanagencyoftheUnitedStatesgovernment.NeithertheUnitedStatesgovernmentnoranyagencythereof,noranyoftheiremployees,makesanywarranty,expressorimplied,orassumesanylegalliabilityorresponsibilityfortheaccuracy,completeness,orusefulnessofanyinformation,apparatus,product,orprocessdisclosed,orrepresentsthatitsusewouldnotinfringeprivatelyownedrights.Referencehereintoanyspecificcommercialproduct,process,orservicebytradename,trademark,manufacturer,orotherwisedoesnotnecessarilyconstituteorimplyitsendorsement,recommendation,orfavoringbytheUnitedStatesgovernmentoranyagencythereof.TheviewsandopinionsofauthorsexpressedhereindonotnecessarilystateorreflectthoseoftheUnitedStatesgovernmentoranyagencythereof.PathwaystoCommercialLiftoff:CleanHydrogenCommentsTheDepartmentofEnergywelcomesinputandfeedbackonthecontentsofthisPathwaytoCommercialLiftoff.Pleasedirectallinquiriesandinputtoliftoff@hq.doe.gov.Inputandfeedbackshouldnotincludebusinesssensitiveinformation,tradesecrets,proprietary,orotherwiseconfidentialinformation.PleasenotethatinputandfeedbackprovidedissubjecttotheFreedomofInformationAct.AuthorsAuthorsoftheCleanHydrogenPathwaytoCommercialLiftoff:OfficeofTechnologyTransitions:HannahMurdochOfficeofCleanEnergyDemonstrations:JasonMunsterHydrogen&FuelCellTechnologiesOffice:SunitaSatyapal,NehaRustagiArgonneNationalLaboratory:AmgadElgowainyNationalRenewableEnergyLaboratory:MichaelPenevCross-cuttingDepartmentofEnergyleadershipforthePathwaystoCommercialLiftoffeffort:OfficeofCleanEnergyDemonstrations:DavidCrane,KellyCummins,MelissaKlembaraOfficeofTechnologyTransitions:VanessaChan,LuciaTianLoanProgramsOffice:JigarShah,JonahWagnerAcknowledgementsTheauthorswouldliketoacknowledgeanalyticalsupportfromArgonneNationalLaboratoryandMcKinsey&Company;aswellasvaluableguidanceandinputprovidedduringthepreparationofthisPathwaytoCommercialLiftofffrom:OfficeofCleanEnergyDemonstrations:KatrinaPielli,CatherineClark,JillCapotosto,ToddShrader,SarmaKovvali,EricMiller,AndrewDawsonOfficeofTechnologyTransitions:StephenHendrickson,Katheryn(Kate)Scott,MarcosGonzalesHarsha,JamesFritz,EdwardRiosLoanProgramsOffice:RamseyFahs,JulieKozeracki,EdDavis,DineshMehta,MoniqueFridell,MikeReed,ChristopherCreedOfficeofPolicy:CarlaFrisch,SteveCapanna,BetonyJones,ElkeHodson,ColinCunliff,AndrewFoss,PaulDonohoo-Vallett,ChikaraOnda,MarieFioriHydrogen&FuelCellTechnologiesOffice:EricMiller,JesseAdam,DimitriosPapageorgopoulos,NedStetson,BrianHunter,McKenzieHubertOfficeofEnergyEfficiencyandRenewableEnergy:AlejandroMoreno,PaulSpitsen,AviShultz,BeccaJones-Albertus,MichaelBerube,BrianCunningham,CarolynSnyder,JayFitzgerald,IanRoweOfficeofFossilEnergyandCarbonManagement:BradCrabtree,JenWilcox,NoahDeich,MarkAckiewicz,DavidAlleman,TimReinhardt,RobertSchrecengost,EvaRodeznoDirectoroftheOfficeofEconomicImpactandDiversity:ShalandaBaker,TonyReames,JamesStrangeAdvancedResearchProjectsAgency-Energy:JackLewnard,JamesZahlerOfficeofInternationalAffairs:JulieCerqueira,MattManningOfficeoftheGeneralCounsel:AlexandraKlass,AviZevin,NarayanSubramanian,BrianLally,GlenDrysdaleOfficeoftheChiefFinancialOfficer:SeanJamesAssistantSecretaryforCongressional&IntergovernmentalAffairs:BeccaWardPathwaystoCommercialLiftoff:CleanHydrogenAcknowledgements(cont.)OfficeofIndianEnergyPolicyandPrograms:WahleahJohns,AlbertPetrasekOfficeofFederalEnergyManagementPrograms:MarySotos,NicholeLiebovAdvancedManufacturingOffice:IsaacChan,PaulSyers,FeliciaLucci,NickLalena,EmmelineKaoOfficeofNuclearEnergy:KatyHuff,AliceCaponiti,JasonMarcinkoski,AlisonHahnAssistantSecretaryforElectricity:MichaelPesinOfficeofScience:HarrietKung,AndySchwartz,LindaHorton,ChrisFecko,RaulMirandaSolarEnergyTechnologiesOffice:GarretNilsenScience&EnergyTechTeams(SETT):RachelPierson,KellyViscontiArgonneNationalLab:AymericRousseauNationalRenewableEnergyLaboratory:MatteoMuratori,CatherineLedna,LingTaoPathwaystoCommercialLiftoff:CleanHydrogenTableofContentsExecutiveSummary1Chapter1:IntroductionandObjectives6Chapter2:CurrentState–TechnologiesandMarkets9Section2.a:Technologylandscape9Upstream:Cleanhydrogenproduction10Midstream:Distributionandstorage14Downstream:End-uses18Section2.b:Currentprojects22Section2.c:Techno-economics25Chapter3:PathwaystoCommercialScale31Section3.a:Dynamicsimpactingpathwaystocommercialscale35Production36Midstream38End-uses39Section3.b:CapitalRequirements42Section3.c:Broaderimplicationsofhydrogenscale-up45Supplychain45Socioeconomic48Energyandenvironmentaljustice(EEJ)49Section3.d:Hydrogenandhydrogen-derivativeexports52Chapter4:ChallengestoCommercializationandPotentialSolutions56Section4.a:Overviewofchallengesandconsiderationsalongthevaluechain56Section4.b:Prioritysolutions63Chapter5:MetricsandMilestones68Chapter6:ModelingAppendix71TableofFigures102References103PathwaystoCommercialLiftoff:CleanHydrogenPurposeofthisReportThesePathwaystoCommercialLiftoffreportsaimtoestablishacommonfactbaseandongoingdialoguewiththeprivatesectoraroundthepathtocommercialliftoffforcriticalcleanenergytechnologies.Theirgoalistocatalyzemorerapidandcoordinatedactionacrossthefulltechnologyvaluechain.ExecutiveSummaryTheU.S.cleanhydrogenmarketispoisedforrapidgrowth,acceleratedbyHydrogenHubfunding,multipletaxcreditsundertheInflationReductionAct(IRA)includingthehydrogenproductiontaxcredit(PTC),DOE’sHydrogenShot,anddecarbonizationgoalsacrossthepublicandprivatesectors.1,iHydrogencanplayaroleindecarbonizingupto25%ofglobalenergy-relatedCO2emissions,particularlyinindustrial/chemicalsusesandheavy-dutytransportationsectors.iiAchievingcommercialliftoffwillenablecleanhydrogentoplayacriticalroleintheNation'sdecarbonizationstrategy.ThecleanhydrogenmarketwillbeacceleratedbyhistoriccommitmentstoAmerica’scleanenergyeconomy,includingequitiesintheInflationReductionAct(IRA)andtheInfrastructureInvestmentandJobsAct(IIJA).Together,thesesupply-sideincentivescanmakecleanhydrogencost-competitivewithincumbenttechnologiesinthenext3–5yearsfornumerousapplications.2HydrogendeploymentisanopportunitytoprovidebenefitstocommunitiesacrossAmerica,includingqualityjobs,climatebenefits,anddecreasedairpollution.Aswithallnewtechnologies,significantcareandattentionmustbepaidduringimplementationtoensuredeploymentdoesnotperpetuateexistinginequitieswithintheenergysystem.Cleanhydrogenproductionfordomesticdemandhasthepotentialtoscalefrom<1millionmetrictonperyear(MMTpa)to~10MMTpain2030.iiiMostnear-termdemandwillcomefromtransitioningexistingend-usesawayfromthecurrent~10MMTpaofcarbon-intensivehydrogenproductioncapacity.Ifwaterelectrolysisdominatesastheproductionmethod,upto200GWofnewrenewableenergysourceswouldbeneededby2030tosupportcleanhydrogenproduction.3TheopportunityforcleanhydrogenintheU.S.,alignedwiththeDOENationalCleanHydrogenStrategyandRoadmap,is50MMTpaby2050.4,iiiScalingthemarketwillrequirecontinuingworkonaddressingdemand-sidechallenges.Forexample,scalingmidstreaminfrastructurewilldrasticallylowerthedeliveredcostofhydrogenoutsideofco-locatedproductionandofftake,improvingthebusinesscaseforprojectsandacceleratinguptakeofcleanhydrogen.Bolsteringdemandandunlockinglong-termofftakewillsupportthecurrentproliferationofhydrogenproductionprojectannouncementsandhelpthoseproductionprojectsreachfinalinvestmentdecision(FID).1Definedashavingacarbonintensity<4kgCO2e/kgH22SeeChapters2and3forexaminationofbreakeventimingforendusesswitchingfromanincumbenttechnologytocleanhydrogen.Note,breakevenforbest-in-classprojectsdoesnotindicateallprojectsswitchingtocleanhydrogenwouldseebreakeveninthenext3–5years(seeFigures15and27–ModelingAppendices)forevaluateofbest-in-classprojectsvs.arangeofprojects.3AssumesequalsplitofsolarandwindGWofinstalledcapacity.CapacityfactorsarebasedonNRELAnnualTechnologyBaselineClass5onshorewind(45%)andutilitysolar(27%).RangeincludesPEMandalkalineelectrolyzerefficiencyfromNRELHydrogenAnalysis(H2A)productionmodel.200GWrepresentsahighcaseinwhichmorethan90%ofdomesticcleanhydrogenproducedin2030isviawaterelectrolysis.Cleanpowerforelectrolysiscouldalsocomefromsourcessuchasnuclear.4Equivalentto~1/10currentdomesticnaturalgasconsumptionPathwaystoCommercialLiftoff:CleanHydrogen1Inthepresentpolicyenvironment,commercial‘liftoff’forcleanhydrogenisexpectedtotakeplaceinthreephases:•Near-termexpansion(~2023–2026):AcceleratedbythePTC,cleanhydrogenreplacestoday’scarbon-intensivehydrogen,primarilyinindustrials/chemicalsusecasesincludingammoniaproductionandoilrefining.5Thisshiftwillprimarilyoccuratco-locatedproduction/demandsitesorinindustrialclusterswithpre-existinghydrogeninfrastructure.Inparallel,first-of-a-kind(FOAK)projectsareexpectedtobreakground,drivenby$8BinDOEfundingforRegionalCleanHydrogenHubsthatwilladvancenewnetworksofsharedhydrogeninfrastructure.•Industrialscaling(~2027–2034):Hydrogenproductioncostswillcontinuetofall,drivenbyeconomiesofscaleandR&D.Duringthisperiod,privatelyfundedhydrogeninfrastructureprojectswillcomeonline.Theseinvestments,includingthebuild-outofmidstreamdistributionandstoragenetworks,willconnectagreaternumberofproducersandofftakers,reducingdeliveredcostanddrivingcleanhydrogenadoptioninnewsectors(e.g.,fuel-cellbasedtransport).Atthesametime,hydrogencombustionorfuelcellsforpowercouldbeneededtoachievetheAdministration'sgoalof100%cleanpowerby2035.6Thereareawiderangeofforecastsdenotinghydrogen’sroleinthepowersector,whetherforhigh-capacityfirm,lower-capacityfactorpower,orseasonalenergystorage–seereportformoredetailedscenarios.•Long-termgrowth(~2035+):Aself-sustainingcommercialmarketpost-PTCexpirationwillbedrivenbyfallingdeliveredcostsdueto:7A.Availabilityoflow-cost,cleanelectricity(forelectrolysis),B.Equipmentcostdeclines,C.Reliableandat-scalehydrogenstorage,andD.Highutilizationofdistributioninfrastructure,includingdedicatedpipelinesthatmovehydrogenfromlow-costproductionregionstodemandclusters.8Toachieveprofitabilitypost-PTCexpiration,costdeclinesarerequiredoverthenext10–15years.Duetohydrogen’smyriadenduses,capex/opexbreakevenwillbedifferentdependingonenduse.Todayto2030,industryexpectstoseesignificantcost-downsinelectrolyzercapex(e.g.,~$760-1000/kWtodaytoforecasted$230–400/kWby2030foruninstalledalkalineelectrolyzers,from$975–1,200/kWto~$380-450/kWforuninstalledPEMelectrolyzers).Low-costcleanhydrogenviaelectrolysiswillalsodependonampleavailabilityoflow-costcleanelectricity(<$20/MWh)thatwillneedtoscaleinparallelwithmarketdemandforcleanhydrogen.9,10Thesecostdeclinestranslatetoareductioninhydrogenproductioncosts,excludingthePTC,from$3–6/kgtodayto$1.50–2/kgby2035.These2035expectedcost-downsareslightlyabovetheDOE’sHydrogenShot,whichsetsanambitious$1/kgby2031targetbasedonstretchR&Dgoals.Dependingontypeofelectrolyzerandavailabilityofhigh-capacityfactorcleanenergy,someprojectsmayhittheHydrogenShottarget($1/kgwithoutPTCin2031),whichwouldfurtheraccelerateliftoff.Costdeclinesforhydrogendeliverywillalsobecriticalfortransportationend-usesthatusehydrogendirectly,suchasfuelcellpoweredvehicles.5Producedwithcarbonintensity<4kgCO2e/kgH26Inaddition,someprivatesectorplanstoco-fireturbineswithhydrogenhavealreadybeenannounced7SeeChapter38Thisreportreferstohydrogen“distribution”tomeanthemovementofhydrogenmolecules,regardlessofscaleormodeofmovement.9BasedonforecastsfromtheBloombergNewEnergyFinance&HydrogenCouncilforalkalineelectrolyzers.Additionalassumptionsdetailsareincludedintheappendix.Quotednumbersareforsystemcapexexcludinginstallationcosts.10Notethatcost-downsaredependentonmorethanthesefactorsalone–seeChapters2and3fordetailoncostdriversPathwaystoCommercialLiftoff:CleanHydrogen2Projectandadoptionriskwillfallasthecleanhydrogenvaluechainmatures.Addressingthecommercializationchallengesbelowwillunlockeachsubsequentphaseofgrowth:•Near-termexpansion:Thecostofmidstreaminfrastructurewillbehighlyrelevantforusecaseswheresupplyanddemandarenotco-located.11Absenceoflong-termofftakecontractstomanagevolume/pricerisk,uncertaintyaboutcost/performanceatscale,permittingchallenges,andheterogeneousbusinessmodelscoulddelayfinancingforFOAKprojects.12Electrolyzersupplychains,CO2distributionandstorageinfrastructure,andaskilledhydrogenworkforcewillallfacepressuretoscale.•Industrialscaling:Ifnotresolvedearlier,thegrowthchallengesfacedabovewillbeexacerbatedduringindustrialscaling.Thepaceofcleanelectricitydeploymentwillbeakeydriverofhydrogenproductiontechnologymix.Ifconstrained,reformationwithcarboncaptureandstorage(CCS)isexpectedtodominate(makingupto80%ofhydrogenproducedin2050versus50%inahigh-renewablesscenario).13Forwaterelectrolysis,availabilityofcleanelectricityandbottlenecksinelectrolyzercomponents/rawmaterialswillplayacriticalroleinthepaceofgrowth.IfelectrolysisprojectsfailtoscaleduringtheIRAcreditperiod,electrolysismaynotachievethenecessarylearningcurvestoremaincompetitiveintheabsenceoftaxcredits.Eachsectorconvertingtocleanhydrogenwillalsohaveitsownopportunitiesandchallenges.Forexample,fuelcellheavy-dutytruckadoptionwillbehighlydependentonthebuild-outofrefuelinginfrastructure,advancementsinfuelcellvehicletechnology,certaintyofhydrogensupply,andthecostofalternatives(e.g.,diesel,batteryelectricvehiclesandtheirassociatedcostsofcharginginfrastructure)andregulatorydrivers.Onthefinancingside,perceivedcreditriskwillbehighforhydrogenprojectswhilethesechallengesremainunresolved,delayingtimelinesforlow-costcapitalproviderstoenterthemarket.•Long-termgrowth:Post-PTCexpiration,competitivenesswillrelyonproductionanddistributioncostdeclinesachievedthroughtheIRAcreditperiod.Developmentofmaturefinancialstructuresandcontractmechanismstomitigatetheremainingrisks(e.g.,pricevolatility)andcrowd-ininstitutionalcapitalwillalsobeneeded.1411Midstreaminfrastructurecanmorethandoublethedeliveredcostofhydrogen;theU.S.GulfCoastandpartsofCaliforniaaretheonlyregionswithexistingH2networks12SeeSection3band4a.13McKinseyPowerModel,seeFigure1414Whilenotexploredinthisdocument,otherpolicymechanismswillplayanimportantroleinmeeting2050GHGgoals(e.g.,carbon-intensitystandardsthatwouldvaluelow-carboncommodities,zeroemissionvehiclemandates).Theseinitiativeswouldfurtherbolsterthecaseforcleanhydrogenanditsderivedproducts,evenifnotexplicitlytargetingthecleanhydrogeneconomy.PathwaystoCommercialLiftoff:CleanHydrogen3SeeFigure10inbodyofreport:Industryestimatesthatmultiplemethodsofhydrogendistributionandstoragecanbecomeaffordableifstate-of-the-arttechnologiesarecommercializedatscale(2030costsacrossthevaluechain).Hydrogenproductioncostsshowntakeanupperboundofproductioncosts(~2MW(450Nm3/h)PEMelectrolyzerwithClass9NRELATBwindpower)andthensubtractthePTCatpoint-in-time.SeeadditionalnotesonFigure10todescribecreditapplicationsandproductioncostsaswellasFigures11/12forproductioncostsacrossdifferentpathways.PathwaystoCommercialLiftoff:CleanHydrogen42030costsacrossthevaluechainifadvancesindistributionandstoragetechnologyarecommercialized11Seeappendixforcalculationdetails2Databasedoncost-downssharedfromleading-edgecompanieswhohavedeployedatdemonstrationscale(orlarger)3Rangebasedonvaryingrenewablescostsandelectrolyzersizes/technologies4Definedasthepriceanofftakerwillpayforcleanhydrogen5Representsdeliveryofhydrogentoaviationandmaritimefuelproductionfacilities6Greaterthanorequalto70%utilization,assumeslinefillathighpressureSources:HDSAM,ArgonneNationalLaboratory;DOENationalHydrogenStrategyandRoadmap,HydrogenCouncilUpstream:HydrogenproductionIndustryGasreplacementTransportReformation-basedproductionCommercialized,best-in-classgascompressionMidstream:Hydrogendistributionandstorageassumingstate-of-arttechnologyatscale2Downstream:EnduseapplicationsEndusewillingnesstopay4Waterelectrolysisw/$3/kgPTC:LCOH<$0.4/kg3CO2transport/sequestrationw/$0.75/kgPTC:LCOH=$0.4-0.85/kg$0.7-1.5/kgat10tpd,250km$0.2-0.3/kgat50tpd,250kmGasphasetruckingLiquidhydrogentrucking$0.1/kgat80barfor7days,600tpd$0.8/kgat500barfor7days$0.2/kgfor7days,50tpdscaleCompressedgastankstorageSaltcavernstorageLiquidhydrogenstorage$0.2-0.4/kgat500bar,10tpd(tankstorage,truckdistribution)$0.1/kgat80-120bar,50+tpd(pipeline,co-locatedelectrolysis)$2.7/kgat50tpdLiquefaction$1-3.6/kg≥700kg/day,700barNextgenerationfueldispensingathighutilization6$0.9-2.3/kg$1-1.3/kg$0.9-2.3/kg$1.25-2.3/kg$0.4-0.5/kg$0.4-0.5/kg$4-5/kg$0.7-1.5/kg$0.7-3/kgAmmoniaRefiningChemicalsSteelNGblendingPowergen.(high-capacityfirm)HDMDroadtransportIndustrialheatAviationandmaritimefuels5H2pipeline$0.1/kgat600tpd,300km,12”OD$0.1/kgat~5000tpd,1000km,42”ODCross-cuttingsolutions,includingDOEH2Hubs,willacceleratemarketuptake:1.Investinthedevelopmentofhydrogendistributionandstorageinfrastructure,initiallythroughcentralizedhubsandlaterthroughdistributedinfrastructure.Dispersedinfrastructurewillunlockusecasesforhydrogenwhereproduction/offtakearenotco-located,connectingnewofftakerstoregionalhydrogennetworks.Pipelinesandsalt-cavernstoragewillbecriticalanchorstothissystem,providinglow-costdistributionandstorageatscale.Ascleanhydrogenproductionscales,cost-effectivedistribution/storageinfrastructurewillbeessentialtoavoidbottlenecksinthehydrogeneconomy.By2030,halfofthenecessarycleanhydrogeninvestmentdollarsareexpectedtobeformidstreamandend-useinfrastructure($45–130B).152.Catalyzesupplychaininvestments,includingindomesticelectrolyzermanufacturing,recycling,andrawmaterials/componentsforelectrolyzerproduction.16Domesticelectrolyzermanufacturingmustscalefrom<1GWtodaytoupto20–25GW/yearby2030.17Thedeploymentofadjacentcleanenergytechnologieswillalsobecriticaltothehydrogenvaluechain:upto200GWofnewrenewableenergymaybeneededby2030toproduce~10MMTcleanhydrogenifwaterelectrolysisdominatesastheproductionpathway(>90%productionmix)aswellas2–20millionmetrictonnesofnewCO2storageforreformation-basedproduction.v,18,19,203.Developregulationsforascaledindustry,includingmethodsoflifecycleemissionsanalysisacrossfeedstocksandproductionpathways.21Thesepolicyandregulatorydevelopments,alongwithmanyothers(e.g.,changesthatwouldstreamlineprojectpermitting/siting),wouldtakeplaceacrossbothfederalandstateagenciesandwouldprovidecriticalcertaintytoaccelerateprivateinvestment.4.Standardizeprocessesandsystemsacrossthehydrogeneconomy.Privatesectorstandardsorganizationswillplayacriticalroleindrivingcross-industrystandardoperatingprocedures(SOPs),certifications,andcomponentinteroperability(e.g.,atrefuelingstations)toaccelerateprojectdevelopmentandreducecosts.Standardscanhelpestablishindustry-widesafetyandenvironmentalprotocols.5.AcceleratetechnicalinnovationthroughR&D,includingincriticaltechnologiesfornascentelectrolyzerstacks(e.g.,newdesignsandmaterialsforanion-exchangemembrane[AEM]electrolyzers)tobringdowncostsandmitigaterisksofbottlenecksinsomeelectrolyzertechnologies(e.g.,platinumgroupmetals[PGMs]forproton-exchangemembrane[PEM]electrolyzers).R&Disalsoneededtobringdownthecostofcarboncapture,utilization,andstorage(forreformation-basedproduction)aswellasinend-useapplicationssuchasimprovingfuelcelldurability.6.Expandthehydrogenworkforcewiththeengagementofcompaniesthathavepreexistingexpertiseinsafehydrogenhandling(e.g.,industrialgas,chemicals,oilandnaturalgas)aswellaslaborunionswiththeskilledworkforceandrelevanttrainingprogramstorapidlyexpandtheworkforce.In2030,thirdpartyanalysissuggeststhatthehydrogeneconomycouldcreate~100,000netnewdirectandindirectjobsrelatedtothebuild-outofnewcapitalprojectsandnewcleanhydrogeninfrastructure(~450,000cumulativejob-yearsthrough2030).Directjobsincludeemploymentinfieldssuchasengineeringandconstruction.Indirectjobsincluderolesinindustrial-scalemanufacturingandtherawmaterialssupplychain.Anadditional~120,000directandindirectjobsrelatedtotheoperationsandmaintenanceofhydrogenassetscouldalsobecreatedin2030–thesewouldnotallbenetnewjobsduetothebroadertransitiontoanetzeroeconomy,forexample,currentgasstationoperatorstransitioningintohydrogenrefuelingstationoperators.22,23PathwaystoCommercialLiftoff:CleanHydrogen515BasedontheHydrogenCouncilrequiredinvestmentmethodologyusingthe“Netzero2050–highRE”demandscenario16RawMaterialsincludeplatinumgroupmetals(PGMs),suchasiridium,whichisrequiredforprotonexchangemembrane(PEM)electrolyzers1720–25GWrepresentsanupperboundassuming>90%ofcleanhydrogenproductionthrough2030isviawaterelectrolysisandthattheelectrolyzersusedinthisproductionareexclusivelyfromdomesticproduction.SeeMethodology13inModelingAppendixfordetailsrelatedtothisscenario.18TheU.S.currentlystores25millionmetrictonnesCO2peryeareconomy-wide,GlobalCCSInstitute,publicannouncementsasofMarch202219RangeisbasedontheNetZero2050–highREandNetZero2050–lowREscenarios,70-90%capturerates,8-11kgCO2e/kgH2pre-capturecarbonintensity,and2kgCO2e/kgH2upstreammethaneemissions20Upto200GWofnewrenewableenergywouldbeneededifelectrolysisdominated(>90%penetration)astheproductionpathwayby2030.Assumesequalsplitofsolarandwindinstalledcapacity.CapacityfactorsarebasedonNRELATBClass5onshorewind(45%)andutilitysolar(27%).RangeincludesPEMandalkalineelectrolyzerefficiencyfromNRELHydrogenAnalysis(H2A)productionmodel.21ScaledindustryimpliesmarketgrowthinlinewiththeprojecteduptakeofcleanhydrogenoutlinedintheDOENationalCleanHydrogenStrategyandRoadmap22Inclusiveofjobsrelatedtofeedstockproduction,hydrogenproduction,midstreamtransportationandstorage,andend-useapplications.23VividEconomicsmodeling.SeeModelingAppendixformethodologydetails.Toovercometheabovechallenges,cross-cuttingsolutionsarerequired.7.Expandandacceleratethecapitalbase,includingmechanismsthatmanagepriceandvolumerisk(e.g.,pricediscoveryviaahydrogencommoditymarket,hedgingcontracts)andencouragelong-termofftake.Shiftingfrombilateralcontractstoacommoditymarketcouldlowerthecostofcapitalbyreducingcounterpartyriskbutthetransitionfrombilateralagreementswouldrequiresignificantlyincreasedcoordinationbetweeninvestorsandprojectdevelopersacrossthevaluechain.Underwritingexpertiseforhydrogenprojectsalsoneedstobedevelopedwithincapitalproviders’organizationstoacceleratethepaceofcapitaldeployment.Aninvestmentgapof$85–215Bremainsthrough2030.Thisneedforrapidscalingofthecapitalbasemeanstheseadditionalinvestmentsanddiligencecapabilitieswillbeneededtoacceleratedevelopment,particularlytoenableinvestmentinhydrogendistribution,storage,andend-useapplications.24TheDepartmentofEnergy,inpartnershipwithotherfederalagencies,hastoolstoaddressthesechallengesandiscommittedtoworkingwithcommunities,laborunions,andtheprivatesectortobuildthenation’shydrogeninfrastructureinawaythatmeetsthecountry’sclimate,economic,goodjobs,andenvironmentaljusticeimperatives.PathwaystoCommercialLiftoff:CleanHydrogen624SeeChapter3formoredetaileddescriptionofinvestmentgapsacrossthehydrogeneconomy25ThesereportsareinformedbystakeholderinterviewsandindustryconferencesduringQ3andQ42022,reviewofexistingpublications,andadditionalanalysis/modeling–someviaDOE,NationalLabs,andothersby3rdpartysources.PleaseseeAcknowledgementssectionandChapter6–ModelingAppendicesforacomprehensivelistofthepartiesinvolved.26Including,butnotlimitedto-originalequipmentmanufacturers(OEMs)producers,midstreamdevelopers,offtakers,investors,communitystakeholders,policyleaders,andtechnicalinnovators27OutlinedinChapter3.cChapter1:IntroductionandObjectivesLiftoffReportsdescribethemarketstructure,currentchallenges,andpotentialsolutionsforthecommercializationofinterdependentcleanenergytechnologies.25LiftoffReportsareanon-going,DOE-ledefforttoengagedirectlywithenergycommunitiesandtheprivatesectoracrosstheentireclean-energylandscape.26Reportswillbeupdatedregularlyaslivingdocumentsandarebasedonbest-availableinformationattimeofpublication.Thisreportfocusesondeploymentconsiderationsthatwouldsupportarapidscale-upofthehydrogenvaluechain—10MMTpaofcleanhydrogenby2030and50MMTpaby2050fordomesticdemand.iiiItincludesthebusinessmodelsandtechnologiesthatcouldbedeployedandthecapitalthatwillberequired.Inparticular,thisreport:•Focusesontechnologiescurrentlyindemonstrationphaseandbeyondbutotherwiseistechnology-andbusiness-modelagnostic•Accountsforsomeofthepotentialimpactsofrecentlegislation,includingtheInflationReductionActandtheInfrastructureInvestmentandJobsAct.ItalsocontextualizesDOEtargetssuchastheHydrogen1-1-1EnergyEarthshot™initiativeandbuildsonboththeDraftDOENationalCleanHydrogenStrategyandRoadmap,andextensiveH2@Scaleanalyses•Highlightskeyemploymentandenvironmentaljusticefactorsrelatedtoscalingcleanhydrogen27Readersshouldnotethat,justasinanyrapidlyevolvingindustry,figuresandnumbersinthisreportwillevolvebasedonadditionallearningsfromresearchersandindustry,pointsofregulatoryclarity(asreleased),andmore.Assuch,thisreportshouldbeviewedasaliving,work-in-progressdocumentthatwillbeupdatedataregularcadence.Withinupstreamproduction,thisreportpredominantlyfocuseson:•Reformation-basedproductionwithcarboncaptureandstorage(CCS)•Waterelectrolysisviaalkalineandprotonexchangemembrane(PEM)electrolyzersWithinmidstreamdistributionandstorage,thisreportexplores:•Conditioning,includinggas-compressionandliquefaction•Storage,includingsaltcavern,compressedgastank,andliquidhydrogenstorage•Distribution,includingdedicatedpipelines,gas-phasetrucking,liquid-hydrogentrucking,andfueldispensingWithindownstream/end-usesectors,thisreportevaluatescleanhydrogen’spotentialforuptakeacrossavarietyofapplicationsincluding:•Industrials:Ammonia,refining,chemicals(methanol),andsteel•Transport:Heavy-dutyandmedium-dutyroadtransportation;maritimefuels;aviationfuels•Gasreplacement:High-capacityfirmpower;Lower-capacityfactorpower;industrialheat;applicationsfornaturalgasblending;long-durationenergystorage(seasonal)Aschallengestocommerciallift-offareovercome,cleanhydrogenwillplayanimportantroleindecarbonizingtheU.S.economy,particularlyforsectorswithfewdecarbonizationalternatives.By2050,cleanhydrogencouldreduceoverallU.S.CO2eemissionsby10%versus2005baselinelevels.iiiMostofthetotalemissionsreductionisexpectedinheavy-dutytransportation(e.g.,road,aviationfuels,maritimefuels)andindustrialsectorswherehydrogenisoneoftheprimaryfeedstocks(e.g.,ammonia,methanol,fuels)andalternativesdonotexist.Torealizetheseemissionsreductions,cross-sectorcostreductions,mechanismstostreamlinepermitting,safetyprotocols,monitoring,andhandlingtoavoidleakagearerequired.viTheU.S.hastheopportunitytoleadintheproduction,safehandlinganddistribution,andresponsibleend-useofcleanhydrogenasitscalesglobally.Figure1illustratesthatupto10–25%ofglobalenergy-relatedcarbonemissionsarefromsectorswithastrongpotentialtoadoptcleanhydrogen(i.e.,hydrogenwithacarbonintensity<4kgCO2e/kgH2).Another25-40%oftotalemissionshavesomepotentialtodecarbonizewithhydrogen(e.g.,cement,buses,lower-capacityfactorpowergeneration).28PathwaystoCommercialLiftoff:CleanHydrogen728HydrogencandecarbonizetheprocessheatrequiredforcementmanufacturingFigure1:Hydrogenisamulti-faceteddecarbonizationsolutionthathasastrongpotentialtoplayaroleindecarbonizing10–25%ofglobalCO2emissionsinsectorswiththefewestotherdecarbonizationoptions.Notethatcost-effectivedeploymentofcleanhydrogenwillalsodependontheparallelscale-upofothercleanenergytechnologies(e.g.,pointsourcecarboncaptureandsequestrationforreformation-basedpathways)—seeotherLiftoffreportsformoreonthosetechnologies.PathwaystoCommercialLiftoff:CleanHydrogen830%10%0%20%95%100%80%40%50%70%60%15%90%5%25%35%45%55%65%75%85%Busesandshort-haultrucks1.7BuildingsLong-haultrucksTransportRefiningResidentialbuildings5PassengercarsOilgas-heatedbuildings6ChemicalsIndustryOtherenergyIronandSteelLower-capacityfactorpowergenerationOther7High-capacityfactorfirmpowergeneration7.97.92.7Oilandgas8OtherIndustry3Cement12.7RailCommercialbuildings5AviationfuelsOthertransport4MaritimefuelsPower10-25%9Strongpotential–fewalternativestodecarbonizewithoutH2125-40%Somepotential–H2cancontributetodecarbonization2Lowpotential–hostsfewcompetitiveH2applications50%Emissionsbysector,%1Hydrogenisoneoffewdecarbonizationoptionsandislikelytobeadoptedonalargescaleifdecarbonizationispursued2Hydrogenisoneofseveraldecarbonizationoptionsandadoptionwilllikelybeonalimitedscale3Includesagriculture/forestry,construction,fishing,foodandtobacco,manufacturing,mining,nonenergyuse,nonferrousmetals,andothermaterials4Includeslightcommercialvehicles(LCVs)andtwo-andthree-wheeledvehicles(e.g.,motorcycles)5RepresentsH2-basedheatforcommercialandresidentialbuildings6Oldbuildingswithanexistinggasnetworkconnectionmayrequireadaptionofthehomeheatingequipment(e.g.,boilers)toconverttoH2-basedheat7Includestransformationprocesses(e.g.,hydrogenandsyntheticfuelsproduction)8Includesenergyuserelatedtooilandgasextraction9LowendofrangerepresentshydrogenplayingaroleonlyinChemicals,Long-haultrucks,andrefiningdecarbonization,highendofrangerepresentsallsectorslistedas“strongpotential”Source:EmissionsdataandsegmentationfromMcKinseyEnergyInsightsGlobalEnergyPerspective2021andIEAWorldEnergyOutlook2021,prioritizationbasedonNationalCleanHydrogenStrategyandRoadmapGlobalenergyrelatedCO2emissionsin2019,GTCO2PercentageoftotalenergyemissionsXSectorusesH2atscaletodayChapter2:CurrentState–TechnologiesandMarketsSection2.a:TechnologylandscapeKeytakeawaysTherearethreepartstothehydrogenvaluechain:(1)Upstreamproduction,(2)Midstreamdistributionandstorage,and(3)Downstreamuse–•Upstream:Multiplepathwaysexisttoproducecleanhydrogenwithvaryingcarbonintensity,cost,andmaturity.Theseincludereformationwithcarboncaptureandsequestration(CCS)andwaterelectrolysis(Figures2,3).•Midstream:Thereisnosingle,optimalhydrogendeliverysolutionforeveryproductionschedule,distance/volumetransported,andsetofend-userequirements.Offtakersthatarenotco-locatedwithproducersorconnectedviaapipelinemustevaluatethecost-effectivenessofgaseousvs.liquidtruckedhydrogenfortheirparticularusecase,andtheextenttowhichopen-accesspipelineswillbeavailableinthemedium-term(Figures4,5,6).•Downstream:Hydrogencandecarbonizeawiderangeofsectors,particularlyforusecaseswheredecarbonizationalternativesarecostlyorimpractical.By2030,mostdemandforlowcarbonhydrogenislikelytobeasadrop-inreplacementforcarbon-intensivehydrogencurrentlyusedinammoniaandoilrefining.Sectorswherehydrogenisnotanincumbenttechnology,suchasotherindustrialsectors(steel,chemicals),transportation,heat,andpower,willtakemoretimetouptakecleanhydrogen(Figure7).Downstreamsectorsevaluatedforlowcarbon-intensityhydrogeninclude:–Industrials:Ammonia,refining,chemicals(methanol),andsteel–Transport:Heavy-dutyandmedium-dutyroadtransportation;maritimefuels;aviationfuels–Gasreplacement:High-capacityfactorfirmpower;lower-capacityfactorpower;industrialheat;applicationsfornaturalgasblending;longdurationenergystorage(seasonal)Therearethreepartstothehydrogenvaluechain:(1)Upstreamproduction,(2)Midstreamdistributionandstorage,and(3)Downstreamuse.PathwaystoCommercialLiftoff:CleanHydrogen9Figure2:SMRwithCCSandelectrolysisfromcleanenergyhavehighestpotentialforlow-costcleanhydrogensupply.Alternatetechnologies,likepyrolysis,haveothermarketdependenciesthatdriveuncertainty(Carbonintensitiesshownarewell-to-gate)PathwaystoCommercialLiftoff:CleanHydrogen10ComparisonofdomestichydrogenproductionpathwaysUpstream:CleanhydrogenproductionMultiplepathwaysexisttoproducehydrogenwithvaryingcarbonintensity,cost,andmaturity.Currently,mostdomestichydrogenisproducedthroughcarbon-intensivereformation-basedapproacheswithoutcarboncapture(Figure2).ProductionmethodCarbonintensity1,kgCO2e/kgH2Projectedcostdeclineby2030,%Projectedunitcostscurrent&2030,$/kgH2(withoutPTC)%2022USproductionElectrolysis(fromrenewablesandnuclear)4~50%<1%Electrolysis(fromgridelectricity)5~20%<1%Reformation(SMRorATR)withoutCCS2~25%~95%Reformation(SMRorATR)with>90%CCS3~25%<5%Pyrolysis6<1%Estimatesnotavailable1.01.23.61.64.23.41.31.6802461025151Excludesrenewablenaturalgasfeedstocksthatwouldresultinnegativecarbonintensities.Carbonintensitiesshownarewell-to-gate2Capex:SMRfacilitycapex(100kNm3/hcapacity):$215million(currentand2030);referencecasenaturalgas:$4.8/MMBtu(current),$3/MMBtu(2030);highcasenaturalgas:$4.8/MMBtu(current),$3.3/MMBtu(2030);highcasebasedonEIAAdvancedEnergyOutlook2022highoilpricescenario.Rangeforcurrentreformationcostsbasedon+/-25%naturalgasprice.3Unitcostsassumptionsarethesameas(1),plusCCScapex(for100kNm3/hSMRfacility):$145million(current),$135million(2030).CurrentlyoperationalprojectswithCCSmayhavelowerthan90%capturerates.NegativevaluesnotshownbutfeasiblewithhighpercentagesofRNG.4Assumesalkalineelectrolyzerwithinstalledcapex:$1400/kW(current,2MWelectrolyzer,450Nm3/h),$425/kW(2030,~90MWelectrolyzer,20,000Nm3/h);referencecasebasedonNRELATBClass5onshorewind:capacityfactor:42%(current),45%(2030),LCOE:$31/MWh(current),$22/MWh(2030);lowcasebasedonNRELATBClass1onshorewind:capacityfactor:48%(current),54%(2030),LCOE:$27/MWh(current),$18/MWh(2030);highcasebasedonNRELATBClass9onshorewind:capacityfactor:27%(current),30%(2030),LCOE:$48/MWh(current),$33/MWh(2030)5Electricityunitcostsarebasedonmedian,topquartile,andbottomquartile2030gridLCOEbycensusregionfromEIAAnnualEnergyOutlook2022;assumesthesameelectrolyzerinstalledcapexas(5);medianLCOE:$68/MWh(current),$63/MWh(2030);topquartileLCOE:$66/MWh(current),$62/MWh(2030);bottomquartileLCOE:$89/MWh(current),$80/MWh(2030);GridcarbonintensitiesarebasedondatafromtheCarnegieMellonPowerSectorCarbonIndexaswellasnationalaveragesingridmixcarbonintensity–insomestates,gridcarbonintensitycanbeashighas40kgCO2e/kgH2(absentpowerimport/exportacrosssatelinesthatcanlowerthecarbonintensityofconsumption,relativetogeneration)6ValueswithRNGnotshown(whichcouldincludenegativecarbonintensities)Sources:HydrogenCouncil,NRELAnnualTechnologyBaseline2022,EIAAnnualEnergyOutlook2022PTCvalue,$/kg$3.00$1.00$0.75$0.50CapexOpexTheprimaryreformation-basedproductionroutesare:•Steammethanereforming(SMR):SMRisamature,carbon-intensivetechnologyrepresentinga$10–12Bannualdomesticmarket(<2%CAGRfrom2015–2020)with~10MMTpaoperationalacrosstheU.S.ivCarbonintensitiesofhydrogenmadeusingsteammethanereformingalsodependontheextentofmethaneleaksduringtheproductionandtransportationofthenaturalgasfeedstock.Anticipatedregulationsandadvancesinmethanemonitoringareexpectedtoreducetheseemissionsandprovidegreatermeasurementcertainty.•Auto-thermalreforming(ATR):ATRisalessprevalentgasreformingtechnologythatproducesmoreconcentratedCO2streams,reducingCO2separationcosts.•Othertechniquesincludemethanepyrolysis;othergasificationtechniques,includingbiomassgasification(withandwithoutCCS)andcoalgasification;andseveralotherreformationtechniquesthatcanco-producepower.29,30,31TheseproductionroutesoperateatasmallerscaleintheU.S.andarenotexploredinthisiterationoftheCleanHydrogenLiftoffreport.Reformation-basedproductioncanbepartiallydecarbonizedtoreduceupto~60%oftotalCO2eemissionsbyaddingcarboncapturewithstorage(CCS).viiCCSaddsupto$0.4/kgtohydrogenproductioncosts,dependingonthegeography,capturerate,andreformationtechnology.xii,32,33By2050,reformation-basedproductionwithCCSmayaccountfor50–80%oftotalU.S.hydrogenproduction(seeChapter3,Figure14).Severalcarboncaptureapproachesareavailabletodecarbonizethemorethan10MMTpaofreformation-basedhydrogenproductionthatisalreadyoperationalintheU.S.andemits~100millionmetrictonnespaofCO2today.34Point-sourcecapturetechnologiessuchasamine-basedsolventsarewellestablished,and~25millionmetrictonnespaCO2ofdomesticcapacityisalreadyoperationalacrossvariousindustries.35Amine-basedsolventscancapture95%ofpoint-sourceemissionsfromATRvs.90%fromSMR,althoughwithinerrorbars,somestudiessuggestCCScaptureratesmaybeagnostictothereformation-basedproductionpathwaychosen.xiiReformation-basedhydrogen,whichusesnaturalgasasafeedstock,willalsohaveupstreamemissionsfromnaturalgasproductionanddistribution.CleanhydrogenproducersareexpectedtotakeadvantageofeitherthehydrogenPTC(45V,IRA)orthecarbonsequestrationtaxcredit(45Q,IRA)toimprovenear-termprojecteconomics.•TheIRA’shydrogenPTCoffersarangeofcreditvaluesbasedonthecarbonintensityoftheproductionpathway,upto$3/kgfor<0.45kgCO2e/kgH2,assumingprevailingwageandapprenticeshiprequirementsaremet.36Calculationsforqualificationunder45Vincludeupstreamemissionsofmethaneduringproductionandtransportationofthenaturalgasfeedstock,atopicnotcoveredinthisLiftoffdocument.•TheIRA’senhanced45Qtaxcreditincreasedthevalueofsequesteredcarbonfrom$50–$85/ton.29Methanepyrolysis:Projecteconomicsforthisproductionmethodfrequentlydependontheprevailingpriceofcarbonblack,ahighvaluematerialusedintires,plastics,andchemicalfilms.Carbonblackisasmall,low-growthglobalmarket(~$14Bin2021,4.6%).Ifalternativeusesofcarbonblackarenotidentified,thereissomeriskthatoverproductionofhydrogenviamethanepyrolysiscouldfloodthedomesticmarketwithcarbonblackbeyonditsrelevantuseanddepressitspricesignificantly.Beyondthecurrentmarketlimit,newusesforcarbonblackwouldneedtobedeveloped(e.g.,cost-effectivesynthesesofgraphite,carbonfiber,orcarbonnanotubes–formore,seepublicationsfromARPA-EandindustrypartnerslikeHuntsman).CarbonblackmarketsizeandgrowthratearefromStevens,Robert,EricLewis,andShannonMcNaul.ComparisonofCommercial,State-of-the-Art,Fossil-BasedHydrogenProductionTechnologies.No.DOE/NETL-2021/2743.NationalEnergyTechnologyLaboratory(NETL),Pittsburgh,PA,Morgantown,WV,andAlbany,OR(UnitedStates),2021.30Biomassgasification/pyrolysiscanproducezeroornegativeCIhydrogen,butlogisticsrequirefurtherdevelopmenttoreachscale.IfappliedwithCCS,biomassgasificationprovidesacarbon-negativepathwaybyprovidingavectorforbiogenic/atmosphericcarbontobesequestered.31Notethatcoalgasification,withacarbonintensityof16-20kgCO2e/kgH2,isalsoacommonproductionroute,representing18%ofglobalproduction,butitaccountsforasmallshare(<1%)ofU.S.production.32CCScancapturecarbonatthepointofhydrogenproduction,upstreamfugitiveemissionsfromnaturalgasextraction,processingandtransportshouldbeconsideredinlifecyclegreenhousegasemissionsaccounting.Thesefugitiveemissionsarehighlyvariablebuthavebeenestimatedat1-3%ofwithdrawnnaturalgasbyvolume.[i],[ii],representing1-3kgCO2e/kgH2forSMRproduction.[iii]SMR/ATRproductionwithCCSwillhaveanon-zerolifecyclecarbonintensitythatwillvarybasedonthenaturalgasupstreamsupplychain.[iv]33Assumesupto$60/tonneCO2transportandstoragecost.Seethe[CarbonManagementCommercialLiftoff]reportfordetailedcostcomparisons.34CalculatedbasedoncarbonintensitiesinFigure235GlobalCCSInstitute,publicannouncementsasofMarch202236SeeInflationReductionAct,Section45V,HydrogenProductionTaxCredit.ThehydrogenPTCisalsoreferredtoas“45V”.PathwaystoCommercialLiftoff:CleanHydrogen11Thepreferredsubsidyforreformation-basedprojectswithCCSwillbeproject-dependentbasedonthecarbonintensityandcapturerateofthefacility.BecausethevalueofthehydrogenPTCscaleswithlifecycleemissionsofproducedhydrogenwhilethe45Qcreditdoesnot,the45Qcreditmaybemoreattractiveforprojectswithhigherupstreammethaneemissionsandhigherpre-capturecarbonintensity.Usingbiogasandrenewablenaturalgasinsteadoffossil-basednaturalgascouldalsodecarbonizereformation-basedhydrogen,butwithoutsubsidiesisnoteconomicallycompetitiverelativetodecarbonizingwithCCS.37Incontrasttoreformation-basedapproaches,waterelectrolysisuseselectricitytobreakapartawatermoleculeintohydrogenandoxygenviaanelectrolyzer.viiiItistheotherdominantproductiontechnologyforcleanhydrogen,receivingsignificantattentionandinvestmentoutsidetheU.S.Forexample,~500electrolyzerprojectsover1MWareannounced,underdevelopment,oroperationalinEuropeaccountingfor~20MMTpaofpotentialcleanhydrogenproduction.38Thecarbonintensityofthisprocessisprimarilybasedonthetypeofpower(i.e.,energyfeedstock)usedtoruntheelectrolyzer,including:39•Dedicatedzero-carbonelectricity:Non-emittingenergysourcessuchassolar,wind,nuclear,andhydrocanproducehydrogenwithcarbonintensitieslowerthan0.45kgCO2e/kgH2,qualifyingforthefullproductiontaxcredit(PTC,$3/kgofH2).Renewablecapacityfactorswillimpacthydrogenproductioncosts;theelectrolyzer’slevelizedcapitalexpenditure(capex)costisinverselyproportionaltothecapacityfactor.However,pairingsolarandwindenergyorusingbatterystoragecanimprovecapacityfactorstolowerthelevelizedcosts.Electrolyzersusinghydroandnuclearpowercanrunathigh-capacityfactors(>90%)allowingforlowerlevelizedcapexcosts.•Renewableornuclearelectricitywithsynchronouspowerpurchaseagreements(PPAs):Non-dedicatedcleanelectricitysourcescanalsobecontractedthroughPPAs.AdditionalregulatoryclarityforproducersseekingtocapturethePTCwouldhelpacceleratefurtherprivateupstreaminvestment.•Electricityviathegrid:Electricityfromthegridenableshighelectrolyzerutilization,however,inmostinstancesintheUnitedStatestodayitwillresultinhighercarbonintensitythannaturalgasreformation.40Whenelectrolyzersarepoweredbythegridinstateswiththehighestfossilpenetrationcarbonintensity(CI)maybeashighas40kgCO2e/kgH2(withnationalmedianat~20kgCO2e/kgH2).ixAsthegriddecarbonizesduetofavorableeconomicsandIRAincentivesforcleanelectricity,sotoowillthecarbonintensityofhydrogenproductionpoweredviathegrid.37Assumes5%RNGblendwith$80/MMBtuagRNGatCI=-300gCO2e/MJ,$3/MMBtunon-renewablenaturalgas.CCSresultsinlowerlevelizedcostofhydrogenoverwiderangeofcapturecostsfrom$20–70/tonneCO238BasedontheHydrogenCouncilandMcKinseyHydrogenInsightsP&Itrackerasoftheendof202239Thermalinputscanoffsetelectricityconsumptionandincreaseelectricalefficiency(electricityistheprimarybutnotsoleinputtoelectrolyzers)40WhenvariableRESareused,theloadfactorisalsocriticalbecauseitdeterminesthelevelizedcapexcost,aswellasthesizeandcostofhydrogenstoragerequired–impactingoveralllevelizedcostofhydrogenPathwaystoCommercialLiftoff:CleanHydrogen12Figure3:Industryestimatesrelatedtoelectrolyzercapexcost-downs.FiguretobeupdatedwhenDOEinternalnumbersareavailableforpublication.Electrolytichydrogenproductionwilllikelycomefromarangeoftechnologies;AWEismostmatureandcertaintoscalefornear-termindustrialusesduetolow-costandabsenceofPGMcatalysts.PEMmustovercomechallengestoincreasescaleup,whileSOECisunprovenatscaleAsshowninFigure3,thecapexcostsforelectrolyzersforecastedbymanufacturersareexpectedtodeclinerapidlythrough2030.Lowercapexwillbethelargestdriverofnear-termelectrolysiscostreductions(through2030)(Figure2,Figure11).However,theseindustryforecastsdonotyetreachtheHydrogenFuelCellTechnologyOffice(HFTO)targetsof~$100-$250/kW(late2020stoearly2030s)motivatingtheneedforadditionalR&Dfundingtobridgethegap.37PathwaystoCommercialLiftoff:CleanHydrogen132030Current300-5002,000-2,500-80%Current380-4502030975-1,200-60%Current2030760-1,000230-400-60%Industryforecastsforsystemcapexexcludinginstallation1,2,3,$/kWHighLowEstimatesnotavailableTechnologyProtonExchangeMembrane(PEM)SolidOxideElectrolysisCell(SOEC)AnionExchangeMembrane(AEM)AlkalineWaterElectrolysis(AWE)ApplicationsDiverseusecases,includingroadtransportDistributedhydrogenproductionGridbalancingLowpurityindustrialusecasesCo-locationwithhightemperaturesteamDistributedhydrogenproductionGridbalancingIndustrialapplications(e.g.,ammonia,refining,steel,chemicals)DisadvantagesScale-upconstrainedbyPGMsupplyandPFAS5usageLessdemonstrationoflong-termdurabilityvs.AWEHeat/steamsourcerequiredLimiteddynamicresponseDurabilitychallengeswithhigh-temperatureoperationsLimitedperformanceandlifetimewithcurrentmaterialsystemsLowcurrentdensityCorrosiveelectrolyteDegreeofmaturityIncreasingscale-up;commercialstageLaboratory/earlycommercialstageLatesttechnology,limiteddeployment;laboratorystageEstablishedtechnology;commercialstageAdvantagesSimplecelldesignandsmallfootprintHighcurrentdensityDifferentialpressureoperationsHighdynamicresponseLowelectricitydemandusingsteam(highefficiency)NoPGMcatalystsPotentialfor:•NoPGMcatalysts•Highcurrentdensity•Differentialpressureoperations•HighdynamicresponseCost-effective,maturetechnologyNoPGM4catalysts1Systemcapexincl.stack,transformerandrectifier,compressorfor30barcompression,purification/dryingfor99.9%purity.2022for2MWsystem,2030for80MWsystem;rangebasedonmedianandtopquartileperformance2Theselevelizedcostsuseindustryestimatesforelectrolyzercapexcostsdevelopedin2020using2020USD.Forecastedelectrolyzercapexvaluesarerapidlyevolvingandmaydifferbetweensources;rangeshavebeenexpandedtoincludebothHydrogenCouncilandBloombergNewEnergyFinancedataforAWEandPEMelectrolyzers3Electrolyzerinstalledcapexvalues:AWE,2022:$1,380-1,420/kW(2MW);AWE,2030:$400-550/kW(80MW);PEM,2022:$1,700-1,800/kW(2MW);PEM,2030:$500-600/kW(80MW);SOEC,2022:$3,500/kW(2MW);SOEC,2030:$700-800/kW(80MW).Installedcapexalsoincludesassembly,transportation,building,andinstallationcosts4Platinumgroupmetals5Per-andPolyfluorinatedSubstancesSource:BloombergNewEnergyFinance,HydrogenCouncilFourelectrolyzertechnologiesareatvariousstagesofcommercialreadiness:Midstream:Distributionandstorage41Today,theU.S.operatesmidstreaminfrastructurethatdistributesandstoreshydrogenincluding1,600milesofdedicatedhydrogenpipelinesandthreesaltcavernsforgeologicstorage.42Pipelinesandgeologicstoragearecostlyupfronttodevelop,butathighhydrogenvolumesprovidecriticaleconomiesofscale.Dedicatedhydrogenpipelinesandlow-costgeologicstorageareexpectedtoanchorhydrogeninfrastructureinthelong-term(post-2035).Moremodularsolutions—suchasgaseousorliquidtrucking—areneededtomovehydrogeninlowervolumes(<50tonnes/day),withsomeboundaryconditionsforhydrogendistributionshowninFigure4.Asdescribedthroughoutthisreport,inthenear-termlimitedavailabilityofmidstreaminfrastructureisaconstraintforscalingcleanhydrogenwhereco-locatedproductionandofftakeisnotfeasible,representingakeychallengethatmustbeaddressed.HydrogenDistribution41Thisreportreferstohydrogen“distribution”tomeanthemovementofhydrogenmolecules–regardlessofscaleormodeofmovement.42Incontrast,morethan3millionmilesofnaturalgaspipelineareoperationalacrosstheU.S.PathwaystoCommercialLiftoff:CleanHydrogen14Figure4:Pipelinesarethepreferredsolutionatlargevolumes,butwilllikelynotbeneededuntil~2030whenofftakescalesPreferredhydrogendistributionmethodbyvolumeanddistanceVolume,H2tonnesperday510100100050250500Distance,miles12010015060050300Gasphasetrucking1LiquidH2trucking2H2pipeline(newbuild)21Assumeshydrogeniscompressedto500barandtransportedin1100kgtruck2Includesliquefactionandliquidtransport(fuelandlabor)3Assumeshydrogeniscompressedto80barandtransportedinanewlybuilt,dedicatedH2pipeline.TheseresultsdonotconsiderleveragingexistingpipelinesSource:HeatmapisbasedondatafromtheHydrogenCouncilandtheHydrogenDeliveryScenarioAnalysisModelatArgonneNationalLaboratory,butleftqualitativetohighlightuncertaintyindistributionmethodsandcase-by-casevariabilityNotethatthereisnosingle,optimalhydrogendeliverysolutionforeveryproductionschedule,distance/volumetransported,andsetofend-userequirements.Offtakersthatarenotco-locatedwithproducersorconnectedviaapipelinemustevaluatethecost-effectivenessofgaseousvs.liquidtruckedhydrogenfortheirparticularusecase,andtheextenttowhichpipelineretrofitswillbepossible.Commontrade-offsandlevelizedcostsareprovidedinFigure5.Afewexampleshighlighttherangeofleast-costapproachespursuedaroundtheworld:1Assumeshydrogencompressedto500barandtransported250km;50TPDcompressioncapacity;Source:HydrogenCouncil2Assumeshydrogenliquefiedandtransported250km;50TPDcompressioncapacity;Source:HydrogenCouncil.Rangebasedonincreasedleakrateandliquefactioncosts.3Assumes600TPDhydrogencompressedto80barandtransported300km;rangerepresentsdifferencebetweenhigh-costregion(NewEngland)andlow-costregion(GreatPlains);Source:HydrogenDeliveryScenarioAnalysisModel,ArgonneNationalLaboratoryFigure5:Industry-informeddistributioncosts.Gastruckingissuitableforshortdistance/smallvolumetransportwhileliquidtruckingispreferredforhigherthroughputusecasesoverlongerdistanceswhenpipelinesarenotavailableorpracticalPathwaystoCommercialLiftoff:CleanHydrogen15DistributionmethodKeycharacteristics2030levelizedcost,includingcompression/liquefaction,$/kgDedicatedhydrogenpipelinetransport3UndergroundpipelinetransportingcompressedgasphasehydrogenLowestlevelizedcostathighvolumes(50+TPD)andlongdistancesduetolowopexcosts;notcommonlyusedforlowervolumesRequirespermittingapprovalandhighupfrontcapexcosts($2-10millionper(inch-mile)for6–14-inchdiameterpipes)Gasphasetrucking1H2gasiscompressedatambienttemperatureto300–500barIdealforshortdistancesandsmallvolumes(<20TPD)duetolowercapexcostsforcompressorsandtubetrailersvs.liquidandpipelinetransportLowertransportcapacityduetothelowvolumetricdensityofH2Liquidhydrogentrucking2Cryogeniccoolingtoliquefyhydrogen,followedbystorageincryogenictankersIdealforlargervolumeswherepipelinesarenotfeasibleandlongerdistancestominimizethenumberoftripsanddriverlaborcostHighercapexcoststhangasphasetruckingbutlowerthanpipelinesHydrogen/naturalgasblendedpipelineBlendingofupto~20%hydrogenbyvolumeintonaturalgaspipelinesforuseinthepowerandheatingsectorsBlendingratesarelimitedduetoleakageandrequiredcompressormodifications,butworkisunderwaytorefinevolumethresholdSeparationofhydrogenfromnaturalgascanbeveryexpensiveDependentonblendingvolumeandretrofitcosts0.9-1.92.7-3.20.2-0.5••Todate,Europehasreliedonapredominantlygaseoustruckingnetworkbecausetransportregulations,drivercost/wages,anddistancestravelledgenerallymakegaseoushydrogenlessexpensivethanliquiddistribution.Forecastinggrowthofthehydrogeneconomy,someEuropeanenergyinfrastructureoperatorsareplanninganextensivegaseouspipelinenetwork,withalengthofalmost53,000kmby2040,largelybasedonrepurposedexistingnaturalgasinfrastructure.x•IntheU.S.,existingproducersofhydrogenhavepursuedapredominantlyliquidnetworkwithagaseousdistributionnetworkatsmall-scale,whilelargerdomesticofftakeiscurrentlyservedbyco-locatedproductionand1,600milesofdedicatedhydrogenpipeline.Gaseoustruckingnetworkscanoffersignificantlylowercapexcomparedtoliquidtruckingnetworks.Thiscostdifferentialisdrivenalmostentirelybythehigherinstalledcostofaliquefier(forliquidtrucking)thancompressionequipment(forgastrucking).43Inaddition,gaseoushydrogencanbeeasiertoprovidetosmallerofftakersviatrailerswapping(insteadofthroughlow-temperatureliquidtransferorvaporizationtoagasfromliquidtrailers).Duetolowercapitalintensityandcost-effectiveoperationatmuchsmallerscales,gaseoushydrogenproductionanddistributioncanofferlowerbarrierstoentry.Thiscouldenablesmaller-scaleprojectdevelopmentacrossthevaluechain,drivingfragmentationandcompetitionamongproducersanddistributors.Insomecases,increasedcompetitioncouldcontributetoreductionsinthecostofgaseoushydrogen,makingitanimportantpathwaytoextendhydrogenbeyondregionalinfrastructureclusters(whichwillseeeconomiesofscale)andtoremoteareasthatmightnototherwisebeserved.Gaseoushydrogenequipmentcanalsobeeasiertopairwithoff-gridrenewables.Liquefiersarenotaseasilycompatiblewithoff-gridrenewablepowerbecausetheyhavelessfavorableturn-downratiosandverylongpowercycling.Incontrast,compressorsforgaseousecosystemshavemoreflexibleturn-downratiosandpowercycles,makingthemastrongermatchforoff-gridvariablerenewables.Pairinghydrogenproductionwithoff-gridrenewablescouldacceleraterenewableenergydeploymentandhydrogenecosystemgrowthinparallel,byavoidingpowerlinesitingandconnectionqueueissues.Notethatanyhydrogenproductionsystemconnectedtoarenewableenergysourcethatdoesnothaveon-sitepowerback-uporgridconnectivitywillrequireon-sitehydrogenstoragetomanagehydrogenproductionintermittencywhichcanaddcost(seeFigure6andstoragesectionbelow).Inadditiontotruckingliquidorgaseoushydrogen,hydrogencanbedistributedviapipeline.Dedicatedhydrogenpipelinescanmovelargevolumesoverlongdistancestoachieveeconomiesofscale($0.2-0.5/kgfordistributing600tonnesperday300km).However,initialpipelineconstructionistimeandcapitalintensive.Pipelinesalsorequireastable,credit-worthyofftakerswhowilldemandsignificantvolumesofhydrogensufficienttojustifydedicatedinfrastructurebuild-out.TheUnitedStateshas~1600milesofdedicatedhydrogenpipelinestoday.iiiInitiativesareunderwaytoexploreblendinghydrogenintoexistingpipelinenetworks.Thisincludesblendinghydrogenintodomesticnaturalgaspipelinesatupto20%byvolume(2–7%contentbyenergydensity),withasmallnumberofdemonstrationprojectsupto30%.xi,44Blendingcanmovesignificantvolumesofhydrogen.However,separatingandpurifyingthehydrogenfromnaturalgasisdifficult.Blendedhydrogenandgasalsorequireend-useequipmentthatcantakeablendedfuel.Whenblending>5–10%hydrogen,appliancesconnectedtothepipelinemayhavetobequalifiedorconvertedtothehydrogenblend,achallengingtransitionaleffort(notethatHawaiiblendsashighas~15%withoutretrofitsofend-useappliances).45,xxInaddition,ifblendratioschange,appliancescouldrequirefurtherupgrades.Forresidentialuses,hydrogenblendsalsoneedtocompetewithelectrificationasadecarbonizationalternative.Electrificationisinmostcaseslessexpensivethanuseofblends,andinmanycasesitcanbeaneasiertotransitionhomeappliancestoelectricitythanitcanbetotransitionthemtotheuseofblends.43Innovationsinhighpressurehydrogencompressionequipmenthaveallowedforsignificantlyhigherthroughputcompressorswithconcurrentcostreductionsfromsystemscale.Combinedwithimprovedsystemreliabilityandefficiency,thesesystemsbringbothtotalinstalledcostandoperatingcostswellbelowcompressionsystemsavailablepriorto2020.44DOE’sHyBlendinitiativeaimstoaddresstechnicalchallengestoblendinghydrogeninnaturalgaspipelines.KeyaspectsofHyBlendincludematerialscompatibilityR&D,techno-economicanalysis,andlifecycleanalysisthatwillinformthedevelopmentofpubliclyaccessibletoolsthatcharacterizetheopportunities,costs,andrisksofblending.45Decarbonization:Hawaiigas.(n.d.).RetrievedJanuary3,2023,fromhttps://www.hawaiigas.com/clean-energy/decarbonizationPathwaystoCommercialLiftoff:CleanHydrogen16HydrogenStorageForhydrogenstorage,compressedgaseoushydrogenstorageinapressurevesselhasthehighestlevelizedcostbutiseasiestforlowvolumes,asdetailedinFigure6.Liquidhydrogenstoragehaslowerlevelizedcostbutrequireshigheroverallcapexandcanexperienceboil-offlosses(particularlyduringlongerstoragedurations),makingitappropriateforlargervolumesandscenarioswithhighutilization.46Geologicstorageinsaltcavernsandhardrockcavernshasthelowestlevelizedcostbutisgeographicallylimitedandcost-effectiveonlyforverylargevolumes.46Liquidhydrogenbeginstoboiloffafter10daysandneedstobeventedandlost47Liquidboil-offisthehydrogenthatventsfromliquidstoragetanksFigure6:Industry-informedstoragecosts.Linedhardrockandsaltcavernstoragearegeographicallyconstrainedbutrepresentthelargestscaleandlowest-coststorageoptions.Large-scaleproductionandofftakearelikelytobebuiltnearthesenaturalresourcesWhilecodesandstandardsinformingdesignofhydrogeninfrastructureenablesafeoperation,lossescanoccurthroughoutthesupplychainthatimpactbothfinancialperformanceandenvironmentalbenefits.Hydrogenisasmallmoleculethatismoresusceptibletoleakagethanmethane,especiallythroughthreadedconnectionsorvialiquidboil-off.xii,47Asthehydrogeneconomyscales,carefulandrigorousattentionmustbepaidtotheemissionsimpactofhydrogenleakage(hydrogenhasanindirectglobalwarmingpotential),safety,andtheimpactonstakeholdersandenergycommunities(seeChapter3).PathwaystoCommercialLiftoff:CleanHydrogen171Doesnotincludecostofcompressionorliquefaction(includedintransportcosts)2Assumes950kgstoredat500barwith1cycleperweek;Source:HydrogenCouncil3Assumes1cycleperweekand50TPDvolume,Rangebasedon0.5-2cyclesperweek.Source:HydrogenCouncil4Assumescapacitytostore600TPDpipelinethroughputfor7-daysat80bar;cushiongasis~40%ofvolume;Rangebasedon50-2000TPD;ArgonneNationalLaboratory5Assumes150barstoragewith1cycleperweek.Rangebasedon0.5-2cyclesperweek.Source:ArgonneNationalLaboratoryDistributionmethodKeycharacteristics2030levelizedcost1,$/kgSaltcavernstorage4Geologicformationscreatedbysaltdepositsthatcanstoregaseoushydrogenatelevatedpressure(70-190bar)Large-scalestorageandlowcapitalcosts,butalsolimitedavailability(~2000saltcavernsinNorthAmericawithanaveragecapacityof105-106m3)Saltcavernscanalsostoreothergases(e.g.,naturalgas),sothereiscompetitionforcavernusageStoragecapexcostsexpectedtoremainstablethrough2030Compressedgastankstorage2H2gasiscompressedatambienttemperatureto300–700barStoragecapacityislimitedduetothelowvolumetricdensityofH2atroomtemperatureHighestunitcostoption,butlowertotalcapexcostduetosmallerscaleStoragecapexcostsexpectedtodeclinefrom~$550/kgto~$400/kgin2030Liquidhydrogenstorage3Cryogeniccoolingtoliquefyhydrogen,followedbystorageininsulatedtanksAllowsstorageoflargevolumesofhydrogen,butrequireslargetotalcapexinvestmentHydrogenliquefactionuses>30%ofthehydrogenenergycontentLiquidhydrogenisnotviableforlong-termstorage(>10days)Storagecapexcostsexpectedtodeclinefrom~$120/kgto~$100/kgin2030Linedhardrockstorage5Undergroundcavernissurroundedbyhard,lowpermeabilityrock,whichcanbelinedtoholdpressurizedhydrogenEarlierstagetechnologythansaltcaverns,withlimitedhydrogendemonstrationsbutexpectedtoallowhigherstoragepressures(upto300bar)Storagecapexcostsexpectedtoremainstablethrough20300.8-1.00.1-0.30.05-0.150.1-0.3End-useSectorDescriptionofswitchingcostsAmmoniaIndustryLow:Processcurrentlyusesfossil-basedH2,hydrogensupplyfeedinplaceRoleofH2indecarb.H2feedstockTAM1,$billionH2marketsizewithfulladoption2,$billionSteelVariable:Highlydependentoncurrentplantconfigurationandfeedstock,mayalsoincludehydrogendistributioninfrastructureChemicals-methanolVariable:CanlimitswitchingcostsbyaddingCCStoSMR,otherapproachesmorecostlywithhigherunitcostsavingsTransport1Road3High:Newvehiclepowertrainswithfuelcells,refuelingstations&distributioninfrastructureAviationfuelsModerate:Fuelconversion/productionfacilitiesMaritimefuels4High:Newshipengines,portinfrastructure&localstorage,andfuelsupply,storage,andbunkeringinfrastructureinportsHeatingNGblendingforbuildingheat5Variable:Willdependonpipelinematerial,age,andoperations(e.g.,pressure);requirestestingfordegradationandleakageIndustrialheatVariable:DependentonextentoffurnaceretrofitsrequiredHigh-capacityFirm–20%H2(Combustion)6PowerModerate:Retrofitstogasturbines,additionalstorageinfrastructureRefiningLow:HydrogensupplyfeedinplacePower–LDES7Moderate:Retrofitstogasturbines,additionalstorageinfrastructureVariesbasedoncost-downsinotherLDEStechnologiesandcompositionofgridLargestlong-termH2feedstockTAMCombinedproductionandstorageimplicationsLikemostenergytechnologies,end-usesfrequentlyrequirehigh-uptime,uninterruptedsupplyofhydrogen(e.g.,foruseinindustrialandchemicalsapplicationslikeammoniaproduction).Untillow-costhydrogenstorageandtradingisachieved,behind-the-meterproductionwithvariablerenewablepowermayrequireabackuphydrogensupply.Gaseousvaluechainswouldneedtodeployexcessgaseoushydrogenstorage(on-siteoratanofftaker)toensurereliablesupply,increasingthetotalcostofdeliveredhydrogen.Or,liquidhydrogendistributorscouldprovidebackupsupplytohydrogenofftakers,oftenatasignificantpricepremium,sinceliquidtransportallowslongdistancedistributionoflargehydrogenquantities.Downstream:End-usesHydrogencandecarbonizeawiderangeofsectors,particularlyforusecaseswheredecarbonizationalternativesarecostlyorimpractical.Mostdemandby2030forlowcarbonhydrogenwillbedrop-inreplacementforcarbon-intensivehydrogencurrentlyusedinammoniaandoilrefining.Sectorswherehydrogenisnotanincumbenttechnology,suchasotherindustrialsectors(steel,chemicals),transportation,andgasreplacement(heatandpower),willtakemoretimetodevelopwithoutregulatorydrivers.Figure7illustrateshydrogen’spotentialasadecarbonizationleveracrossthesesectorsincludingassociatedswitchingcostsandthepotentialmarketsize(USD)forhydrogenasafeedstockineachapplication.PathwaystoCommercialLiftoff:CleanHydrogen185-12203020404-1020504-116-84-84-72-63-7025-3040-555-1510-30000<0.1<0.1<0.2205020305-1220404-104-116-815-3018-3520-405-125-126-1490-125120-160110-14010-258-2010-302-32-32-38-125-84-68-20<14-105-155-158-2001-32-57-107-107-104-608-111Representsthemarketsizeforcleanhydrogenfeedstocksineachenduse;calculatedbymultiplyingthecleanhydrogeninthe“Netzero2050–highRE”scenariobyrangeofwillingnesstopaybyendusereportedintheDOENationalHydrogenStrategyandRoadmap;dispensingcostsaresubtractedfromtheroadtransportTAMandmarketsizewithfulladoption2Representsthemaximummarketsizeifthehydrogen-basedsolutionhad100%shareofeachenduse3H2feedstockTAMusesH2demandfromtheDOENationalHydrogenStrategyandRoadmapassumingbothmedium-andheavy-dutytrucks;H2marketsizewithfulladoptionisbasedonenergyusagefromClass8long-haulandregionaltrucks,whichrepresentthesignificantmajorityofallmedium-andheavy-dutytruckenergyconsumption4MaritimefueldemandandsplitbetweenammoniaandmethanolmaritimefuelfromtheMissionPossibleProjectreport“AStrategyfortheTransitiontoZero-EmissionShipping”,assumingU.S.portsuse6%ofglobalmaritimefuelbasedonvolumeoffuelusedinglobalports5H2TAMbasedonDOENationalHydrogenStrategyandRoadmapassumptionthatallhydrogenforheatingisusedforindustrialheat;H2marketsizewithfulladoptionassumes20%hydrogenblendingbyvolume6Willingnesstopayisbasedonhigh-capacityfactorfirmcombustion7LongDurationEnergyStorage(LDES)hydrogendemandandwillingnesstopayfromDOENationalHydrogenStrategyandRoadmapFigure7:Hydrogenisalargeandgrowingdomesticmarket,from$80-150Bby2050.Thelargestmarketsareforhydrogeninindustrialusecases,mediumandheavy-dutyroadtransport,andliquidfuelsthatusehydrogenfeedstock.Someend-usesegmentswerenotanalyzedinthisiterationoftheLiftoffreport.End-usesnotanalyzedinclude(1)cleanhydrogencombustionforpeakingpower(low-capacityfactor)and(2)cleanhydrogencombustionforintermediaterangecapacityfactorturbines.Inthepresenceofcarbonconstraintsorotherregulatorydrivers,theseusecases(1)and(2),mayhaveahigherpotentialinthepowersectorthanhigh-capacityusecasesdetailedabove(Figure7).Overall,hydrogenfeedstocksareexpectedtorepresenta$80-150Bdomesticmarketby2050.Switchingcostsandsector-specificeconomicshaveimplicationsonpenetrationrateandtotaladdressablemarket(TAM).Figure7explorestheTAMforhydrogenasafeedstock–firstbasedonforecastsforend-usedemanddescribedintheDOENationalCleanHydrogenStrategyandRoadmapandthen,illustratively,at100%marketadoption(detailsfollow–alsoseeModelingAppendix–Methodology7).48Industrialfeedstocks:•Ammonia:AmmoniaisaCO2intensivecompoundthatcandrasticallyreduceitsemissionsfootprintwithlowcarbonhydrogen.xiii,49Roughly70percentofammoniaproducedgloballyisforfertilizeruse.xivItisalow-margincommoditythatisunlikelytoseehighwillingnesstopayoutsideofmarketswithstrongcarbonregulation(e.g.,EuropeanUnion).IntheU.S.,urea-basedfertilizerwouldalsorequireanalternativecleanCO2source.Existingdomesticammoniacapacity(forfertilizeruse)isexpectedtolargelyoptforreformation-basedproductionpathwayswithCCS.However,thedomesticfertilizerindustrycouldcontributetocost-downsinelectrolysisifelectrolytichydrogenreplacesevenasmallshareofthereformation-basedhydrogencurrentlyusedintoday’sprocesses(duetothescaleofdomesticammoniaproductiontoday).Ifnewmarketsforammoniadevelop(e.g.,asanenergycarriertoshipcleanhydrogen),electrolysiscouldbethechosenproductionmethodifdomesticorinternationalmarketsdemandahigherwillingnesstopayforthelowest-carbon-intensityoption,andhaveaccesstoscaled,low-coststoragetosupporttheseusecases.Asahydrogencarrier,ammoniaisalsobeingexploredasamaritimefuelandasapowersource.50Ithasexisting,matureglobalanddomesticinfrastructureincluding~2,000milesofdomesticammoniapipelines.xv,xviThisinfrastructurecanbeusedtoexportammoniaintocountriesthat(A)lacknaturalgasresourcesand/orCO2sequestrationsites,or(B)lackanabundanceofcost-effectiverenewableresources(e.g.,Japan,SouthKorea),whichcoulddrivefurthergrowthintheU.S.ammoniaproductionmarket.xviiHowever,domesticammoniaproducersmayfacesteeppricecompetitionfromregionswithhighcleanenergypenetration,lowconstructioncosts,andfewerconstraintsrelatedtoprojectsiting/permitting(e.g.,MiddleEast).•Oilrefining:Approximatelyfifty-fivepercentofcurrentdomestichydrogenconsumptionisallocatedtorefineriestoremovesulfurandupgradeheavyoilintomorerefinedfuels,andtohydrocrackheavierrefineryproducts.iiiThishighcarbonintensityhydrogencanbedirectlyreplacedwithcleanhydrogen.48TAManalysisisforillustrativepurposesonlyandintendedtoshowrangeofadoptionscenarios.SeeModelingAppendixforadditionaldetail.49SeveralammoniafacilitieshaverecentlyannouncedcarboncaptureandstorageretrofitstotheintegratedSMRfacilitiesthatproducehydrogenforammoniasynthesistoday.Thismethodrepresentsalower-costapproachtocaptureadditionalrevenuefromthetaxcreditsversusbuildingnewreformation-basedorelectrolysis-basedhydrogenproduction.50Shippinginvolvesheavyweightsandlong-rangessoliquidfuelswithahigherenergydensitythanhydrogenareneeded.Thetwoprimarycandidatesfordecarbonizedmaritimefuelareammoniaandmethanol;differentshippingcompaniesarepursuingbothpathways.WhileammoniadoesnothavedirectCO2emissions,itdoeshaveincreasedtoxicitythatmustbemitigatedwithsafetyprotocols.However,theseprotocolsexistandareusedatscaletodayinbothdomesticandexportmarketsforammonia.Conversely,methanolhaslowtoxicity,butemitsCO2thatmusteitherbecapturedandsequesteredoroffsetbyusingacarbonfeedstockthatuptakescarbonfromtheatmosphere(e.g.,biomass).PathwaystoCommercialLiftoff:CleanHydrogen19•Methanol:HydrogenandcapturedCO2(e.g.,viabiologicalsources,point-sourcecapture,ordirectaircapture–DAC)cancreatemethanol.Methanolactsasaprecursorforfuels,plastics,andmanyothergoods.Today,naturalgasreformingisthedominantpathwayformethanolproductionduetothelowcostofnaturalgas.Cleanhydrogenmayseestrongpotentialinhelpingtodecarbonizemethanolproduction,however,thelow-costofincumbenttechnologypresentsanear-termchallengetothecost-effectivenessoflowercarbon-intensitymethanolwhichisreflectedinFigure7TAMestimatesin2030vs.2040.xviii•Steel:U.S.steelproductionissplitintovirginproductionviablastfurnace(BF-BOF,currently~1/3ofproduction)andproductionviaelectricarcfurnaces(EAF,currently~2/3ofproduction).EAFcanbeusedforsecondaryproductionviascrap-basedelectricarcfurnacesorvirginproductionviadirect-reduced-iron(DRI-EAF).xixUsingcleanhydrogeninsteadoffossil-basedhydrogenorsyngascaneconomicallydecarbonizeDRI-EAF,whichcouldaccountfor10-20%ofsteelproductionatscale.51,ixBecausethismethodaccountsforthesmallestshareofdomesticsteelproduction,hydrogen’suseasafeedstockinsteelproductionremainsrelativelyflatthrough2050basedontheDOENationalCleanHydrogenStrategyandRoadmap.BF-BOFismoreeconomicallydecarbonizedbyinstallingcarboncaptureandsequestration,althoughhydrogenmaybeusedinsteadofpetroleumcokeinthepre-blastfurnaceprocessingoffeedstocks.52ToreachthehydrogenmarketsizewithfulladoptionshowninFigure7,U.S.steelproductionwouldneedtocompletelytransitiontoDRI-EAFproduction,whichwouldlikelyrequireadditionaldecarbonizationpolicytomotivatethetransitionfromBF-BOFandcouldresultinashortageofscrapsteelforEAF.Transportation:Hydrogencanplayamulti-facetedroleintheTransportationsector.Itcanbeuseddirectlyinfuelcellpoweredmachinesorindirectlyviasyntheticfuels.Technologyselectionwillbebasedontherangeofrequiredoperatingconditionsandthecost/performanceofalternativedecarbonizationtechnologies(e.g.,electrification).•Roadtransportation:Roadtransportationcomprised33%of2019U.S.greenhousegasemissions,mostlyreliantondieselandgasoline.53Mediumandheavy-dutyvehiclesaccountforaboutone-fifthofthedomestictransportationsector’semissions.xxxiiForroadtransport,cleanhydrogenismostapplicablewhenfuelcellvehiclesarerelativelymorecompetitivecomparedtobatteryelectricvehiclesforaparticularsetofcost/performancerequirements.Examplescouldinclude:(1)heavy-dutytransportation,wherebatteryweight,cost,andrangecanimpactpayloads;(2)coldregionswherebatteryrangemaydropascomparedtobatteryrangeinlesscoldregions;(3)highuptimeusecaseswherechargingmaynotbesufficientlyfastorgridcostsforfastcharging(orfleetcharging)maybeprohibitivelyhigh.Intheseinstances,transportationapplicationsmayprefertousefuelcells(directlypoweredbyhydrogen)orhydrogen-derivativecleanfuels(producedthroughbio-basedorsyntheticprocesses).54,55Fuelcellelectricvehicles(FCEVs)canmaintainhighuptimeduetofastrefuelingandat-scalecouldbeservicedbylow-costinfrastructure.However,FCEVsrequiresignificantupfrontinvestmenttocreateeconomiesofscaleinbothvehicleproductionandrefuelingstations.Hydrogen-derivativecleanfuelsarecompatiblewithcurrentvehiclesandrefuelinginfrastructure.FCEVsareexpectedtoplayasignificantroleinmediumandheavy-dutytransport,thoughscalingupFCEVtrucksrequiressignificantinvestmentinrefuelinginfrastructure,truckmanufacturing,andinnovationtoreducevehiclecapexcostandimprovefuelcelldurability(>$250Bby2050).56,57Similarly,automanufacturersarelikelytofaceasteeprequiredramp-upofproductioncapacity.Ifcost-downsareachieved,heavy-dutyFCEVsshouldbecost-competitivewithincumbentandalternativevehiclesonaper-passenger-orton-milebasis(seeFigure15-totalcostsofownershipbyend-useandFigure27–inModelingAppendix).RegulatorydriversmayalsoaffectthetimingofFCEVuptake.51AnalternativeapproachforbothBF-BOFfacilitiesandnatural-gas-basedDRI+EAFfacilitieswouldbetoaddCCSinfrastructureratherthanconvertingtohydrogen.ThecapexcostsassociatedwiththisCCSretrofitdependsonthehydrogenconcentrationbeingfedintoDRI;complexityandcostincreasesbeyond30%hydrogen52AnotheroptionbeingpursuedinEuropeisreplacingthefullBF-BOFprocesswithDRI+EAFwithhydrogen;however,thisconversionisnotyetbeingpursuedintheU.S.andfaceschallengesaroundthelocationofsteelplantsrelativetothebestsourcesofcheapandreliablehydrogen53EPA“InventoryofU.S.GreenhouseGasesandSinks”54Thetotalpotentialvolumeofbiofuelsproductioncouldbelimitedbylanduseconstraintsandfoodsecurityconcerns.Asaresult,inthelong-termbiofuelvolumeswilllikelygototransportusecaseswiththefewestdecarbonizationalternatives,andthereforeahigherwillingnesstopay(e.g.,aviation).Industryperspectivesalsovarysignificantlyondecarbonizationpotentialfrombiofuelsanddynamicsaroundlanduse.55Power-to-liquidfuels(sometimescallede-fuels)aresyntheticallyproducedhydrocarbonsthatarecreatedbycombininglow-carbonpower,catalysts,cleanhydrogen,andcapturedcarbondioxidetoproducefuelssuchasmethanol,ammonia,andkerosene.56SeeDOE’sMillionMileFuelCellTruckinitiative57SeeModelingAppendixfordescriptionofmethodologyforcalculatingrequiredinvestmentsPathwaystoCommercialLiftoff:CleanHydrogen20Notethathydrogenhasalsobeensuccessfullydeployedinnon-roadvehicleapplicationswithhigh-payload,high-uptimerequirements(e.g.,forklifts).Manymaterialshandlingequipmentusecasesrequiringhighuptimeareexpectedtoswitchtohydrogen(e.g.,constructionvehicles,airportgroundtransportequipment).•Aviation(Fuels):Theaviationsectorhaslimitedpathwaystodecarbonizeduetoaircraftrange/weightconstraintsaswellaslimitationsimposedbyexistingairportdesigns/operatingmodels.58,59Sustainableaviationfuel(SAF),producedthroughbio-basedorsynthetic(power-to-liquid)technologies,providesa“drop-in”replacementthatcanbeblendedupto50%inexistingaircraft.60BothSAFproductionmethods,bio-basedandsynthetic,usecleanhydrogenasaninput.Regionalaircraftcanrunonpurehydrogenfuel,butlong-haulaircraftwithpurehydrogenwouldrequirenewairframes(dependentonFAAapprovaltimelines)andsignificantchangestoairportgate/operatinginfrastructure.Inaddition,newaircraftdesignswouldrequirefleetturnoverisanindustrywhereassetturnoverisslow.xxixThesefactorsmeanthathydrogen-poweredflightforlong-haulaviation—thebulkofthesector’semissions—mayremainmultipledecadesawayandSAFislikelytobethemostviablepathwayforrapiddecarbonizationforthebulkoftheindustry’semissions.61•Marine(Fuels):Therearemultipleapproachestodecarbonizemaritimeemissions,however,theindustryisstillevaluatingtechnicalandperformancetrade-offstodeterminethemostlikelypathway.xxPortandregionalmaritimeequipmentmayelectrifywithbatteries,orusehydrogenoritsderivatives(e.g.,ammonia,methanol,biofuels,ande-fuels).xxixApproximatelyhalfofU.S.marinevesselemissionsarefrominternationalshipping,thirtypercentarefromdomesticshipping,androughlytwentypercentarefromrecreationalvessels.xxixThereareopportunitiesforbothhydrogenandhydrogencarriersacrossthesesegments,andinpier-sideapplications(e.g.,stationarygenerators,drayagetrucks).Internationalcargoshippingrequiresprohibitivelylargevolumesofhydrogenandislikelytoneedmoreenergydensereplacements.Biofuelsareunlikelytobeascalablesolutionbasedonconstraintsonvolumeandpriceofsustainablefeedstocks.Hydrogen-derivativelowcarbonfuels(e.g.,cleanmethanol,cleanammonia)arepromising,butthefuturefuelmixisnotyetcertainwithintheindustry.Eachhasfeedstock,emissions,orsafetychallenges(e.g.,onboardcontainerization)thatwillrequireinternationalstandardsagreements,furthertechnicalprogress,andinvestigationinfollow-onLiftoffreports.GasReplacement–Heating:Hydrogencanbeblendedordirectlyusedforheating.Residentialandcommercialheatingrequireslow-gradeheat(<300C).Industrialapplicationstypicallyrequirehigh-gradeheat(>300C),whichhasfewerdecarbonizationalternativesandthereforeahigherwillingnesstopayforcleanhydrogen.•Residentialandcommercialheating:At>5-10%blendingnaturalgasconcentration,retrofitsareexpectedtoberequiredforend-useappliances(e.g.,furnaces,stoves).However,thereareexamplesofblendingashighas15%withoutend-useretrofits(e.g.,StateofHawaii).Multiplecompetingalternatives(e.g.,electrificationviaheatpumps)leavehydrogenchallengedforresidentialandcommercialheatinginmanyregions.58Forexample,newpropulsionsystemsandnewonboardstoragesystems59Longrangehydrogenaircraftwouldneedtoadoptnewdesignsthatwouldpreventthemfromusingcurrentairportgateinfrastructure60InternationalAirTransportAssociation(IATA)-FactSheet2,SustainableAviationFuel:TechnicalCertification,https://www.iata.org/contentassets/d13875e9ed784f75bac90f000760e998/saf-technical-certifications.pdf61“Flightsgreaterthan1,000nauticalmilesrepresent65%(oftheaviationsector‘s)totalfuelusage”viatheU.S.DepartmentofEnergy,”TheU.S.NationalBlueprintforTransportationDecarbonization”,2023,page72.PathwaystoCommercialLiftoff:CleanHydrogen21•Industrialheating:Theunitcostsofindustrialretrofitsaremuchlowerthanthoseforresidentialandcommercialhydrogenuseforheat.Industrialheating—particularlyforapplicationssuchasglassandcementthatrequirehightemperatureheat—represents31%oftheU.S.manufacturingsector’stotalenergy-relatedemissions.62,xiInmostinstances,high-temperatureprocessheatcannotbeefficientlyreachedbyelectrification,andtheamountofcarbonproducedisnotsufficienttoefficientlycapture,transport,andstore,makingCCScostineffective.Asaresult,hydrogencouldbeaviabledecarbonizationsolutionforhightemperatureindustrialheat.Tofullyimplementhydrogenforindustrialheating,however,severalchallengesmuststillbeovercome,includingburnerdesignandmanagementofNOxproducedfromhigh-temperaturecombustion.GasReplacement–Powersector:Hydrogencanbeusedinthepowersector(1)asahigh-capacityfactorfirm(dispatchable)powersource;(2)asalower-capacityfactorpowersource;(3)aslong-durationenergystorageor(4)forgridresilienceevents.•GenerationCapacity:Hydrogencanprovidehigh-capacityfactorfirmandlower-capacityfactorpowerthroughseveralgenerationpathways,including:–Combustion:Hydrogencanbeblendedwithnaturalgasforco-firinginsometypesofexistingcombustionturbinesforhigh-capacityfirmorlower-capacityfactorpower.Turbinemanufacturersalsohaveplanstodevelopdesignscapableofoperatingwithblendedandupto100%hydrogenintake–Fuelcells:Fuelcellscanprovidepeakingpower–assumptionsandconsiderationsaredetailedinChapter3•Thefutureroleofhydrogenforhigh-capacityfirmandlower-capacityfactorpowerwilldependonitseconomicandtechnicalfeasibility,alongwithcontinuingpolicydevelopments,relativetootherlow-carbonoptions.63AsshowninFigure10,withthePTCapplied,electrolyticproductioncostsareestimatedtofalltolessthan$0.40/kgby2030.64Thiscouldtranslateto~$0.70/kgto~$1.15/kgdeliveredcostofhydrogendependingonstorageanddistributionmethodchosen.65•LongDurationEnergyStorage:Forlong-durationstorage,hydrogenstoredinsaltcaverns(whereavailable)canrepresentacostcompetitiveapproachforseasonalrenewablesloadshifting(e.g.,ACESproject).TheLDESCommercialLiftoffReportcontainsmoredetailsonthelongdurationstoragemarketincludingcompetingtechnologies.Forgridresilienceevents,wherepowerplantsareused2-5%ofthetimeduringextremeweather,hydrogenisthelikelynew-buildplantsolutionowingtoextremelylowpowerstoragecosts,thoughnaturalgaswithcarbonmanagementmaycompeteinsomeareas.6662Notethatevenwiththeexclusiveuseofhydrogen,~50%ofcementCO2emissionscomesfromreleasingCO2whenconvertingcalciumcarbonaterockstocalciumoxide(clinker).Inthiscase,hydrogenisapartialdecarbonizationsolutionforthecement/concreteindustry(replacingnaturalgascombustion,butnotaddressingemissionsduetothechemicalreactionintheclinkermanufacturingprocess).63Severalprojectsrelatedtocleanhydrogenapplicationsinthepowersectorhavebeenannouncedbyutilitiesincluding,NextEra,LosAngelesDepartmentofWaterandPower,NYPowerAuthority,andIntermountainPowerandtheLongRidgeEnergyTerminalPowerProject64Forelectrolysis:$0.40/kgisanupperboundexampleoncostofelectrolytichydrogenwhenthePTCisappliedinagivenyear/point-in-time.Atpoint-in-time,whencreditsareactive,cleanhydrogencostscangonegative.However,ifinvestorsapplyadiscountedcashflow(DCF)tocalculatethevalueofthecredit(10-years)over25+yearassetlife,thevalueofthecreditwillfallfrom$3/kg(point-in-time)to~$1.4/kg(applyingDCFonthevalueofthePTC).Forreformation-basedapproaches:AnLCOHrangeof~$0.40-$0.85/kgissimilarlyapoint-in-timecalculationifsubtracting~$0.75/kgPTCforanSMRwithCCS(asanexample).Ifusingadiscountedcashflowmethodologywhenapplyinga$0.75/kgPTC,thenLCOHforreformation-basedprojectswithCCScouldrangefrom$0.80-$1.25/kg(10yearcreditduration,25yearassetlife).65Rangeassumeslowest-costcleanhydrogenproductionin2030aswellasarangeofdistribution/storageoptions(compressiontopipeline,pipeline,andstoragefeeassociatedwithpipelinestorage)66Hunter,C.A.,Penev,M.M.,Reznicek,E.P.,Eichman,J.,Rustagi,N.,&amp;Baldwin,S.F.(2021).Techno-economicanalysisoflong-durationenergystorageandflexiblepowergenerationtechnologiestosupporthigh-variablerenewableenergygrids.Joule,5(8),2077-2101.doi:10.1016/j.joule.2021.06.018Section2.b:CurrentprojectsKeytakeawayCurrentlyannouncedcleanhydrogenproductionprojectswouldmeet2030demand,withannouncementsaccelerating;50%oftotalplannedcapacitywasannouncedin2022,although~10.5MMTpaoftheannounced12MMTpaisstillpre-finalinvestmentdecision(FID)(Figure8,9).PathwaystoCommercialLiftoff:CleanHydrogen226743%areelectrolyticand56%arereformationbased.Notethatmanyoftheseannouncedprojectshavenotyetsecuredfinancing.SeeChapter3forfurtherdetailsoninvestmentdollarsrequiredtoscalecleanhydrogen.Thenear-termfinancinggapisgreaterinmidstreamandend-useinfrastructurethaninhydrogenproduction.Iffinanced,announcedprojectstodatecover~50%ofrequiredinvestmentinhydrogenproduction,butonly~25%ofrequiredend-useinvestment,and~5%ofdistributionandstorageinfrastructure(Figure16).Over100cleanhydrogenproductionprojectstotaling~12MMTpainproductioncapacityhavebeenannouncedacrosstheU.S.withmorethan$15billionofpotentialinvestment.67Iftheseprojectsareallbuilt,theywouldmeettheprojected~10MMTpacleanhydrogendemandby2030,thoughthesenumberswillevolve:someprojectswillnotbecompletedandnewprojectswillbeannounced.Only~1.5MMTofthisannouncedcapacityhasreachedfinalinvestmentdecision(FID),largelyowingtotheseprojectslackingcontractedofftake.WhilethehydrogenPTCcreatesasupply-side/productionincentive,thehydrogenwillneeddemand-sidepulltoscale–whichcouldincludearegulatorydriver.Withoutadditionalpolicy,offtakecontracts(demand-sidepull)willmaybelimitedtoco-locatedfacilitiesuntilinvestmentinmidstreamanddownstreaminfrastructureoccurs.Insomecases,potentialhydrogenofftakershaveexpressedhesitationdueto:(1)deliveredhydrogenpricesbeingmuchhigherthanproductionprices,(2)futurecleanhydrogenpricespotentiallybeinglowerthanwhatcanbecontractedtoday,and(3)uncertaintyaboutthereliabilityofsupplyatsmallerthanindustrialscales(seeChapter4).Figure8:Currentlyannouncedcleanhydrogenproductionprojectswouldmeet2030demand,withannouncementsaccelerating–~50%oftotalplannedcapacitywasannouncedin2022,although~10.5MMTpaof12MMTpaisstillpre-finalinvestmentdecision(FID).TrackerasofEOY2022.<0.1MMTpaMidstreamandenduseprojectsProjectsfocusedonmidstreaminfrastructureand/orenduseswithoutproductionco-development10.5MMTpa(0.5MMTpaoperational)IntegratedprojectsProjectswhereproductionisco-developedwithmidstreaminfrastructureand/orspecificenduse(s)1.4MMTpaCleanhydrogenproductionprojectsProductionprojectswhicharebeingdevelopedindependentlyfrommidstreaminfrastructureandenduses12MMTpaAnnouncedU.S.cleanhydrogencapacityby2030couldfullymeet10MMTpaexpecteddemandHydrogenPathwayRenewablesw/electrolysisNuclearw/electrolysisSMR/ATR+CCSMethanepyrolysis/N/A/OtherProjecttypeIntegratedprojectsMidstreamandenduseprojectsCleanhydrogenproductionprojectsAnnouncedH2capacity,ktpa>15020-1500-20N/ASource:McKinseyHydrogenInsightsP&Itracker&Electrolyzersupplytrackerasofendof2022.Projecttrackersvarythewayinwhichtheylogannouncedcapacity–forexample,EnergyFuturesInitiativehastrackedmorethan2.2MMTpafrom42announcedprojects–seeTheU.S.HydrogenDemandActionPlan(February2023)-“Areviewofthecleanhydrogenprojectannouncementsshowsastronginvestorpreferenceforgreenhydrogen(i.e.,producedwithrenewableenergyviaelectrolysis)overotherpathways.Suchpreferenceinpartseemstobedrivenbythedownwardscalabilityofelectrolyzers,givingfirmstheabilitytomakerelativelysmallinvestments.Othertechnologies,likebluehydrogenarenotscalableandrequirelargecapitalinvestments(seeAppendixAforadescriptionofdifferenthydrogenproductionpathways).Assuch,around70percentofrecentlyannouncedprojectsinvolvegreenhydrogen,whileonly20percentarebluehydrogen.Eventhoughthisinterestingreenhydrogenmayhelpwithdevelopingelectrolysis-basedtechnologies,itmaynotbeimmediatelyeffectiveforscalingregionalcleanhydrogenmarkets.Despiterepresentingarelativelysmallshareofthetotal,bluehydrogenprojectsaccountfornearly95percentofthecapacityoftheannouncedprojects.”PathwaystoCommercialLiftoff:CleanHydrogen23Aspartofalarger$8billionhydrogenhubprogramfundedthroughtheInfrastructureInvestmentandJob,RegionalCleanHydrogenHubs(H2Hubs)willhelptoaddressthesechallengesbycreatingnetworksofhydrogenproducers,consumers,andsharedlocalconnectiveinfrastructure.Duetolimitedmidstreaminfrastructure,announcedhydrogenproductionprojectstodatehavefocusedonofftakersthatcanbeco-locatedwithproductionaswellasofftakersthatalreadyusecarbon-intensivehydrogen.Thelargestannouncedofftakersareforammonia,acceleratedbyexportdemandfromEurope,andsustainablefuelsandbiofuelssuchasSAF,renewablediesel,andsyntheticnaturalgas,drivenbyexistingpolicyincentivessuchastheLCFSandRINcredits.WiththePTC,lowerproductioncostsarepossible,whichcouldmakebest-in-classcleanhydrogenprojectscost-competitivewithincumbenttechnologieswithin3–5yearsformanysectors(seeFigure15andFigure27inModelingAppendices),particularlyifmidstreamanddownstreaminvestmentsarerealized.Figure9:Announcedproductionprojectsarefocusedonsustainablefuels(~35%)–suchasSAF,renewabledieselandrenewablenaturalgas–andconversionconsumersalreadyusingcarbon-intensivehydrogen–ammonia(~35%)andrefining(~10%)–whichgenerallydonotrequirelargeH2midstreaminvestments.Projectannouncementdataasoftheendof2022.PathwaystoCommercialLiftoff:CleanHydrogen24AnnouncedU.S.cleanhydrogenproductionprojectsbytargetendusesector,MMTpaPowerandblendingNoannouncedenduseAmmoniaRefinerySustainablefuelsandbiofuels1Fuelcell-basedtransportMultipleenduses2Methanol4.4MMT4.2MMT1.1MMT0.8MMT0.6MMT0.5MMT0.4MMT0.1MMTProjectCountTotalisprimarilytwoprojectstotaling3.8MMTPoweralsohasprimarilyearly-stageprojectsFuelcell-basedtransporthasthemostprojects,butmanyareearlystageandhavenotannouncedacapacityorrequiredinvestment23%8%7%18%8%17%24%4%DATATHROUGHENDOF20221Includessustainablefuelsandbiofuelsandfuel-cellbasedtransport2RepresentsproductioncapacitythatistargetingmorethanoneoftheotherendusesectorsSource:McKinseyHydrogenInsightsP&Itracker&Electrolyzersupplytrackerasoftheendof2022Section2.c:Techno-economiesKeytakeaways•Evenwhenhydrogenproductioncostsarelow,midstreamanddownstreamcostscanmorethandoublethedeliveredpriceofhydrogenforsomeofftakers,particularlythoseusingliquefactionforliquidhydrogentruckingandgas-phasedtruckingdeliverysystems(Figure10).•WiththepassageofthehydrogenPTCandassociatedcostlearning,cleanhydrogenfromelectrolysisbecomescostcompetitive,orapproachescostparity,withhighercarbon-intensityproductionpathways(Figures11,12).Thedeliveredcostofhydrogenaccountsforthefullvaluechain—fromupstreamproductiontomidstreamdistribution/storagetoend-useequipmentandinfrastructurecosts.Evenwhenhydrogenproductioncostsarelow,midstream,anddownstreamcostscanmorethandoublethepriceofhydrogen.Near-term,thesecostdifferencescanbeespeciallylargeduetotherequiredbuildoutofmidstreaminfrastructurethatmayhavelowimmediateutilization.Asaresult,in2030,duetothePTCandcostdeclinesthroughthe2020s,allend-usetypesaretheoreticallyprofitableforproducersco-locatedwithofftakeorifsaltcavernsandpipelinesareavailable.Theprofitabilityforothermidstreampathways,suchasgaseousandliquiddistributionandstorage,willbeprojectandend-usedependent.Post-PTCexpiration,end-useswithalowwillingnesstopaymayalsonotbeprofitableforproducers,evenwhenproductionanddemandareco-located.SeeChapter4foradditionaldetailsonproductioneconomicsafterPTCexpiration.PathwaystoCommercialLiftoff:CleanHydrogen25PathwaystoCommercialLiftoff:CleanHydrogen26Figure10:Industry-informedestimatesof2030upstreamandmidstreamcosts.By2030,industryestimatesthatmultiplemethodsofhydrogendistributionandstoragecanbecomeaffordableifstate-of-the-arttechnologiesarecommercializedatscale.Readersshouldsum(1)Upstreamcostsand(2)Midstreamcoststoarriveatapotentialdeliveredcostofcleanhydrogen,basedonproductionpathwayandstorage/distributionmethodselected.Hydrogenproductioncostsshowntakeanupperboundofproductioncosts(~2MW(450Nm3/h)PEMelectrolyzerwithClass9NRELATBwindpower)andthensubtractthePTCatpoint-in-time.AwiderrangeofLCOHvalues,withoutthePTCcreditapplied,aredescribedinFigures11and12.2030costsacrossthevaluechainifadvancesindistributionandstoragetechnologyarecommercialized11Seeappendixforcalculationdetails2Databasedoncost-downssharedfromleading-edgecompanieswhohavedeployedatdemonstrationscale(orlarger)3Rangebasedonvaryingrenewablescostsandelectrolyzersizes/technologies4Definedasthepriceanofftakerwillpayforcleanhydrogen5Representsdeliveryofhydrogentoaviationandmaritimefuelproductionfacilities6Greaterthanorequalto70%utilization,assumeslinefillathighpressureSources:HDSAM,ArgonneNationalLaboratory;DOENationalHydrogenStrategyandRoadmap,HydrogenCouncilReformation-basedproductionCommercialized,best-in-classgascompressionMidstream:Hydrogendistributionandstorageassumingstate-of-arttechnologyatscale2Upstream:HydrogenproductionDownstream:EnduseapplicationsEndusewillingnesstopay4Waterelectrolysisw/$3/kgPTC:LCOH<$0.4/kg3CO2transport/sequestrationw/$0.75/kgPTC:LCOH=$0.4-0.85/kg$0.7-1.5/kgat10tpd,250km$0.2-0.3/kgat50tpd,250kmGasphasetruckingLiquidhydrogentrucking$0.1/kgat80barfor7days,600tpd$0.8/kgat500barfor7days$0.2/kgfor7days,50tpdscaleCompressedgastankstorageSaltcavernstorageLiquidhydrogenstorage$0.2-0.4/kgat500bar,10tpd(tankstorage,truckdistribution)$0.1/kgat80-120bar,50+tpd(pipeline,co-locatedelectrolysis)$2.7/kgat50tpdLiquefaction$1-3.6/kg≥700kg/day,700barNextgenerationfueldispensingathighutilization6$0.9-2.3/kg$1-1.3/kg$0.9-2.3/kg$1.25-2.3/kg$0.4-0.5/kg$0.4-0.5/kg$4-5/kg$0.7-1.5/kg$0.7-3/kgAmmoniaRefiningChemicalsSteelNGblendingPowergen.(high-capacityfirm)HDMDroadtransportIndustrialheatAviationandmaritimefuels5H2pipeline$0.1/kgat600tpd,300km,12”OD$0.1/kgat~5000tpd,1000km,42”ODIndustryGasreplacementTransport68SeeFigure2.69Percentageunit-costreductionachievedperdoublingofunitsproducedUpstream:WiththepassageofthehydrogenPTCandassociatedcostlearning,cleanhydrogenfromelectrolysisbecomescostcompetitive,orapproachescostparity,withmorecarbon-intensiveproductionpathways(Figures11and12)particularlypost-2030.Forreformation-basedhydrogen,thecostofincorporatingandoperatingCCSwithnewandexistingfacilitiesiscoveredbythelonger-termcertaintyofthe45Qcredit.Someelectrolysisprojects,whichareexpectedtoclaimthefull$3/kgPTC,canseetheirproductioncostsreachzerowithinthenextfewyearsafterapplyingthefullproductiontaxcredit(Figure11).Forwaterelectrolysis,levelizedproductioncostscoulddeclineby~50%through2030,drivenbydecreasesinbothelectrolyzercapexcostsandcleanenergyprices,aswellasincreasedelectrolyzersize.68Astheindustrymovesdownthecostcurve,lowerelectrolyzercapexmakesvariablerenewablesforelectrolysismorecost-effective.By2030,cleanenergypricesaccountformorethan75%ofthelevelizedproductioncostofhydrogen.Electrolyzercapexisexpectedtofalldueto(1)increasesinproductionscale,(2)optimizedandmodularizedsystemdesigns,and(3)improvedstackdesignstoreducematerialcostandincreasedpowerdensity.Electrolyzerlearningratesareforecastat9–17%perdoublingofcumulativemanufacturingvolumeandareconservativerelativetolearningratesdemonstratedacrossotherlow-carbontechnologies(e.g.,solarPVandEVbatteries).69,xxxFigure11:Low-costcleanenergyisthelargestcostdriverofhydrogenproductioncostsandtheprimarylevertoreachtheHydrogenShot,however,thePTCremovesnear-termunitcostpressure,supportingliftoffasR&Dadvancesaredeveloped.PathwaystoCommercialLiftoff:CleanHydrogen27PEMelectrolysislevelizedhydrogenproductioncost(withoutPTC)1,2,3,$/kg0.31.31.10.91.00.3205020250.20.620300.40.120400.80.12.71.81.41.2Levelizedproductioncost,$/kgAlkalineelectrolysislevelizedhydrogenproductioncost(withoutPTC)1,4,$/kg1.31.10.91.00.31.20.10.20.420251.40.50.120300.120400.820502.51.6Capex-electrolyzerOpex-otherOpex-electricity1Theselevelizedcostsuseindustryestimatesforelectrolyzercapexcostsdevelopedin2020using2020USD.Forecastedelectrolyzercapexvaluesarerapidlyevolvingandmaydifferbetweensources2Assumes~18MWelectrolyzer(4,000Nm3/h)in2025,~90MWelectrolyzer(20,000Nm3/h)for2030onwards;electrolyzerinstalledcapex:$900/kW(2025),$540/kW(2030),$350/kW(2040),$300/kW(2050);errorbarsalsoincludereportedLCOHvaluesfromBloombergNewEnergyFinance:$1.8/kg(2030),$0.7/kg(2050)3Assumesonshorewindpower:Class5–Moderate(referencecase),Class1–Moderate(low-costcase),Class9–Moderate(high-costcase);Class1–Moderatecapacityfactors:51%(2025),54%(2030),55%(2040),55%(2050);Class5–Moderatecapacityfactors:44%(2025),45%(2030),46%(2040),47%(2050);Class9–Moderatecapacityfactors:28%(2025),30%(2030),31%(2040),31%(2050);Class1–Moderate4LCOE:$22/MWh(2025),$18/MWh(2030),$16/MWh(2040),$15/MWh(2050);Class5–ModerateLCOE:$26/MWh(2025),$22/MWh(2030),$19/MWh(2040),$17/MWh(2050)Assumes~18MWelectrolyzer(4,000Nm3/h)in2025,~90MWelectrolyzer(20,000Nm3/h)for2030onwards;electrolyzerinstalledcapex:$850/kW(2025),$425/kW(2030),$350/kW(2040),$300/kW(2050);errorbarsalsoincludereportedLCOHvaluesfromBloombergNewEnergyFinance:$1.7/kg(2030),$0.6/kg(2050)Source:NRELAnnualTechnologyBaseline2022,HydrogenCouncil,BloombergNewEnergyFinanceAtequivalentproductioncosts,deliveredcostsforelectrolytichydrogenwillbehigherthanreformation-basedhydrogenduetohigherstoragecostsHydrogenShottarget:$1/kgin2031WouldrequireadditionalR&DcomparedtowhatindustryplayersarebuildingintotheircurrentforecastsIncludesdatafromexternalsources–tobeupdateduponpublicationofDOEWorkingGrouppapersReformation-basedwithCCS:SMR-andATR-basedproductionpathwayshavealreadyseenmoresignificantlearningcurvecost-downsbecausethetechnologiesaremoremature.CCS,ontheotherhand,isjustbeginningtobedeployedatscale.Moderatefuturecostreductionsmaybedrivenby:•MatureCCStechnologyproducedinlargerquantitieswithgreatermodularization•NewgenerationsofCCStechnologywithhigherperformanceand/orlowercost•TheswitchtoATRfacilities(withsimilarlong-termcapexcoststoSMRs)withmoreconcentratedCO2gasstreamsforlowercostcaptureandsequestrationThemostsignificantcostuncertaintyforreformation-basedhydrogenisthepriceofnaturalgas,whichrepresents~50%oflevelizedproductioncosts.Figure12:Reformation-basedH2withCCShasalowerinitialunsubsidizedLCOHthanelectrolysis,butisexpectedtohavelimitedcost-downsandissensitivetonaturalgasprices.PathwaystoCommercialLiftoff:CleanHydrogen28LevelizedhydrogenproductioncostforSMRwith>90%CCS(withoutPTC)1,$/kg0.10.30.30.30.30.80.50.50.50.20.10.10.20.20.20.2202520400.10.11.220300.10.120501.61.21.2Capex-plant1Opex-other4Capex-carboncapture2Opex-CO2transportandstorage5HydrogenShottarget:$1/kgin2031WouldrequireadditionalR&DcomparedtowhatindustryplayersarebuildingintotheircurrentforecastsLevelizedproductioncost,$/kg1Theselevelizedcostsuseindustryestimatesforcapexcostsdevelopedin2020using2020USD.Forecastedcapexvaluesmaydifferbetweensources2SMRfacilitycapex(100kNm3/hcapacity):$215million(2025onwards)3CCScapex(100kNm3/hcapacityfacility):$140million(2025),$135million(2030),$120million(2040),$110million(2050)4Naturalgasreferencecase:$4.3/MMBtu(2025),$3/MMBtu(2030onwards);assumesnon-renewablenaturalgas;naturalgashighcasebasedonEIAAnnualEnergyOutlook2022highoilpricescenario;naturalgaslowcasebasedonEIAAnnualEnergyOutlook2022lowoilpricescenario5IncludesO&M,catalystreplacement,electricity,andwatercosts6CO2transportandstorage:$48/tonneCO2(2025),$44/tonneCO2(2030),$39/tonneCO2(2040),$35/tonneCO2(2050)Source:HydrogenCouncil,EIAAnnualEnergyOutlook202270Note$1/kgby2030isanR&Dtargetthatwouldrequireproductioncost-downsoutsideofmarginalreturnstoscale71BasedonpubliclyavailabledataforCCSretrofitcostsofCFIndustriesammoniaproductionfacilityinDonaldsonville,LA(source)72Notethatupto30%ofnaturalgas(byvolume)canbereplacedwithhydrogenforDRI-EAFwithoutsignificantretrofits(source)MidstreamAscleanhydrogenproductioncostsfalltowardtheHydrogenShottargetof$1perkilogram,distributionandstoragecostscouldrepresentmuchmorethanhalfofthedeliveredcostofcleanhydrogen.70Atlowvolumesandshorterdistances,gaseoustruckingtransporthaslowercosts.Liquid-phasetruckingbecomescompetitiveatgreaterdistances.Asthevolumeanddistanceofhydrogenflowsincreases,distributioncostswilldeclinesignificantlywith(1)fullutilizationofdistributionnetworksand(2)sufficientpipelinedeployment.DownstreamProjectdevelopers,investors,andcustomersmustdecidebetweenretrofittingexistinginfrastructuretousecleanhydrogenorbuildingnew.Thesecostsvarysignificantlybysector.•Ammoniaandrefining:Cleanhydrogencanbedirectlysubstitutedforcarbon-intensivehydrogenatammoniaproductionandrefinerysites.Retrofitswouldberequiredtoaddcarboncapturetoexistingsteammethanereformers.Or,ifelectrolytichydrogenproductionisselectedinsteadofSMRwithCCS,theplantmayneedfurtherinvestmentstoreplacesteamprovidedbyanSMR.SeveralammoniaproducersalongtheU.S.GulfCoasthaveannouncedcarboncaptureretrofitsonexistingfacilitiestodecarbonizetheirhydrogenandaccess45Qcredits.Whilethecostsoftheseretrofitsvary,publiclyreporteddatasuggestcostsof~$130/tonneofammoniaproductiontoaddcarboncapture71,whichcouldbepaidoffin<5yearsbasedonprofitsfrom45Qcredits.xxi-Otherindustrialofftakers:Outsideofammoniaandoil-refining,industrialofftakerswillrequireretrofitstotheirfacilitiesbeyondtheadditionofcarboncapturetoaccommodatecleanhydrogen.Theseretrofitrequirementsimpactavarietyofsectorssuchasmethanolproductionandsteel.72FutureLiftoffreportsmayexplorethespecificsoftheseretrofitsandassociatedeconomics,buttheyarenotthefocusofthisreport.•Transportation:Transportationdemandcoulddriveacriticalinflectionpointinthesizeofthedomesticcleanhydrogenmarket.Foreachusecaseandoperatingmodel(e.g.,long-haultrucking),hydrogenmustachievebreak-evenonatotalcostofownership(TCO)basiswithincumbenttechnologyandwithotherdecarbonizationoptions(e.g.,batteryelectricvehicles).Fuel-cell-basedtransportationcurrentlyfacescosthurdlesinhydrogendistribution,compression,andrefuelingstationsthatmeaningfullyincreasethetotaldeliveredcostofhydrogen.Asfleetsbegintotransitiontocleanhydrogen,areinforcingfeedbackloopcouldoccurinwhichimprovedhydrogeninfrastructurecatalyzesmoreFCEVproduction,andthus–moreFCEVproductionleadstolowercostvehicles,morecustomerdemand,andmorewidelyscaled,lower-costhydrogeninfrastructure.Forsometypesofhydrogen-derivativefuels(e.g.,ammoniaormethanolformaritimeuses),additionalinfrastructurerequirementscanaddsignificantlevelizedcost(e.g.,dedicatedrefuelingandoperationalinfrastructureforbunkering).PathwaystoCommercialLiftoff:CleanHydrogen29•IndustrialHeating:Someapplicationsmayrequireequipmentchangesforindustrialheatowingtoahighervolumeofhydrogenbeingrequiredtoproducethesameheat.•Gasreplacement:Retrofittingaturbinetoaccommodatehydrogenblendingcancostupto$25Mfora100MWgasplant,dependingontheblendinglevel.xxiiMostofthecostisforplantupgradestooffload,process,andpipehydrogenthroughtheplant.Itislikelythatasthecostofhydrogenandfuelcellsmovesdown,hydrogencouldbecomeaneconomicoptionforlow-carbonlow-capacityfactorpower,andforresilienceeventssuchaspolarvortexes.Fuelcellcost-downsandhydrogenturbineretrofitsforolderplantsandretiringplantswillresultinverylowcapex,allowingmoreeconomicoperationforresiliency-focusedplantsthatonlyoperate5-10%oftheyear.Fortheseretrofits,multipleprivatecompanieshaveannouncedcommerciallyreadyturbinesthatcanbefiredonhydrogen/naturalgasblendswithapathto100%hydrogencombustion.PathwaystoCommercialLiftoff:CleanHydrogen30Chapter3:PathwaystoCommercialScaleTheU.S.hydrogenmarketisexpectedtoevolveovermultiplephases,eachcharacterizedbyacombinationofnewend-usesreachingcommercialviability,thematurationofdomesticdemand,andtheexpansionofmidstreaminfrastructure:1)Near-termexpansion(~2023–2026):Cleanhydrogenisexpectedtoreplacetoday’scarbon-intensivehydrogen,particularlyinindustrial/chemicalsusecasesincludingammoniaandoilrefining.Manyofthesereplacementprojectswillbefinancedfromcorporatebalancesheetswithextensionsofcorporatedebtorfrominvestorsyndicatesofferingmarket-rateterms.Inparallel,governmentprogramswillhelpde-riskFOAK/NOAKprojectsinmorenascentupstream,midstream,andend-useapplications,includingthroughloans,grants,andDOEHydrogenHubs.732)Industrialscaling(~2027–2034):Build-outofnewmidstreaminfrastructurewillreducethedeliveredcostofhydrogentoimprovethebusinesscaseformorenascentend-useapplications(e.g.,fuelcell-basedtransportation).•Whenco-locationisn’tavailable,liquidorgaseous-phasehydrogentruckingislikelytobetheprimarymodeofdistributinghydrogenthroughatleast2030(seeChapter2afordiscussionoftrade-offsbetweengaseousandliquidtrucking),atwhichpointlocaldemandvolumesmaystarttojustifyconstructionofdedicatedhydrogendistributionpipelines,orinlimitedcasestheretrofittingofexistinginfrastructure.•Onthefinancingside,projectfinancedebtfromcommercialbankswillplayanincreasinglyimportantrole,asrisksrelatedtorevenue(e.g.,offtakevolumes,pricevolatility)aremitigatedthroughprivatecontracts(e.g.,guaranteedofftakes,hedges)andrisksrelatedtouncertaintyinprojectperformancearemitigatedthroughpublic-sector-facilitateddemonstrations(e.g.,viatheDOE’sRegionalCleanHydrogenHubsprogram)andbeyond.74(3)Long-termgrowth(~2035+):Aself-sustainingcommercialmarketneedstodeveloppriortothesunsetofthePTC(newprojectsbuiltafter2032)—oneinwhichcleanhydrogeniscompetitivefornumerousend-usesandisfinancedalmostexclusivelybyprivatecapitalprovidersofferingmarket-rateterms.Achievingcostreductionspriortocreditexpirationwillensurethebankabilityofadditionalhydrogeninfrastructureprojects.Thisevolutionwouldbedrivenbyfallingproductioncostsdependenton:A.Theavailabilityoflow-cost,cleanelectricityB.EquipmentcostdeclinesforelectrolysisorCCSC.Reliableandat-scalehydrogenstorage75D.Thedevelopmentofhighlyutilizedhydrogendistributionnetworksincludingdedicatedhydrogenpipelines73Cleanhydrogenhubswillcreatenetworksofhydrogenproducers,consumers,andlocalconnectiveinfrastructuretoacceleratetheuseofhydrogenasacleanenergycarrierthatcandeliverorstoretremendousamountsofenergy.74TheOfficeofCleanEnergyDemonstrations(OCED)wasestablishedinDecember2021aspartoftheBipartisanInfrastructureLawtoacceleratecleanenergytechnologiesfromthelabtomarketandfillacriticalinnovationgaponthepathtoachievingournation’sclimategoalsofnetzeroemissionsby2050.OCED’smissionistodelivercleanenergydemonstrationprojectsatscaleinpartnershipwiththeprivatesectortoacceleratedeployment,marketadoption,andtheequitabletransitiontoadecarbonizedenergysystem75IntheabsenceofpipelinesPathwaystoCommercialLiftoff:CleanHydrogen31By2050,thedomestichydrogenmarketcouldreachupto27–80MMTpa(Figure13),consistentwithTheU.S.Long-TermStrategy.76,xxiiiMarketsizewillbedependentonthepaceofcostdeclinesacrossthevaluechain,cleanenergybuild-outandcost(forwaterelectrolysis),andthepriceofcompetitiveorenablingdecarbonizationleverslikeelectrificationandcarboncapture.Transportationandindustrial/chemicalsegmentsareexpectedtomakeup>90%oftotalhydrogendemandby2050–withcleanammonia,methanol,fuelcell-basedroadtransportation,biofuels,andsynfuelsforaviationdrivingmostofthisvolume.77Figures13.1and13.2illustratedifferentpotentialdemandscenariosfortheUScleanhydrogenmarket:•Scenario(A)illustratestheDOENationalCleanHydrogenStrategyandRoadmapbusiness-as-usual(BAU)casewhere,todaythrough2030,cleanhydrogendemandisonlypartiallyrealizedacrossammoniaandoilrefiningusecases.2040and2050potentialdemandrepresentsthelow-endofestimatesforlong-termcleanhydrogenuseacrosssectorslikefuel-cellbasedtransportationandpower-to-liquidfuels.•Scenario(B)describesthebase-caseoftheDOENationalCleanHydrogenStrategyandRoadmap,inwhichammoniaandoilrefiningtransitionatleastpartially,andpotentiallyfully,tocleanhydrogenby2030.78In2040,thesizeofthefuelcell-basedtransportopportunityisthesameacrossScenarios(A)and(B),whileScenario(B)showsadditionaldemandforcleanhydrogeninsectorslikeenergystorage(2040,2050)andgreateropportunitiesinbiofuelsandpower-to-liquidfuels(in2050).•Scenario(C)describesthehighcasefromtheDOENationalCleanHydrogenStrategy.Near-term,oilrefiningandammoniafullytransitiontocleanhydrogen.2040demandishigherthanScenario(B)duetoadditionaldemandfromfuel-cellbasedtransport,biofuels,andindustrialopportunitiessuchassteel.SeeFigure13.2whichdiscussesapotentialadditional~2MMTpaofcleanhydrogendemandinthepowersectorin2030tomeetCleanGrid2035targets.•Scenario(D)illustratesahydrogen‘spikecase’fromtheMcKinseyGlobalEnergyPerspective.Thisscenarioforecastsanear-termmarket(to2030)twiceaslargeasthosescenariosmodeledintheDOENationalCleanHydrogenStrategy(~10MMTpavs.~20MMTpaby2030)–reflectingaviewthatmanyusescomeonlineinparallelratherthaninsequence.Inaddition,thisscenarioforecastsgreaterdemandfromsectorsincludingfuelcell-basedtransport,aviationfuels,heating,andindustrialuseslikesteelin2040and2050comparedtoallDOEscenarios(A–C).Thisscenarioalsoillustratesnear-termdemandforhydrogeninthepowersector(whilethePTCisactive)thatfallsin2040and2050asotherdecarbonizationtechnologiesseecostlearning(e.g.,LDES,DAC)andthePTCexpires.Inthescenariosmodeledinthisreport,cleanhydrogenhasamorelimitedroleinsomegasreplacementusecases(high-capacityfirmpower,residentialandcommercialheating)unlessothertechnologies(e.g.,LDES,DAC,scaledstorageforCCS)failtoseecostlearning.Inthatcase,neartheendofthePTC-termtherecouldbeexpandedopportunitiesforhydrogen’scost-effectiveuseinthepowersector(seeScenariosE,F).And,long-term,cleanhydrogencouldbeanoptionforlongdurationenergystorageforseasonalusecases(seeScenariosB,C).Asnotedabove,modelingdoneforthisLiftoffreportdoesnotincorporatethepotentialforhydrogencombustioninthepowersectorinnon-baseloadapplications.76ScenariosareconsistentwiththeU.S.DOENationalCleanHydrogenStrategyandRoadmapwhichforecastsapproximately~50MMTpaofdomestichydrogendemandby2050772050rangesbasedonBAU.CurrentpolicycaseandNetzero2050highREcase:Ammonia:5–5.5MMTpa;Methanol:3–3.3MMTpa;Biofuels:3–6.6MMTpa;Fuelcell-basedroadtransportation:7.5–13.2MMTpa;Synfuelsforaviation:3–6.6MMTpa78IntheU.S.DOENationalCleanHydrogenStrategy‘BaseCase’scenario,ammoniaandoilrefiningtransitionatleastpartiallytocleanhydrogen(~2MMTpaby2030,respectively,foreachsector).And,mayfullytransitiontocleanhydrogen(~5MMTpaby2030of‘Additionaldemands’–whichcouldbemadeupentirelyfromammonia/oilrefiningdemand,orfromothermorenascentmarketsegmentsactivatingby2030).Othercurrent,emerging,andfuturemarketswithhigherrangesofuncertaintytoday,suchashydrogenexports,power-to-liquidfuels,andpetroleumrefiningcouldgenerateadditionaldemand.PathwaystoCommercialLiftoff:CleanHydrogen32Inaddition,policygoalsanddecarbonizationincentivescoulddriveadditionaluptakeofcleanhydrogeninthepowersector.TheNRELCleanGrid2035scenariosillustrateonesuchexample:•Scenario(E)evaluateshydrogendemandforpowerandnon-power-sectorusecasesin2030and2035.IntheNREL“AllOptions”scenario,costandperformanceofalldecarbonizationtechnologiesimproves,includingdirectaircapture,whichbecomescostcompetitiveunderthisscenario.79Thereispotentialfor~4MMTpaofcleanhydrogendomesticdemandin2030(less2030demandthanScenariosA–D)and~12MMTpain2035,including~5MMTpainthepowersector.•InScenarioF,theNREL“Infrastructure”caseassumestransmissiontechnologiesimproveandnewpermitting/sitingallowsforgreaterlevelsoftransmissiondeployment.Inthisscenario,low-costtransportandstorageforhydrogen,CCS,andbiomassisavailablewhileDACisnot.Non-powersectordemandforcleanhydrogenismuchhigherinthisscenarioin2030,asispowerandnon-powersectordemandsforcleanhydrogenin2035.8079Denholm,Paul,PatrickBrown,WesleyCole,etal.2022.ExaminingSupply-SideOptionstoAchieve100%CleanElectricityby2035.Golden,CO:NationalRenewableEnergyLaboratory.NREL/TP6A40-81644.https://www.nrel.gov/docs/fy22osti/81644.pdf80Denholm,Paul,PatrickBrown,WesleyCole,etal.2022.ExaminingSupply-SideOptionstoAchieve100%CleanElectricityby2035.Golden,CO:NationalRenewableEnergyLaboratory.NREL/TP6A40-81644.https://www.nrel.gov/docs/fy22osti/81644.pdfFigure13.1:Forecastsregardingthepaceandscaleofhydrogenvary,particularlyinthelong-term(2050).MostmodelsagreeIndustrialuseswilldrivedemandthrough2030andthatTransportisacriticalnationalinflectionpoint.PathwaystoCommercialLiftoff:CleanHydrogen3733MMTpacleanhydrogendomesticdemandCleanGridStudy,LTS,AlloptionsCleanGridStudy,ADE,InfrastructureUSNationalHydrogenStrategy,Basecase2USNationalHydrogenStrategy,Lowcase1USNationalHydrogenStrategy,Highcase3McKinseyGlobalEnergyPerspective,HighCase4BAU–currentpolicyNetzero2050–highREMcKinseyPowerModelU.S.DOENationalCleanHydrogenStrategyNRELACHydrogenspikecaseDBasecaseBNREL–AllOptionsENREL–ADE,InfraF124558233331203032010400205051427528825586162002120302313440332050105086558631337333700220300403020501127506561013112071064185524203033204002050204280153820352030412116714302030203581BasedonlowendofrangesforendusedemandinNationalHydrogenStrategy&Roadmap,withtheMcKinseyPowerModel(MPM)demandforPowersectortoenableconsistencyacrossLiftoffreports2BasedonthebasecasedirectlytakenfromtheNationalHydrogenStrategy&Roadmap3BasedonhighendofrangesforendusedemandinNationalHydrogenStrategy&Roadmap,withtheMcKinseyPowerModel(MPM)demandforPowersectortoenableconsistencyacrossLiftoffreports4AssumesadditionalrampupinpolicysupportfordecarbonizationPower-to-LiquidFuelsFuelcell-basedtransportMethanolSteelBiofuelsAmmoniaPetroleumRefiningHeatingPower(fromMPM)AdditionaldemandsEnergyStorageMaritimeFuelsAviationFuelsSteelRoadTransportPowerChemicalsHeatingOtherIndustryNon-powersectorPowersectorDetailstofollowSidebartoFigure13:Figure13.2:SummaryofscenariosA,C,andDtoeasereading.Modelsrelatedtocapitalformation,energyjobs,andthesplitofelectrolyticvs.reformation-basedhydrogenproductionpathwaysfollowscenario(C)fromthemodelabove.Figure13.2illustratesaroll-up/simplifiedviewofsomescenariosshowninFigure13.1.Inaddition,Scenario(C)inFigure13.2showsthepotentialfor~2MMTpaadditionaldemandin2030ifCleanGrid2035targetsdroveadditionaluptakeofcleanhydrogeninthepowersectorwhilethePTCisactive.Thiscouldincreasenear-term(2030)demandfrom11MMTpatoupto13MMtpain2030(seedottedlineinScenarioC–Figure13.2).PathwaystoCommercialLiftoff:CleanHydrogen3471413514204052030720502781114261315203020400.3205011-1327501013164381523205020404342520203080Additionalpowersectordemandfrom2035CleanGridtargetIndustryAdditionaldemands1TransportationPowerAdditional2MMTpain2030dueto2035CleanGridtargetMMTpacleanhydrogendomesticdemandMMTpacleanhydrogendomesticdemandMMTpacleanhydrogendomesticdemandBAU–currentpolicyNetzero2050–highREHydrogenspikecaseIncludestheIRAandassumesthat,despitetheadditionalfundingforcleanhydrogen,thecurrentcommercializationchallengesarenotovercome,holdingbackindustrygrowthAmmoniaandoilrefiningdrivedemandthrough2030withsignificantgrowthinfuelcell-basedroadtransportpost-2030IncludestheIRAandassumesthattheexpansionofthehydrogenindustryadvancesinlinewithanetzeroby2050economyunconstrainedbyrenewablesdeploymentAmmoniaandoilrefiningcompletelytransitiontocleanhydrogenby2030andpost-2030fuel-cellbasedroadtransportandaviationdemandacceleratesmorerapidlyIncludestheIRAandassumesthatcleanhydrogentechnologiesadvancemorequicklythanotherdecarbonizationtechnologies–particularlyLDESandCCUS,causingincreaseddemandfromallendusesIncreased2030powersectordemandduetoIRAincentivescombinedwithslowerLDESandCCUSdevelopmentACD1Includesresidentialandcommercialheatingaswellaspotentialadditionalcleanhydrogendemandthatcouldcomefromincreaseduptakeinnewandexistingenduses(e.g.,hydrogenfuelcellsforbackuppower)Source::DOENationalCleanHydrogenStrategyandRoadmap(BAU–currentpolicyandNetzero2050–highREscenarios);McKinseyGlobalEnergyPerspective2022,AchievedCommitmentsScenario(Hydrogenspikecase),McKinseyPowerModelSection3.a:DynamicsimpactingpathwaystocommercialscaleKeytakeaways•Transportationandindustrialsegmentsareexpectedtomakeup>90%oftotalhydrogendemandby2050–withcleanammonia,methanol,biofuels,fuelcell-basedroadtransportationandsynfuelsforaviationdrivingthemajorityofthisvolume(Figure13,above).•Thenear-termprojecteconomicsforcleanhydrogenproductionprojectsdependsonseveralkeydriversacrossthevaluechainincluding:(1)Availabilityoflow-costfeedstocks;(2)Availabilityofgeologicstorage;(3)Colocationofproductionwithofftake;(4)Offtakers’willingnesstopay.•Ifcheap,cleanelectricityisavailable,electrolysisandreformationwithCCSwillaccountforroughlyequalproductionshareby2050.Ifcleanelectricitydeploymentisconstrained,reformationwithCCScoulddominate(Figure14–bothcleanenergydeploymentandCCSinfrastructurefacepotentialchallengestoscalesuchaslanduserestrictionsandpermittingchallengesthatcouldimpactthesplitofelectrolyticvs.reformation-basedproduction).•Whenevaluatingbest-in-classprojects,thePTCpullsforwardbreakevenforcleanhydrogenversustraditional,fossilalternativestowithin3-5yearsformanyenduses(Figure15).However,thesebreakevenpointsaresensitivetofuturefossilfuelpricesandthelevelizedcostandcapacityfactorsofcleanpowersources.Thebreakevenpointforusecasesunderalower-than-expectedfuturefossilfuelpricescenarioorinregionswithpoorrenewablesperformancecouldbedelayed(seeFigure27inModelingAppendices).81Note,intheabsenceofcost-effectivemidstreaminfrastructure,thedeliveredcostofhydrogencanbemuchhigherthanthelevelizedcostofhydrogen(seeFigure10)82Illustrativeonly-IRRconditionsareformodeledscenariosunderspecificsetofassumptionsandarenotapplicableacrossallprojecttypes,sites,andmore.PleaseseeModelingAppendicesforfurtherdetail.Investorsshouldperformtheirownscenarioanalysistoevaluatereturnprofileofaparticularinvestment.By2025,withthehydrogenPTC,costsofcleanhydrogenproductionwiththehydrogenPTCwillbebelowexpectedend-userwillingnesstopayformanyprojects.81Forexample,withthe$3/kgPTC,projectssellinghydrogentoco-locatedammoniamanufacturerscouldseereturnsonequityashighas50%neartheendofthePTCterm.82Thesereturnswillbespreadacrossthevaluechain,potentiallyaccruingtoplayerswithleverageinconstrainedpartsofthevaluechainsuchasprojectdevelopers,electrolyzermanufacturers,EPCswithhydrogenexperience,andofftakers.Returnsstatedbelowdonotincludeassumptionsonhowmarginswillbedistributedacrossthevaluechain.Thebalanceoffirst-moveradvantageofprimeproductionanddistributionlocationswillcompeteagainstcapexdeclinesforfastfollowers,resultinginadynamicdeploymentforefficientcapital.Thenear-termprojecteconomicsforcleanhydrogenproductionprojectsdependonseveralkeydriversacrossthevaluechain:•Availabilityoflow-costfeedstocks:electricityrepresentsthelargestshareofelectrolysiscosts(upto2/3by2050,seeFigure11),soalowlevelizedcostofelectricityhasasignificanteffectonproductioncostsandprojectreturns–a15%increaseinelectricitycostscanreducereturns3-5%.Constrainedcleanpowerbuildoutcanalsolimitthedeploymentofelectrolyzers.Similarly,naturalgaspricescanaffectprojectreturnsforreformation-basedhydrogen,althoughtheshareofthecoststackissmaller.PathwaystoCommercialLiftoff:CleanHydrogen35•Availabilityofgeologicstorage:Industrialofftakers,suchasammoniaandoilrefiningfacilities,expectstableofftakevolumessoelectrolysispoweredbyvariablerenewableswillneedstoragetosmoothproductionvolumes.Levelizedcostsofgeologicstorageare4-10xlowerthancompressedgasstorage(seeFigure6)andareconducivetolargescalestorage,actingasanenablerforelectrolytichydrogen.•Co-locationofproductionwithofftake:Intheabsenceofmidstreaminfrastructure,suchasdedicatedhydrogenpipelines,co-locationcaneliminatetheneedforcostlygaseous-orliquid-phasetruckdistribution,whichcansignificantlyincreasethedeliveredcostofhydrogen(foroneexample,seeFigure10).Thisincreasedcostfromhydrogenliquidorgas-phasetruckingcouldmakesomeend-usesnon-economicevenwiththePTC(seesection2c).•Offtakers’willingnesstopay:Boththepriceofftakerswillpayandtheirwillingnesstocommittolong-termofftakearecriticalforcleanhydrogenproductionprojecteconomics.Thewillingnesstocommittolong-termofftakeenableslow-costdebt-basedprojectfinancing,whichbothimprovesreturnsandacceleratesliftoff(seeChapter4).Whileproductionprojectsco-locatedwithofftakeareprofitableduringthePTCterm,offtakerwillingnesstopaydirectlyaffectsthedegreeofprofitabilityduringthecreditterm(PTCactive)aswellaswhetheraproductionprojectisprofitablepost-PTCexpiration.AfterprojectshavereceivedthePTCfor10years,cleanhydrogenproductionprojecteconomicsandoperationswillshiftsignificantly.Dependingonofftakerwillingnesstopay,assetownersmaychoosetorunexistingelectrolyzersatlowerutilizationduringlowmarginalpowercosts.ProductionMultipletechnologieswillbeusedtoproducecleanhydrogenintheU.S.Forbothelectrolysis-basedandreformation-basedproductionpathways,feedstockcost(e.g.,cleanpowerornaturalgas)isthecriticaldriverofprojecteconomics.Ifcheap,cleanelectricityisavailable,electrolysisandreformationwithCCSwillaccountforroughlyequalproductionshareby2050(Figure14).Ifcleanelectricitydeploymentisconstrainedbychallengessuchaslanduserestrictionsorsiting/permittingbottlenecks,modelingresultsshowreformationwithCCSwilldominate.NotethatreformationwithCCSislikelytofaceaseparatesetofsiting/permittingbottlenecks,includingpermittingCO2storagesitessuchasClassVIwells.Off-gridwindandsolarforwaterelectrolysiswillalsoavoidfacingpotentialinterconnectiondelaysexperiencedbygrid-connectedsystems.PathwaystoCommercialLiftoff:CleanHydrogen3683Liquefierscanonlyturndown~20%anddon’tworkwellwithon-offdutycycles—batteriesandhydrogenstoragearerequiredforoff-gridliquefiersconnectedtovariablerenewableenergyFigure14:H2PTCisexpectedtodriveacceleratedelectrolysisbuildout,whilereformationwithCCSbuildoutprimarilyoccurspost-PTCexpirationandmaybecomedominantifcleanenergyavailabilityisconstrained.Notably,inbothscenarios,electrolytichydrogendominatesinthenear-term,with70–80%shareeveninthelow-REScase,drivenbythevalueinthehydrogenPTC.Sincegridinterconnectionisoneofthemajorchallengeswithrenewablesdeployment,theabilityofhydrogentouseoff-gridRESmakesityetmorecompetitivewhencompetingforscarceRESprojectsevenpost-PTCexpiration.Notethatoff-gridrenewablehydrogenproductionlendsitselftogaseoustransportsinceliquidvaluechainsstruggleandaddsignificantexpensewithvariablepowersupply.83PathwaystoCommercialLiftoff:CleanHydrogen37Splitofproductionpathwaysovertimeforhigh&lowrenewableenergysource(RES)deploymentscenariosHighRES,%(TWhhydrogen)LowRES,%(TWhhydrogen)20400-5%95-100%203050-60%50-60%40-50%40-50%20503788361,285ReformationwithCCSElectrolytic203020-30%204070-80%60-70%70-80%30-40%20-30%20503678331,283Source:McKinseyPowerModelProductionpathwaysplitissimilarwithadditionalCleanGrid2035constraintSidebartoFigure14:TheNRELCleanGrid2035studyoffersanalternativeviewofthepotentialsplitofproductionpathwaysinasingleyear(2035).Theleftbarineachscenariorepresentsproductioncapacity(MT/yearifrunningatfulloutput),andtherightbarprovidesactualproduction(MT).Numbersatthetopofeachbarindicatethetotalhydrogencapacityorproduction,withthevaluesinparenthesesspecifyingthetotalproductionusedforthepowersector.8484Denholm,Paul,PatrickBrown,WesleyCole,etal.2022.ExaminingSupply-SideOptionstoAchieve100%CleanElectricityby2035.Golden,CO:NationalRenewableEnergyLaboratory.NREL/TP6A40-81644.https://www.nrel.gov/docs/fy22osti/81644.pdf85Example:cleanhydrogenproduced~100kmfromanammoniaofftakeranddistributedusinggasphasetruckingat500baryields3–5%lowerreturnscomparedtoproductionco-locatedwiththeammoniaplant.SeeModelingAppendices.MidstreamMidstreamdistributionandstorageareasignificantpartofthecoststack,asdescribedinChapter2.Co-locationofproductionandofftakecandecreasedistributioncostsandincreasehydrogenproductionprojectreturnsbyupto3–5%.85However,co-locationcanalsoincreasestoragecostsandisnotalwayspossiblegivenlocalresources(e.g.,availabilityofcleanpowernearelectrolysissite,proximitytocarbonsequestrationtoreformationsite).Transportapplicationswillalsorequirethebuild-outofadditionalmidstreaminfrastructureincludingrefuelingstationsforFCEVsandbunkeringinfrastructureformarineusecases.Distributioncostsaccountformostofthedeliveredcostofhydrogenfortheseend-uses.PathwaystoCommercialLiftoff:CleanHydrogen38Sourcesofhydrogenfuelproduction(ADEdemandcase)showsthepotentiallyimportantroleofelectrolysisin203518123418Capacity30(15)Production52ReformationwithCCSElectrolytic1382010ProductionCapacity3318(4)6234CapacityProduction6234(20)1024646(31)CapacityProduction102InfrastructureAlIOptionsConstrainedNoCCSSource:NRELC2035CleanGridstudy2035H2capacity(MT/year)ofproduction(MT)2035CleanGridScenarioEnd-usesThehydrogenPTCbringsforwardtotalcostofownershipbreakeven,sothatbest-in-classcleanhydrogenprojectsareeconomicallycompetitivewithinthenext3to5yearsacrossavarietyofsectors(Figure15–best-in-classincludesprojectswithaccesstofavorablerenewablestomaintainalowLCOH).However,otherenablersbeyondtheoreticaleconomicbreakevenarerequiredforwidespreadadoption,suchaslow-costenablinginfrastructure(toreducenotjusttheproduction,butthedeliveredcostofhydrogen),long-termsupplystability,and/orregulatorydrivers.Thesebreakevenpointsarealsosensitivetofuturefossilfuelpricesandthelevelizedcostandcapacityfactorsofcleanpowersources.Thebreakevenpointforusecasesunderalower-than-expectedfuturefossilfuelpricescenarioorinregionswithpoorrenewablesperformancewillbedelayed(seeFigure27inModelingAppendix).86BasedonforthcomingU.S.DepartmentofEnergyVehiclesTechnologyOffice(VTO)andHydrogenandFuelCellTechnologiesOffice(HFTO)publicationFigure15:Whenevaluatingbest-in-classprojects,industryforecastsestimatethatthePTCpullsforwardbreakevenforcleanhydrogenversustraditional,fossilalternativestowithin3-5yearsformostenduses.However,manyofftakersmayhesitatetoswitchtocleanhydrogengivenuncertaintyoverpaceofhydrogensupplyscaleup,switchingcosts,performance,andlackofcost-effectivemid-anddownstreaminfrastructure.Existingandnewregulatorydriversmayhelptoovercomethesechallenges.TheseTCOsweredevelopedusingindustryinputdatafromtheHydrogenCouncilandcalculatedconsideringthePTC-drivenreductionsinhydrogenfeedstockcosts.WhentheseTCOswerecomparedtootherDOEpublicationsthatdidnotincorporatethePTC,afive-yearbreakevenaccelerationwasseen,consistentwiththeanalysesinthisreport.86PathwaystoCommercialLiftoff:CleanHydrogen39Breakeventimingforhydrogenvs.conventionalalternative1Today2040+Heavy-dutytruckRefiningAmmonia(electrolytich2)Firmpowergeneration–100%H2(Combustion)3Firmpowergeneration–20%H2(Combustion)3OtherconsiderationsRefuelinginfraavailability,truckavailability,costanduptime/rangeconstraints,long-termLCFSvalueContainerships3Refuelinginfraavailability,new/retrofittedshipavailabilityandcostLong-termsupplystability,breakevenhighlysensitivetofuturenaturalgaspriceSteel–newbuildDRI2Geographicconsiderations,post-PTCbreakeven,H2pipelineinfraavailabilityBlendinglimits,enduseandpipelineretrofits,pipelineinfra,lowerenergydensity,breakevenhighlysensitivetofuturenaturalgaspriceHeavy-dutytruckwithLCFS202520302035Lowercapacityfactorpeakingpower–H2fuelcellLongdurationenergystorageTobecompletedinfollow-onreportsTobecompletedinfollow-onreportsUsecasesrequiresuccessful,scaledH2Hubwithopenpipelineaccess1Assumes‘average”hydrogenproductionfromelectrolysisand$3/kgPTC;assumesaproductioncostfloorof$0.40/kg.Nocarbonpricingforbusinessasusual2Within5%ofbreakevenduringPTCterm,butcostsdonotcross.OncethePTCsunsets,TCOis>5%ofbreakeven.Breakeventimingshownasthemid-pointofthePTCterm.3Usecasesdonotbreakevenwithoutadditionalcarbontax,higherwillingnesstopay,orlowerH2costfloor4Assuminghydrogenproductionisco-locatedwithdemand,avoidingdistributioncosts5Assumes300kmbetweenhydrogenproductionandrefuelingstationSource:HydrogenCouncil,McKinseyHydrogenInsightsAnalysisAdoptionscenario:Gasreplacement/PowerIndustry4Transport5Sector:WithoutH2PTCWith$3/kgH2PTCPost-2040breakeven(bothscenarios)Best-in-classreferstoprojectsinareaswithfavorablerenewables(e.g.,NRELATBClass1Wind);lesscompetitiveprojectswillhavealaterbreakeventimeline.AppendixFigure27showstheseranges.Industry:AmmoniaandrefiningWiththePTC,theproductioncostsfromelectrolysisandreformationwithCCSareimmediatelymorecostcompetitivethantheproductioncostatexistingSMRfacilitieswithoutCCSwhenproductionisco-locatedwithrefiningandammoniaofftakers(seeFigure15).Theammoniasectoralsohasestablishedmarketsanddistributioninfrastructurealreadyavailable,enablingnear-termadoption.Themainchallengefortheseofftakerstoswitchtocleanhydrogenisconfidenceinthelong-termsupplyofcleanhydrogen(ifhydrogenproductionisnotintegratedintheammonia/refineryfacilityorco-owned).Existingammoniaproductionfacilitieswithintegratedreformation-basedhydrogenproductionwillalsoneedtoweighcarboncaptureretrofitfeasibilityandcostsagainstthePTCand45Qcreditvalues.Forammonia,thebreakevenpointisalsohighlydependentonthepriceofnaturalgas.Producingcleanhydrogenforammoniahaspotentialreturnsof15–25%,whichcouldreach45–50%withelectrolytichydrogenforprojectsbuiltjustbeforetheendofthePTCterm—notaccountingformargindistributionacrossthevaluechain,whichwillreduceprojectdevelopers’IRRsasdescribedabove.87Otherindustry,includingsteelOtherend-useswhicharenotyeteconomicforcleanhydrogen,suchassteelproductionviaDRI-EAF,mayreacheconomicbreak-evensoon,butmuststillovercomeinfrastructurechallengesandincuradditionalcoststoreceiveandusehydrogen.Forexample,iflow-costhydrogencannotbeproducednearindustrialuses—duetopoorrenewablepowerpotentialorcarbonsequestrationresourcesneartheofftaker—costlymidstreaminfrastructurecouldpreventprojectsfrombeingbuilt.Specificend-uses,suchasDRI-EAFsteelmakingwithhydrogen,requireveryreliableandhigh-volumesupplyduetohighutilizationrequirements.Thisdemand,inturn,requiresareliablesupplybaseacrossmultiplesuppliersandpipelineinfrastructure,whichmaynotbeinplacegivenupfrontcostandcoordinationchallengesevenifthelifetimeeconomicsaretheoreticallyfavorable.Transportation:RoadTransport:Fuel-cellelectricvehicles(e.g.,citybuses,heavy-dutytrucks)Afterindustrialend-uses,roadtransportend-usessuchasheavy-dutytruckspoweredbyhydrogenfuelcellsareamongthenextsetofend-usestoreacheconomicbreakeven(seeFigure15).Theseend-usesareadvantagedbyhavingamongthehighestwillingnesstopay($4-5/kg).iiiHowever,hydrogenisnota“drop-in”solutionfortheseend-uses,presentingbotheconomicandnon-economicchallengestoovercome.Thetwoprimarychallengesforhydrogenuptakeare(1)thecostandlogisticsofbuildingrefuelinginfrastructureatscaleand(2)developingandscalingfuelcellvehiclesthemselves(e.g.,improvingfuelcelldurabilityinthevehicle).Forthesereasons,demandofhydrogenfortransportationisexpectedtocontinuetoacceleratepost-2030asthesechallengesareovercome.Existingandnewregulatorydriversmayalsohelptoovercomeaddresssomeofthesechallenges,justasstateandfederalprogramshelpedtoscaleBEVsintheearlydaysofcommercialliftoff.Asthesechallengesareaddressed,roadtransportend-usesareexpectedtoexpandfirstinmarketswithadditionalsector-specificcredits,suchastheLowCarbonFuelStandard(LCFS).88Inthesemarkets,despitecurrentlyhighrefuelinginfrastructurecosts,hydrogentechnologiesareexpectedtobecost-competitiveinthenearfutureandcouldbeadoptedonalimitedbasisbyearlyadopters87Illustrativeonly-IRRsareformodeledscenariosunderspecificsetofassumptionsandarenotapplicableacrossallprojecttypes,sites,andmore.PleaseseeModelingAppendicesforfurtherdetail.Investorsshouldperformtheirownscenarioanalysistoevaluatereturnprofileofaparticularinvestment.88OnlyavailableinCA,WA,andORatpresentPathwaystoCommercialLiftoff:CleanHydrogen40Basedonthehighwillingnesstopay,ifadoptionchallengescanbeovercome,producerscanalsoearnstrongreturnssellingtoroadtransportend-usesstartingat20–25%andreaching55–60%forproductionprojectsbuiltjustbeforethePTCsunset,(notaccountingformargindistributionacrossthevaluechain,whichwillreduceprojectdevelopers’IRRs,asdescribedabove).Thesereturnsarehighlysensitivetothecostofrefuelinginfrastructureanddieselprices.DieselpricesevolvingbasedonEIA’sloworhighoilpricescenarioswouldrespectivelydecreaseorincreaseIRRsby10percentagepoints.89GasReplacement–Power:Combustionofpurehydrogenandhydrogen/naturalgasblendsincombined-cyclegasturbines(CCGTs)runashigh-capacityfactorfirmpowergenerationresourcesis,inmanyinstances,notexpectedtobecostcompetitiveagainstnaturalgascombustioninCCGTswithCCS,particularlyinthenear-term.However,someregionsmaystillseehydrogencombustionwhendecisionmakingisbasedonfactorsotherthanthelowestcostnationallyavailablesolutionssuchaslocalconstraintsonCCS(e.g.,ifprioritiesdictateacarbon-freegridasCCSisnotfullycarbonfree)orforresiliencyusesindecarbonizedgasmicrogrids.Alternatively,hydrogencombustionmaybedeployedwithinahubwherehighlyutilizeddistributioninfrastructurealreadyexists,reducinghydrogentransportandstoragecosts.Anumberofprojectsarealreadyexploringusecasesforhydrogencombustion,includingpublicannouncementsacrossmultipleregions.90Hydrogenandhydrogenblendscanalsobecombustedforlower-capacityfactorpower.TheeconomicsoftheseusecaseswerenotanalyzedinthisiterationoftheLiftoffreport.Hydrogenfuelcellsmayalsohavearoleinpowergenerationforlow-capacitypeakingpower,butadoptionisdependentoneithercapexcostdeclines(installedfuelcellcapexneedstofallbelow$450/kWtomakepeakingusecaseseconomic)orimprovementsinfuelcelldurability.91Retrofitsofretiringplantstoincludehydrogencombustionturbinesmayprovetobeextremelycost-effectiveatwellbelowinstalledcapexof$450/kWbutretrofitscanbeasset-specificandthesecostsarenotexploredinthisreport.Suchexampleswouldprovideopportunitiesforcapexsensitivelow-utilizationcasesofpeakingorgridresiliency.Additionalpolicydrivingtheelectricitysystemtowardshigherlevelsofdecarbonizationcouldleadtoshiftsinhydrogen'sapplicabilitywithinthepowersector.92Anet-zerogridrequirementcouldresultinlowornegativecostvariablerenewablepowertostoreinmanyregions.Open-accesshydrogenhubspoweredbytheInfrastructureInvestmentandJobsAct(IIJA)couldcreateanopportunitytostorethatpowerashydrogen.Openaccessforpipelinetransportandstorageofhydrogenisthekeytriggertoenablelow-costhydrogenenergystorageforlongdurationandforresilienceevents.Associatedcost-downsfromIIJAandIRAcouldleadtosub$550/kWelectrolysisandsub$450/kWfuelcellpowerstationsby2030.93Assumingawindfarmwith40%capacityfactorcanallow10%uptimewithcurtailedpower,$0.01/kWhcostofthecurtailedpower,and5%useoftheassociatedfuelcellpowerstationforresilienceevents,levelizedcostofpowerwouldbe~$0.25/kWhforhydrogen94.Thiscomparestoa~$0.37/kWhforgascombustionwithahigh-utilizationDACsystem,andmuchhighercostwithcombinedcycleplantswithCCUSandlowutilization;inanet-zerogrid,hydrogeninasuccessfulhubcouldbeatfossilpowerforresilienceevents.Asaresult,anopen-accessH2Hubinaregionwithnet-zerogridrequirementscouldlikelyusehydrogenforlongtermandseasonalstorageforotherwisecurtailedpower.91Hunter,C.A.,Penev,M.M.,Reznicek,E.P.,Eichman,J.,Rustagi,N.,&amp;Baldwin,S.F.(2021).Techno-economicanalysisoflong-durationenergystorageandflexiblepowergenerationtechnologiestosupporthigh-variablerenewableenergygrids.Joule,5(8),2077-2101.doi:10.1016/j.joule.2021.06.01892A100%cleanelectricitysystemisdefinedasonewithzeronetgreenhousegasemissions93Hunter,C.A.,Penev,M.M.,Reznicek,E.P.,Eichman,J.,Rustagi,N.,&amp;Baldwin,S.F.(2021).Techno-economicanalysisoflong-durationenergystorageandflexiblepowergenerationtechnologiestosupporthigh-variablerenewableenergygrids.Joule,5(8),2077-2101.doi:10.1016/j.joule.2021.06.01894UsingH2FASTwithparametersfor2035fuelcellequipmentcostsfromthisreport,EIAdataoncostsofcombustionturbineswithcriteriaemissioncontrols,DACcostsfromthepathwaysreport,andcombinedcyclewithCCUScostsfromH2FASTPathwaystoCommercialLiftoff:CleanHydrogen4195Hunteretal,“Techno-economicanalysisoflong-durationenergystorageandflexiblepowergenerationtechnologiestosupporthigh-variablerenewableenergygrids”,Joule(2021)PathwaystoCommercialLiftoff:CleanHydrogen42Section3.b:CapitalRequirementsKeytakeaways•$85–215Bofcumulativeinvestmentisrequiredtoscalethedomestichydrogeneconomythrough2030.Asmuchas~halfoftheinvestmentrequiredwillbeformidstreamorend-useinfrastructure.Another~thirdwillbefornetnewcleanenergyproduction(Figure16).•ThehydrogenPTChaskick-starteddomesticproduction,andinvestmentdollarshavefollowed.Midstreamandend-useinfrastructureinvestmentsfaceamoreacutefinancinggap.AsofJanuary2023,announcedcleanhydrogenproductionprojectsthathavereachedthefeasibilitystudystagerepresent~$15Binplannedinvestment,whileallmidstreamandend-useinvestmentrepresents~$6B.GrowingtheU.S.cleanhydrogeneconomytoover10MMTpaby2030and50MMTpaby2050requires:•$85–215BofcumulativeinvestmentintohydrogenacrosstheU.S.by2030,and•$800–1,100Bcumulativeby205096Theseinvestmentswillbespreadalongthevaluechain,withroughlyhalfrequiredformidstreamandend-useinfrastructure(e.g.,pipelines,storage,refuelingstations)andhalftoone-thirdrequiredfornetnewcleanenergyproductionforwaterelectrolysis(Figure16).Investmentsintohydrogenvaluechain,$BRequiredinvestmentthrough203015240-5Impliedprojectinvestment140-802120-8025-50Gapto203085-215105-235NetnewlowcarbonenergyproductionHydrogenproductionHydrogenmidstreamHydrogenendusesRangebasedontheNetzero2050andhydrogentechspikecases1Excludespre-feasibilitystudyproductionprojectsSource:HydrogenCouncil,McKinseyHydrogenInvestmentModelComparedtolongdurationenergystorage(LDES),roundtripefficiencyisonparnear~50%forboth,powercapexismuchlowerforhydrogenataprojectedsub$650/kWcomparedto~$1100-1400/kWforbest-in-classLDES,andlong-termstoragecostsaremuchlowerat$2/kWhinanopen-accesshubwithpipelinesandstoragevs$8/kwhforLDES.95Asaresult,asuccessfulhydrogenhubcouldallowforthelowestcoststorageatsiteswithsignificantcurtailedenergyinanet-zeropowergrid.Figure16:Announcedhydrogenproductioninvestmentsareontracktomeet2030requirementsifprojectspassfinalinvestmentdecision.However,an$85–215Bcapitalgapexistsacrossmidstream(distribution,storage)andend-useinfrastructure,lowcarbonenergyproduction.96Investmentvaluesin2020dollars.SeeModelingAppendixforFigure16calculationdetails.RangeisbasedontheNetzero2050–highREandhydrogenspikecasedemandscenariosshowninFigure13.Therearenumeroustypesofprivatesectorcapitalprovidersthatwillsupportthisadvancementatvaryingstagesofthevaluechainandatvaryinglevelsoftechnologyandmarketmaturity,asdescribedinthePathwaystoCommercialLiftoff:Introduction.•ThehydrogenPTChaskick-starteddomesticproduction,andinvestmentdollarshavefollowed.Midstreamandend-useinfrastructureinvestmentsfaceamoreacutefinancinggap.AsofDecember2022,announcedcleanhydrogenproductionprojectsthathavereachedthefeasibilitystudystagerepresent~$15Binplannedinvestment,whileallmidstreamandend-useinvestmentrepresents~$6B.Ifproductionprojectssecurefinancing,announcementswouldcoveralmostallofthe2030productioninvestmentrequirements.97Incontrast,projectannouncementsonlycover~25%ofrequiredend-useand~5%ofdistributionandstorageinfrastructureneeds(Figure16).IIJAH2Hubsfundingfrombothgovernmentandprivatesectorwillprovideatleastanadditional$16Binprojectswithbalancedproduction,distribution,andofftake.2030to2050,midstreamandend-useinfrastructureareexpectedtoaccountfor>80%ofrequiredinvestmentasadoptionofdistributedhydrogenusecasesacceleratesandmoredisperseddistribution/storagenetworksarebuilt.•Production:Upstreamprojectshavethemostimmediateinvestmentrequirements,startingat$1.5–2B/year(today–2030)anddecliningto$0.5–1B/yearfrom2030to2050.Declinesareattributedtoreductionsincapitalcoststostand-upafacility,closingthemanufacturinggap(e.g.,fordomesticelectrolyzerproduction),andchangingproductionmixtowardsahighershareofreformation-basedhydrogenwithCCSafterPTCsunset(seeFigure14).Cleanhydrogenproductionprojectsthatrequiremorethan$10–20millioninfinancingwillneedtotapdebtmarketstolowertheircostofcapital.Todate,mostannouncedproductionprojectshavebeenfundedbylargecorporateswhoaredecarbonizingtheirownvaluechainorseeanopportunitytoexpandintohydrogenasanadjacentbusiness(viaacombinationofequityandcorporatebalancesheetdebt).Privateequityinvestorsarealsobeginningtoinvestinhydrogenproduction.Comparedtomanycleanenergytechnologies,hydrogenproductionhasahightechnologyreadinesslevel(TRL)andexistingmarketpull(e.g.,fromhighcarbonintensityindustrialuses).However,projectfinanceandwidespreadcommercialdebtforhydrogenproductionhasbeenheldbackduetouncertaintyinlong-termofftake.Atpresent,manyproposedprojectslackacommittedandcredit-worthyhighvolumehydrogenbuyer.Inaddition,investorsneedtoseeahandfulofdomesticproductionprojectsoperatingatfull,scaledthroughputinordertocollectsufficientengineeringandperformancedatatoevaluatebankability.Investorshavenotedtheyarealsowaitingtobetterunderstandforthcomingregulatoryguidancedomesticallyandabroad,projecteconomicsandrepeatability,andprogressalongthehydrogencostcurveasthemarketmaturesandprojectsprovebusinessmodelstability(i.e.,tounlockadditionaldebtfinance).Significantcapitalwillalsoberequiredtokick-startdomesticelectrolyzermanufacturing.Corporatebalancesheetsareexpectedtobetheprimaryequitypoolthatfundsnear-termelectrolyzerscale-up,includingfromlargeOEMsandsmaller,pure-playsuppliersandproducersintheupstreammarket,withsomeparticipationfromgrowthequityinvestors.97Notethatproposedinvestmentdollarsmayseesignificantattrition–notallprojectswillmakeitfromfeasibilitystudythroughtoFEED,permitting,procurement,andfinalconstructionPathwaystoCommercialLiftoff:CleanHydrogen43•Midstreaminvestmentrequirementsramp-upafter2030from$2–3B/yearto$15–20B/year2030–2050,asmoredistributedend-useslikeroadtransportationadoptcleanhydrogenandlocalhubs/regionalnetworksarelinkedbypipelineintoanationalnetwork.98Near-term,localstorageandregionaldistributioninfrastructureareexpectedtodeveloparoundhydrogenhubs/infrastructureclusters,fundedthroughamixofpublicandprivatecapital.Scaledmidstreamprojectsarecomplicatedbecausetheyoftenrequirecoordinationofnodesatbothendsofthenetwork-productionandofftake-aswellascomplexsitingandpermittingthatcanextendthroughmultiplejurisdictions.Inthecaseofhydrogen,investorscitenear-termuncertaintyaboutthemake-upofregionalhydrogeninfrastructure,includingtheformatandscaleofdistribution(e.g.,whichtypesofhydrogendistributionwillbecomestandard,thevolumeofhydrogenthatwillbetransportedoverlongdistancesviapipelinevs.trucking).Near-term,infrastructureinvestorswithexperienceowningoroperatingsophisticatedassets(e.g.,LNGpipelines)areactivelypursuingsomemidstreamprojects,oftenwiththeexpectationthatearlydevelopmentswillrequiresomeformofpublicsectorsupport(e.g.,guaranteestobuy-downproductionorofftakerisk).Asthedomesticcleanhydrogenmarketmatures,thehydrogenmarketwillseelowerrelianceonthesetypesofpublicsupportsandadditionalpoolsofcapitalareexpectedtoenterthemarket(e.g.,frominvestorswithexperienceinadjacentassetclassessuchasutilitiesoroilandgas).•Downstreaminvestmentrequirementsincreasefrom$3–4B/yearforend-useswithlowswitchingcoststhattransitiontocleanhydrogeninthenear-term,to$10–15B/yearafter2030asend-useswithhigherswitchingcostsadoptcleanhydrogen.99Initially,corporationsalreadyusingreformation-basedhydrogenarelikelytobethedominantcapitalprovidersforcleanhydrogenuseattheirownfacilities(i.e.,refineriesandammoniaproducersretrofitexistingsteammethanereformerswithCCS,supportedbybankfinancing,taxequityproviders,offtheirownbalancesheets,andbypotentialgovernmentfinancing).PrivateequityfundsarealsoinvestinginofftakesegmentswithhighrelativetechnologymaturityandwithapathtorevenuewithinaPEdeallifecycle.However,someofthesecapitalflowsareconcentratedoutsideoftheU.S.wheredemand-sidepolicies,particularlyinEurope,havegiveninvestorsconfidenceinthemarketvalueoflowcarbon-intensitycommodities.Domestically,investorshavefavoredend-useinvestmentsinindustrialapplications(short-term)andSAFs(medium-term).Short-term,industrialapplicationsalreadyshowhydrogendemand(manyusehydrogentoday)andcanoftenco-locateproductionandofftake.Medium-term,SAFsareanend-usesectorwithhighwillingnesstopayinacategorywheresomemidstreaminfrastructurecostscouldbelower(SAFsaredrop-infuels).Somefundshaveexpressedreticenceaboutthehurdlestoscalinghydrogeninmobilityapplicationsorhavenotedtheyarewaitinglongertoseethatmarketdevelop(e.g.,vehiclecost-downs,abundanceofrefuelingstations,majorfleetstakingFIDonfuelFCEVs).98SeeModelingAppendixfordescriptionofmethodologyforcalculatingrequiredinvestments99SeeModelingAppendixfordescriptionofmethodologyforcalculatingrequiredinvestmentsPathwaystoCommercialLiftoff:CleanHydrogen44Section3.c:Broaderimplicationsofhydrogenscale-upKeytakeaways•Therearefiveareasofemergingnear-termsupplychainrisk(Figure17):(A)Availabilityofrawmaterialsforelectrolyzermanufacturing;(B)Availabilityofsuppliers,andtimelineforqualification,ofprecisionmanufacturedsub-componentsforelectrolyzers;(C)Scaleofproductionfacilitiesforelectrolyzerassembly(Figure18);(D)U.S.-basedproductioncapacityforhydrogen-specificmidstreaminfrastructure;(E)AvailabilityofEPCproviderswithhydrogencapabilities.•Basedonindustryestimates,thehydrogeneconomycancreate~100,000netnewdirectandindirectjobsrelatedtonewhydrogeninfrastructurebuildoutin2030(~450,000cumulativejob-yearsthrough2030),withanadditional~120,000directandindirectjobsin2030relatedtotheoperationsandmaintenanceofhydrogenassets(Figure19).SupplychainToscalethecleanhydrogenmarketfrom<1MMTpatodayto50MMTpaby2050,~5xthesizeofthecarbon-intensivehydrogenmarkettoday,theentirecleanhydrogensupplychainmustscalerapidly,representingasignificantopportunityasdomesticandinternationalmarketsmature.Electrolyzers,tubetrailersandhydrogenstoragetanks,andEPCstoguideprojectconstructionneedtoscale.Likemanydecarbonizationtechnologies,electrolytichydrogenalsodependsonfurthersecuringandscalingthesupplychainforcleanenergy.100Therearefiveareasofemergingnear-termsupplychainchallenges,discussedbelow(Figure17).100SeeDOEanalysisonsolar,wind,andnuclearsupplychains101BasedonMcKinseyHydrogenInsightsP&Itrackerandelectrolyzersupplytrackerasoftheendof2022102SeeModelingAppendixformethodologyforcalculatingiridiumrequirementsFigure17:Electrolysiswillbechallengedbysupply-chainconstraintsinbothrawmaterialsandequipmentmanufacturingcapacityduringacriticalscale-upperiodthrough2025inadditiontochallengeswithrenewablesbuild-outandsourcingadomesticworkforce.IfelectrolysisfailstoscaleduringthePTCtimehorizon,itmaynotachievesufficientcostdownspriortoPTCexpiration.However,ifsupplychainconstraintsdodevelop,thefactthatthereareseveraldifferenttypesofelectrolyzersthatrequiredifferentrawmaterialsmayprovideopportunitiestoworkaroundthoseconstraints.PathwaystoCommercialLiftoff:CleanHydrogen45Potentialsupplychainvulnerabilities,2025RisklevelLowRiskHigh1:Includeslargescalecompressorsatindustrialandproductionssitesandcompressorsatrefuelingfacilities2:NosignificantadditionalbuildoutofSteamMethaneReformersanticipatedSource:DepartmentofEnergyFuelCells&ElectrolyzersSupplyChainReport,ENSInterviews,NRELexpertsUpstreamMidstreamDown-streamPEMElectrolyzersCCSGH2RefuelingstationsSMR1Pipes(H2,NG&CO2)TubeTrailersAlkalineElectrolyzersCompressors2ATRLiquefiersStorageTanksCleanHydrogenTechnologiesSolidOxideElectrolyzersLH2RefuelingstationsCleanAmmoniaGlobalrawmaterialsavailabilityDomesticsub-componentsupplybaseAvailabilityofglobalequipmentsupplyDomesticequipmentmanufacturingcapacityDiversityofglobalequipmentsupplyDomesticconstruction&operationstalentDomestictechnical&designtalentN/AN/A…ADEDBCEEA.Availabilityofrawmaterialsforelectrolyzermanufacturing:RelianceonforeignrawmaterialsupplierscouldimpactthegrowthofUS-basedPEMelectrolyzermanufacturing.PEMelectrolyzersaccountfor~30%ofglobaldeployedelectrolyzers(bycapacity)butareexpectedtoplayanoutsizedroleintheU.S.(40-45%ofannouncedelectrolysiscapacity)duetomoreU.S.-basedPEMelectrolyzermanufacturersvs.therestoftheworld.101Tomeetthedemandsofagrowinghydrogenmarket,largeincreasesintheextractionandrefiningofmanymaterialswillbeneeded.PEMelectrolyzersrequirerawmaterials,includingcatalysts,thatarecurrentlyaddressedprimarily(andoftenexclusively)byimports.TheDOEFuelCells&ElectrolyzersSupplyChainReportidentifieslanthanum,yttrium,andiridiumastherawmaterialsoflowerrelativeabundanceandwithminesmorelikelytobelocatedoutsidetheUnitedStates.By2030,U.S.PEMelectrolyzerdemandcouldrequire~15–30%ofglobaliridiumrawmaterialproduction(dependingonthePEMvsAlkalinedeploymentrate).102Over80%ofiridiumsupplycomesfromSouthAfrica,withalmostnoopportunityfordomesticproduction.Themixofelectrolyzertechnologiesdeployed,electrolyzeriridiumrecyclingrequirements,andR&Dtoreduceplatinumgroupmetal(PGM)requirements,canhelpaddressthischallengeaselectrolyzersupplychainscontinuetorapidlyscale.AsofQ12022,theUnitedStatesappearstohavesufficientresourcesandsupplychainsformanyoftheotherkeymaterialsrequired,includingstainlesssteel,titanium,zirconium,andnickel.103Inaddition,PEMelectrolyzersrequirePFASionomers–widelyused,longlastingchemicals,componentsofwhichbreakdownveryslowlyovertime.104PFASuseisbeingphasedoutintheEU.IntheUnitedStates,theEPAhasproposedlistingseveralPFASchemicalsashazardousmaterialsundertheComprehensiveEnvironmentalResponse,CompensationandLiabilityAct,requiringreportingPFASuseintheToxicsReleaseInventoryandisexploringotherregulatoryleversandanalytics,thatconsiderthecompletelifecycle,includingassociatedemissionsduringproductionsanddisposalwhilerespectingtheneedforessentialfluoropolymerproducts.Assuch,electrolyzermanufacturershavenotedthatdomesticmanufacturingforPFAScouldslow,bottleneckingavailabilityofthiscriticalcomponent.105Atpresent,thereisnotechnologypathwaytoswitchawayfromPFASuseinPEMelectrolyzers(effortstobuildalternativemembraneshavenotmetdurability/performancestandards).IfPEMrawmaterialschallengesarenotmet,otherelectrolyzertechnologies(e.g.,alkaline)willrepresentalargershareoftheelectrolyzermixintheU.S.AsillustratedinFigure3,asavarietyofelectrolyzertechnologiesreachcommercialviability,therewillbereducedrelianceonasingledesignorvaluechaintomeettheneedsofthegrowingcleanhydrogenmarket.B.Availabilityofsuppliers,andtimelineforqualification,ofprecisionmanufacturedsub-componentsforelectrolyzers:Thedemandforelectrolyzercomponentsislikelytosignificantlyexceedsupplygloballyuntilelectrolyzerproductionexpands.Asiscommonwithmanufacturingscale-up,theassociatedsupplybasewilltaketimetogrowduetoleadtimesoncomponentsthatrequireprecisionmanufacturingwithlongmanufacturerqualificationperiods(e.g.,themembraneelectrodeassemblycontainingthecatalystandmembranelayers).Today,theU.S.reliesonforeignsupplierswithlimiteddomesticoptions,thoughtheinternationalpartnersthatcurrentlysupportthesecomponentsincludecountrieswithastrongandpositiveU.S.traderelationship..C.Scaleofproductionfacilitiesforelectrolyzerassembly:Toenabledeploymentof~100GWofoperationalelectrolyzersby2030,domesticproductionwouldneedtoscalefrom4GWofpubliclyannouncedcapacitywithtargetcommercialoperationdates(CODs)toasmuchas~20–25GWp.a.by2030.106Insomeinstances,hydrogenproducerstodayarealreadybeingquotedleadtimesof2to3yearswhentheyorderelectrolyzers.IfthesizeofU.S.productionfacilitiesincreasestomatchEUfacilitysizes,107theU.S.couldrequireasmuchas~12–14additionalelectrolyzerproductionfacilitiesby2030(Figure18,whichrepresentsapotentialhighcasefordomesticproductionifall2030electrolytichydrogendemandwasmetwithdomestically-producedelectrolyzers).Thesefacilitiescouldemploy~20,000workersinaggregate.108Theramp-uptomeet2030demandmayleadtoanelectrolyzermanufacturingcapacityoverbuildinthe2030s,butthismaybemitigatedbyopportunitiesforelectrolyzerexport(notexploredinthisreport).103USDepartmentofEnergy.(n.d.).WaterElectrolyzersandFuelCellsSupplyChain:SupplyChainDeepDiveAssessment.RetrievedMarch17,2023,fromhttps://www.energy.gov/sites/default/files/2022-02/Fuel%20Cells%20%26%20Electrolyzers%20Supply%20Chain%20Report%20-%20Final.pdf104per-andpolyfluoroalkylsubstances105Effortstobuildanalternative,hydrocarbonmembranetoreplacePFASionomershavebeenlargelyunsuccessfulduetoproblemsw/durability/performance.106Additional1GW/yearfacilityhasbeenannounced,butdoesnotyethaveaCOD(source)107U.S.facilitysizesarecurrentlyanaverageof0.7GW/facility,whileEUfacilitiesareonaverage1.5GW/facility.DataisfromtheHydrogenCouncilandMcKinsey’sHydrogenInsightsElectrolyzerandFuelCellOEMSupplyTracker108Assumingapproximately800employeesrequiredper1GW/yearofproductionfacility(source)PathwaystoCommercialLiftoff:CleanHydrogen46Figure18:ElectrolyzerproductioncapacityneedstorampquicklytomeetprojectedPTC-drivenspikeinelectrolyzerdemandthroughtheearly2030s.Anear-termsteepramp-upcouldcreateriskofunder-utilizedplantsinthe2030sifexportmarketsarenotavailable.Dataasoftheendof2022.D.U.S.-basedproductioncapacityforhydrogen-specificmidstreaminfrastructure:Asdescribedabove,hydrogentruckingwilllikelyrepresentthemajorityofhydrogendistributioninthenear-andmid-termfordistributedend-usessuchastransportation.Ontheotherhand,powersectorandindustrialapplicationsaremorelikelytobeco-locatedorconnectedviaapipelineandarethuslikelytohavelowerdeliverycosts.Formoredistributedusecases,U.S.tubetrailermanufacturingiscurrentlyinthelow100unitsp.a.withleadtimesexceedingayear.Scale-upmustaddressissueswithcarbonfibercostsusedinnewtubetrailersandsuppliesaswellasmanufacturingtechniques(e.g.,highqualitycarbonfiberproducts).Similarly,othermidstreamcomponentssuchashydrogen-specificbalanceofplantmechanisms(e.g.,compressors,storagetanks,liquefiers,valves,hoses)mustscalerapidly.Thesecomponentsdonotfacesignificantscale-upconstraintsbeyondthecosttobuildmanufacturingcapacity,soarelesschallengingtoaddresscomparedtotherequiredrampinelectrolyzermanufacturing.PathwaystoCommercialLiftoff:CleanHydrogen47Publiclyannounced(EOY‘22)&requiredU.S.electrolyzerproductioncapacity,GW/year10GW0GW20GW30GW2223202124332526273428293031322035CompanyDCompanyACompanyBCompanyCAdditionalproductioncapacityrequiredCumulativeU.S.stockofelectrolyzersoperational,GW012491727415879101125148172195PotentialexcesscapacityfordomesticdemandCompanyENote:Assumes100%ofU.S.electrolyzerproductionisdedicatedtoU.S.projects,withoutimports,dataupdatedthroughtheendof2022.Thecapacityrampupcurveshownhereisbasedonproducing~10MMTcleanhydrogenfromelectrolysisby2030,basedonFigure13andFigure14(intheNetZero2050–highREhydrogendemandscenarioshownin(Fig13,ScenarioB)andtheelectrolysisvs.reformationproductionsplitshowninFigure14–withallneedsmetviadomesticelectrolyzermanufacturing).1Assumeseachfirmisconfinedtoasinglemanufacturingsitepercountry2Basedonpressreleases–e.g.,PlugPower0.5GWfacilityinNYsupports380jobs3MissingProductionassumeeachnewfactoryrequires3yearstoreachpeakperformance(40%/70%/100%)DataasEOY2022.Onlyincludespubliclyannouncedprojectsthathavesharedlaunchdate.20–25GWofelectrolyzercapacityby2030representsanupperboundondomesticproduction(assumes~10MMTpaallproducedbyelectrolytichydrogenusingdomestically-manufacturedelectrolyzers).E.AvailabilityofEPCproviderswithhydrogencapabilities:EPCproviderswillneedspecializedexperience,sufficientworkforce,andestablishedcontractstructuresforhydrogenproductionandrefuelingprojects.TheU.S.doesnotcurrentlyhaveasufficient,appropriatelyskilledworkforcetomanufacture,construct,oroperatethevolumeofhydrogeninfrastructurerequiredtomeetprojecteddemand,soscalingthisworkforcepresentsbothachallengeandanopportunity.Skillsetsacrossbothgashandlingandelectricalsystemsmanagementwillberequired.Laborinadjacentindustriessuchasoilandgasshouldbemobilizedtofillrolesrangingfromhydrogenproductionandpipelineconstructiontooperationsandmaintenance,oftenindifferentareasofthecountrythancurrenttalentpoollocations(e.g.,remoteregionswithhighrenewablespotential).Jobsconsiderationsarediscussedinmoredetailbelow(Figure19).SocioeconomicCleanhydrogencanadd$25–35Bingrossvalueadditions(GVA)acrosstheU.S.economyin2030.109,110Hydrogendistribution,storageandend-usesareexpectedtorepresent>70%ofthatGVAbeyond2030.Basedonindustryestimates,thehydrogeneconomycancreate~100,000netnewdirectandindirectjobsrelatedtothebuild-outofnewcapitalprojectsandnewcleanhydrogeninfrastructurein2030(~450,000cumulativejob-yearsthrough2030,Figure19).Directjobsincludeemploymentinfieldssuchasengineeringandconstruction.Indirectjobsincluderolesintheindustrial-scalemanufacturingandrawmaterialssupplychain.Anadditional~120,000directandindirectjobsrelatedtotheoperationsandmaintenanceofhydrogenassetscouldalsobecreatedin2030–thesewouldnotallbenetnewduetothebroadertransitiontoanetzeroeconomy,forexample,currentgasstationoperatorstransitioningintohydrogenrefuelingstationoperators(notshown).111,112Toattractandretainaskilledworkforce,thesejobsmustbehighpayingwithstronglaborprotections,training/placementopportunitiessuchasregisteredapprenticeships,andpathwaysforlong-termcareergrowth.ProjectLaborAgreements(PLAs)areusefultoolsforattractingandtrainingaskilledworkforcefortheinfrastructurebuildout,andothercollectivebargainingagreementswillsupportoperationsandmaintenanceworkforceneeds.ThePathwaystoCommercialLiftoff:Introductionprovidesanin-depthdiscussionofthesignificanceofthesequalityjobscharacteristicsandhowtheycanbeachieved.Asiscommoninthegrowthofinnovativesectors,jobswillnotmap1:1fromincumbentindustries,particularlygivengeographicshifts.Effortstoretainandretrainworkerscanminimizeworkerdisplacement.Inmanycases,skillsetsfromfossil-dependentindustrieslikeoilandgasareexpectedtohavesignificantoverlapwiththehydrogeneconomy,meaningworkerdisplacementmaybelowerthaninotherpartsoftheenergytransition.Similarly,thehazardsfacedbyworkersaresimilartothoseseenintheoilandgasindustries.Hydrogenpresentsrisksforworkersbecauseitistransportedandstoredasacompressedgas.Hydrogenleakscancauseasphyxiationiftheyoccurinconfinedspaces.Hydrogengasisalsoflammable,soleaksalsopresentrisksofexplosionsatworksites.Engaginglaborunionsandtheirapprenticeshiptrainingprogramsiscriticalthroughthegrowthofthehydrogeneconomytoensurethatworkplacesaresafeandhealthyforworkersandsurroundingcommunities.109Aneconomicproductivitymetricmeasuringthevaluethatproducershaveaddedtothegoodsandservicestheyhavebought,measuredasthedifferencebetweengrossoutputandnetoutput110SeeModelingAppendixfordescriptionofmethodologyforcalculatingrequiredinvestments111Onejob-yearistheequivalentofonefull-timejobforone-year.Becauseconstructionworkistemporary,infrastructurejobsareoftenreportedasjob-years.112Includingdriversforhydrogendistribution/deliverytrucksinthenearterm,whichwouldbelessrequiredaspipelineinfrastructureisbuiltoutbeyond2030.AnalysisprovidedbyVividEconomics.PathwaystoCommercialLiftoff:CleanHydrogen48Achievingcommerciallift-offforthecleanhydrogeneconomywillrequireworkforcetrainingtosmoothtransitionstonewjobsandindustrysectors.Theoilandgassector,forexample,employs~705,000Americanstoday,aworkforcewithexperienceinsafelyhandlingandtransportinggasesoverlongdistances;cleanhydrogenisanopportunitytosecurelytransitiontheserolestoanenergysystemalignedwithclimategoals.113Ifjobsarehighpayingandofferthefreeandfairchoicetojoinaunion,stronglaborstandards,andtraining/placementopportunitiessuchasregisteredapprenticeships,theywillattracttheskilledworkersrequiredanddrawnewworkerstothefieldandtothelocationswheretheyareneeded.Hydrogenmarketexpansionwillleadtonewenterprisecreation,includingopportunitiestosupportenterprisecreationinminority-,women-,Veteran-ownedorotherdisadvantagedbusinesses,andMinorityServinginstitutions.Constructingandmaintainingtheseindustrialclusterscanhaveamuchlargerimpactthanasingleplant.Incommunitieswherefossiltaxrevenuesmightdecline,developingacleanhydrogeneconomycanreplacelostrevenueandprotectjobs.113U.S.Energy&employmentjobsreport(USEER).(n.d.).Energy.Gov;U.S.DepartmentofEnergy.RetrievedFebruary12,2023,fromhttps://www.energy.gov/policy/us-energy-employment-jobs-report-useer114NWNaturalWithdrawsApplicationforControversialHydrogenBlendingExperimentFollowingCommunityUproar.(n.d.).https://www.sierraclub.org/press-releases/2022/11/nw-natural-withdraws-application-controversial-hydrogen-blending-experiment115Bottorff,C.(2022,January4).Hydrogen:FutureofCleanEnergyoraFalseSolution?SierraClub.https://www.sierraclub.org/articles/2022/01/hydrogen-future-clean-energy-or-false-solutionFigure19:Hydrogeninvestmentscouldsupport~100knetnewdirectandindirectjobsin2030.Energyandenvironmentaljustice(EEJ)Aswithothercleanenergytechnologies,howhydrogenisdeployedcancombatorexacerbateexistinginequalitiesinthedistributionofbenefitsandburdenswithintheenergysystemPathwaystoCommercialLiftoff:Introduction.ThissectionhighlightshydrogenspecificEEJconsiderations.Ensuringhydrogenprojectssupportenergyandenvironmentaljustice(EEJ)iscriticalnotonlyasamoralimperative,butbecauseprojectsuccessdependsonit.Hydrogenprojectshavealreadyexperienceddelaysandevencancelationswhencommunityconcernswerenotaddressed.114Projectpartnerscanmitigaterisks(totheprojectandcausedbytheproject)bybeingawareofpotentialEEJimpacts,takingproactivestepstomaximizebenefitsandminimizeharms,andengaginginearly,frequent,two-waydialoguewithimpactedgroups.Thisisparticularlyimportantashydrogeninfrastructureisfrequentlynearexistingoil,gas,andchemicalfacilities.Thesefacilitiesaredisproportionatelylocatedincommunitiesofcolorandlow-incomecommunitiesthatarealreadyoverburdenedandunderserved.115PathwaystoCommercialLiftoff:CleanHydrogen49Newhydrogenassetinstall,OEM&capex-drivenjobs,byvaluechainstepin2030,thousands5-915-20Directjobs2-610-148-124-690-11020-24Indirectjobs20-2465-7525-35Total,203025-3565-75NetnewlowcarbonenergyproductionHydrogenmidstreamHydrogenproductionTotalindirect1HydrogenendusesTotaldirect11Directjobsincluderolesrelatedtoinstallingnewassetswhileindirectjobsarerolesthatsupportassetinstallations(e.g.,OEMandothersupplychainjobs)Source:VividEconomicsBecauseofthemultiplepathwaystoproduce,distribute,andusehydrogen,thetypeandmagnitudeofbenefitsandharms–andwhoexperiencesthem–variessignificantlybyproject.116Forexample,onehydrogenprojectmightdecreaselocalairpollutioncomparedtothepre-projectbaseline,whileanothercouldincreaseit.Therefore,itisimperativethatimpactsareassessedonaproject-by-projectbasis.ThebenefitsandharmsbelowreflectconcernsandhopesraisedbyEEJadvocates,communities,andTribesbothpubliclyandinDOElisteningsessionsandrequestsforinformation.117,118SafetyofH2infrastructureandCO2infrastructure(forH2producedwithCCS)Production:Thehydrogenvaluechainisregulatedbyvariousfederalentities,fromproductionandstoragetodistributionandend-use.119Ascleanproductionpathwaysscale,communitieshavevoicedconcernsarounddifferentapproaches.Reformation-basedapproacheswithCCScanintroduceconcernsrelatedtoCO2transportandstorage.Theseinclude–groundwatercontamination,pipelineleakagesorexplosions(andresultinghealthimpacts),inducedseismicity,continuedfossilfueldependence,methaneemissions,andhighcost.120,121Compliancewithexistingcodes/standardsandbestpracticesfordeploymentofcleanhydrogentechnologiescanmanagetheriskshighlightedabove.Midstreaminfrastructure:Likeallpipelines(naturalgas,ammonia,etc.),hydrogenpipelinesaredesignedaroundcodesandstandardstoensuresafetyandaccountforuniquepropertiesofthemolecule(e.g.,embrittlementrisks).122However,pipelinesposerisksifnotproperlymonitoredandmaintained,andwhenadequatesafetymeasuresarenotinplace.123Atpresent,1,600milesofhydrogenpipelineareoperationalintheU.S.Hydrogenwillposeuniquerequirementsonpipelineoperatorsduetopropertiesofthemoleculewhichcanmakeitparticularlychallengingtomanage.Hydrogeniscolorless,odorless,andhighlyflammable,whichcanmakeitsusceptibletocombusteveninsmallconcentrations.Cautiousanddeliberatestepsarerequiredtoinstallsufficientleakagedetectionsystemsthatwillflaghydrogenlosses,eveninminuteconcentrations.Dedicatedhydrogenpipelinesfaceadifferentsetofchallengesthanpipelinesinwhichhydrogenisblendedwithnaturalgas.New,dedicatedhydrogenpipelineswilltaketimetobreakground,inpartduetothenascencyofthehydrogeneconomycombinedwithlongconstructionandpermittingtimelines.Theinterveningperiodcanbeusedtoevaluateconstruction,monitoring,andmaintenanceplanstoensuresafeconstructionandpipelineoperation.124,xxv116Thetypeandmagnitudeofbenefitsandharmswillvarydependingonpre-projectbaselinesandimplementationspecifics.117Baldwin,S.(n.d.).EnvironmentalJusticeImpactsOfTheHydrogenEconomy.Podcast.https://energycentral.com/o/energy-innovation-policy-and-technology-llc/environmental-justice-impacts-hydrogen-economy118Community,conservationgroupsunifiedinoppositiontofossilgashydrogenbills.(2022,February7).WesternEnvironmentalLawCenter.https://westernlaw.org/community-conservation-groups-unified-opposition-fossil-gas-hydrogen-bills/119SandiaNationalLaboratories,“FederalOversightofHydrogenSystems,”2021.120CO2PipelinesandCarbonCapture:TheSatartiaMississippiAccidentInvestigation.(2021,August30).ClimateInvestigationsCenter.https://climateinvestigations.org/co2-pipelines-and-carbon-capture-the-satartia-mississippi-accident-investigation/121Re:RequestforCommentsCouncilforEnvironmentalQuality’s“CarbonCapture,Utilization,andSequestrationGuidance,”87FederalRegister8808(DocketCEQ–2022–0001).(n.d.).ClimateJusticeAlliance.122Steelmakesupmorethanaquarter-millionmilesoftheU.S.naturalgastransmissionsystem,butathightemperaturesorhighpressure,hydrogenembrittlement(permeationofH2intosteel)cancracksteelpipes,leadingtoleakageorcombustion.AsnotedinChapter2,separatingandpurifyinghydrogenfromnaturalgasisdifficultandingeneraldoesnotpresentbreak-eveneconomicsforresidentialandcommercialapplications.Whenblending>5%hydrogen,everyapplianceconnectedtothepipelinewouldhavetobequalifiedorconvertedtothehydrogenblend,anextremelychallengingeffort.NotethattheEuropeanHydrogenBackboneispursuinghydrogenpipelinedistributionlargelythroughretrofitsofexistingnaturalgasinfrastructure(seeEuropeanHydrogenBackbone,“AEuropeanHydrogenInfrastructureVisionCovering28Countries”,(April2022,Page3))123ThePacificNorthwestNationalLaboratorycontainsapublicdatabaseofsafetycodes,standards,andlessonslearnedtosupportimplementationofthepracticesandproceduresthatwillensurethesafehandlingofuseofhydrogeninavarietyofapplications-seePacificNorthwestNationalLaboratory,“HydrogenTools,”H2Tools.org124Through2030,newhydrogenpipelineusewilllikelyremainlimited,as(1)ammoniaandoil-refininglargelyusehydrogenonsiteorreceivedeliveriesthroughanexisting,operationalvendorand(2)pipelinepermittingandconstructionisamulti-yearprocess;newpipelinesareunlikelytobeoperationaluntilatleastthelate2020s.PathwaystoCommercialLiftoff:CleanHydrogen50Atpresent,thereisnoindustryconsensusabouttheblendinglimitforhydrogeninnaturalgaspipelines.TheCaliforniaPublicUtilityCommissionindicatesthatblendinghydrogenmorethan~5%couldrequirethequalificationorretrofitofappliancesthattakeablendedfuelandhasraisedquestionsamongthemedicalcommunityrelatedtothehealthimpacts(includingNOx)whenburninghydrogen/methaneblends.125Incontrast,stateslikeHawaiialreadyblendhydrogenupto~15%intheirgrid.126TheDOEHyBlendinitiativeaimstoaddressthechallengesassociatedwithblendinghydrogeninnaturalgaspipelinesincludingrisksandcostsassociatedwithdifferentblendconcentrations,materialsinuse,andageofthesystem.HealthimpactsProduction:Intheabsenceofemissioncontroldevices,SMRcanresultincarbondioxide,andvolatileorganiccompounds(VOCs)emissions,whichcancauseorincreaserespiratoryillness,asthmarates,andothercomorbidities.127However,emissionscontrolmeasuresforthesepollutantsarecommercialandcommon.ProductionanddeliveryofnaturalgasforuseinSMRcanalsoreleasemethanetotheatmosphere,andfugitiveupstreamemissionscanhaveassociatedtoxicbyproducts.Anticipatedregulationsandadvancesinmethanemonitoringareexpectedtoreducetheseemissionsandprovidegreatermeasurementcertainty,however.Bothdevelopmentswillhelpaddressmethaneandotherpollutantsfromproductionanddeliveryofnaturalgas.Currently,evenwith>90%CO2capturefromCCS,SMRstillresultsinCO2emissionsandupstreamfugitivemethaneemissions(theseupstreammethaneemissionsalsoreleasesomeNOx).LowNOxburnerscancombatthepresenceofNOxinthefurnacewhencombustinghydrogen.Similartootheremissionscontroldevices,low-NOxburnersarebothcommercialandcommonplace.Conversely,whenelectrolysisviacleanpowerreplacescarbon-intensivehydrogen,itcaneliminatecriteriaairpollutants(e.g.,SO2,particulates,andNOx),whicharelinkedtohigherrisksoflungcancerandrespiratoryillness.128NewelectrolysisprojectsareexpectedtodominaterelativetonewreformationwithCCSprojectsduringthePTCperiod(seeFigure14).End-use:Likemostcombustionprocesses,hydrogencombustionemitsNOx–acompoundthatcanimpairlunggrowthinchildren,harmcardiovascularfunction,andleadtohigherratesofERvisitsaswellasprematuredeath.xiiReducingNOxemissionsrequiresadvancesinpollutioncontroltechnologyand/orlowerflametemperatures.Lowerflametemperaturesrequireeitherlowervolumesofhydrogen(andmorefossilfuels)inthecombustionorde-ratingtheengine,causingefficiencylossesandpowerdecreases.xxxiiInadifferentexample,hydrogenfuelcells,theonlybyproductsareelectricity,water,andheat.Therefore,fuelcellseliminateairpollutantsrelativetofossil-basedprocesses(e.g.,internalcombustionengines,naturalgaspeakerplantswithoutCCS).125SeeCaliforniaPublicUtilitiesCommission,“CPUCIssuesIndependentStudyonInjectingHydrogenIntoNaturalGasSystems”,2022,andAmericanMedicalAssociationHouseofDelegates,“Resolution438”,https://www.ama-assn.org/system/files/a22-438.pdf126Decarbonization:Hawaiigas.(n.d.).RetrievedJanuary3,2023,fromhttps://www.hawaiigas.com/clean-energy/decarbonization127Sun,Pingping,Young,Ben,Elgowainy,Amgad,Lu,Zifeng,Wang,Michael,Morelli,Ben,&Hawkins,TroyRobert.CriteriaAirPollutantsandGreenhouseGasEmissionsfromHydrogenProductioninU.S.SteamMethaneReformingFacilities.UnitedStates.https://doi.org/10.1021/acs.est.8b06197128Fan,Z.,Ochu,E.,Braverman,S.,Lou,Y.,Smith,G.,Bhardwaj,A.,...Friedmann,D.(2021).GreenHydrogeninaCircularCarbonEconomy:OpportunitiesandLimits(Rep.).NewYork,NY:CenteronGlobalEnergyPolicy-ColumbiaUniversity.PathwaystoCommercialLiftoff:CleanHydrogen51OtherconcernsDOEhasreceivedfromexternalstakeholdersrelatingtothehydrogeneconomyinclude:•Currenthydrogenpipelinesmostoftentransportindustrialhydrogenthatneedstobefilteredforhighpurityapplications(e.g.,useinfuelcellvehicles).Thestandardfilteringprocessofpressureswingabsorptioncanresultinupto~15%losses.129Forhighpurityend-useapplications,industrialpurityhydrogenpipelineswithend-usefiltrationlossescouldcontributesignificantlytohydrogensystemleakrate.Fortheseusecaseshighpurityhydrogenpipelinesshouldbeconsideredtopreventfiltrationlossesandthusmitigateleakage.•Ifelectrolysisdoesnotdominateproductionmix,reformation-basedpathwaysthatemitsignificantCO2andmethaneand/orcouldentrenchtheuseoffossilfuelsandfossilfuelinfrastructure.130•Increasedcoststoindividualconsumers(e.g.,willhydrogenimprovethebusinesscaseofcleanpowerassetsinawaythatspursmorenear-termdevelopmentoflow-costpower,orwillitincreasedemandforcleanelectricityinawaythatleadstohigherelectricityprices?).•Continuedoperationofpollutingfacilitiesincludingincommunitieslookingtophase-outfossilfuelinfrastructure(e.g.,usinghydrogentodecarbonizeafacility,whichcouldallowittocontinuetooperateandextenditsusefullife,whilepotentiallyemittingcriteriaairpollutants).•Continuedrevenuestreams/financialsupportprovidedtofossilfuelcompanies.•Useofhydrogeninsituationswhereelectrificationisfeasibleandpreferredbythecommunity(e.g.,residentswhoareconcernedabouthydrogenblendingforheating).129Du,Z.,Liu,C.,Zhai,J.,Guo,X.,Xiong,Y.,Su,W.,&He,G.(2021).Areviewofhydrogenpurificationtechnologiesforfuelcellvehicles.Catalysts,11(3),393.https://doi.org/10.3390/catal11030393130“Green”HydrogenMotionIntroducedatLACityCouncilDespiteEnvironmentalandJusticeConcerns.(2022,March4).Food&WaterWatch.PathwaystoCommercialLiftoff:CleanHydrogen52Section3.d:Hydrogenandhydrogen-derivativeexportsKeytakeaways•TheU.S.hasanaturaladvantageforcleanhydrogenproductionduetolow-costnaturalresourcesandcouldemergeasanetexporterofhydrogenandhydrogenderivativesifitcanmovequicklytocapitalizeonitsdomesticadvantagesasglobalproductioncentersscale-up(Figures21,22).Theseexportmarketscouldacceleratehydrogen’spathwaytocommercialscaleandmayhavehighwillingnesstopay(e.g.,incountrieswithastrictcarbontax).•Liftoffreportupdateswillreflectbestavailableinformationandregulatoryclarityattimeofpublishing,whichmayincludeupdatesrelatedtodomesticorinternationalregulationsthathaveimplicationsonhydrogenandhydrogen-derivativesforexport(e.g.,country-specificmethodsforlifecycleemissionsanalysisandmatchingrequirementsbetweenelectricityintakeandgenerationsourcesforelectrolyzers).Theregulatorylandscapeforcleanhydrogenisevolvingdomesticallyandabroad.Therefore,thisiterationoftheCleanHydrogenLiftoffreporthighlightsthird-party,pre-PTCscenarios,primarilyconductedbytheHydrogenCouncilinthe“GlobalHydrogenFlows”reportpublishedin2022,tohighlightsomeconsiderationsrelatedtohydrogenasanexportcommodity.Furtherreportupdateswillreflectbestavailableinformationandregulatoryclarityattimeofpublishing,usingindependentDOEmodeling/analysiswhereavailableandappropriate.Today,aninternationalmarketforcleanhydrogenisdeveloping,withseveralinternationalMemorandumsofUnderstanding(MOUs)forimport/exportalreadyannounced.Productioncostdifferencesareexpectedtobelargeenoughtosupporteconomiccross-bordertrade,despitetheadditionalconversionandtransportcost.131Asaresult,uptoone-thirdofcleanhydrogenandcleanhydrogenderivativesinanat-scaleglobalhydrogeneconomy(2050)couldbetradedacrossborders.livTheU.S.hasanaturaladvantageforcleanhydrogenproductionduetolow-costnaturalresources:renewablescapacityforelectrolysis,low-costnaturalgas,andavailablesequestrationformationsforreformationwithcarboncapture(Figures20,21).TheseproductionadvantagesarefurtherimprovedbytheIRA.However,theU.S.alsofaceshigherlaborcostsandmorechallengingprojectsiting/permittingrequirementsthanmanyotherhydrogen-producinggeographies.ThenetresultisthatwithoutthePTC,theU.S.haslowproductioncosts,butnotthelowestglobally(SeeModelingAppendixforfiguresillustratingpre-PTCdomesticcompetitiveness).131Developmentofglobalhydrogenexportreliesonlong-distanceenergycarriers,suchasammonia,methanol,liquidorganichydrogencarriers(LOHCs),andliquidhydrogen.Hydrogencarriersmaybeimportedfordirectuse(e.g.,forammoniaormethanol)orforconversiontohydrogen.PathwaystoCommercialLiftoff:CleanHydrogen53Productionpotentialforcleanhydrogenfromon-shorewind,utility-scalePVsolar,offshorewind,concentratedsolarpower,andbiomassresourcesA:Hydrogenproductionpotentialfromonshorewindresources,bycountylandareaB:Hydrogenproductionpotentialfromutility-scalePV,bycountylandareaC:Hydrogenproductionpotentialfromconcentratedsolarpower,bycountrylandareaD:Hydrogenproductionpotentialfromsolidbiomassresources,bycountylandareaE:Hydrogenproductionpotentialfromoffshorewindresources,bycountylandarea240,000100,000<10,000(kg/KM2/year)1,300,000750,000<250,000(kg/KM2/year)1,600,000500,000<10,000(kg/KM2/year)55,00010,000<1,000(kg/KM2/year)<3,000370,000735,000(kg/KM2/year)AluminumAmmoniaCarbonateUseCementEthanolFerroalloyGlassIronandSteelLeadLimeMagnesiumPetrochemicalsPulpandPaperRefiningSiliconCarbideSodaAshTitaniumDioxideZincSourceOutput(ktCO2peryear)<500500.01–12501250.01–30003000.01–6250>6250SinkDemand(ktCO2)5002500.0IndustrialclustersintheUnitedStatescreatepotentialregionsfordecarbonizationhubsFigure20:TheUnitedStateshasdiversedomesticresourcestoproducecleanhydrogen,oftenadjacenttoexistingindustrialclusters.Strategicdeploymentofcleanhydrogenwillneedtoensureclustersarenotjustacollectionofdisparateprojectsbutinsteadareplannedandscopedwithoneanothertomatchscale,cost,andduration.Figure21:TheUnitedStateshasanabundanceofdifferentgeologiesthatcouldbeusedforscaled,low-costhydrogenstorage.Inmanycases,theseregionsoverlapwithdominantproductionpotentialregionsshowninthepriorfigure.TheU.S.couldemergeasanetexporterofhydrogenandhydrogenderivativesifitcanmovequicklytocapitalizeonitsnaturaladvantages(e.g.,low-costfeedstocks,low-costscaledstorage)asglobalproductioncentersscale-up.Leveragingtheseadvantages,withoutIRAsubsidiestheHydrogenCouncilforecaststhattheU.S.canexport~20MMTpaofhydrogenin2050outsideofNorthAmerica,primarilyintheformofhydrogen-derivatives(e.g.,ammonia,methanol).TheHydrogenCouncilforecaststhatthelargestderivativemarketisexpectedtobe~10MMTpaofelectrolysis-basedhydrogenproducedontheU.S.westcoastformethanolthatisexportedtoAsia.Synthetickeroseneandammonia,whichusecleanhydrogenfeedstocks,arealsoexpectedtobeexportedtoEurope(seeModelingAppendicesforpre-PTCanalysis).156PathwaystoCommercialLiftoff:CleanHydrogen54A:Oil&GasFieldsandDepletedNaturalGasStorageFacilitiesB:HardrockOutcroppingsC:Oil&GasFieldsandDepletedNaturalGasStorageFacilitiesD:HardrockOutcroppingsSource:DOENationalCleanHydrogenStrategyandRoadmapviaSHASTA-NationalEnergyTechnologyLaboratory,PacificNorthwestNationalLaboratory,andLawrenceLivermoreNationalLaboratory,SubsurfaceHydrogenandNaturalGasStorage:StateofKnowledgeandResearchRecommendationsReport,DOE/NETL2022/3236,NETLTechnicalReportSeries,U.S.DepartmentofEnergy,NationalEnergyTechnologyLaboratory:Morgantown,WV,2022;p.6.https://www.netl.doe.gov/projects/files/SubsurfaceHydrogenandNaturalGasStorageStateofKnowledgeandResearchRecommendationsReport_041122.pdf.TherearealsoseveralkeydynamicsthatcouldaffectthesizeoftheU.S.exportmarket,bothpositivelyandnegatively.Giventherestrictionsothercountries(e.g.,inEurope)areimposingontheemissionsintensityofhydrogentheyimport,electrolysismaybemoreviabletosupplyexportmarkets(withstrictemissionsintensitycontrols)thanSMRwithCCSAdditionally,thetimeanddistancescoveredincross-borderhydrogentradepresentuniqueconstraintsandoperatingconditionsonhydrogendistribution.Forexample,thedensityofhydrogenneedstobesignificantlyincreasedtoalloweconomiclong-distancedistribution.Twoprimarymethodsofincreasinghydrogen’sdensityareliquefactionandconvertinghydrogenintoanammoniacarriermolecule.Ifusedashydrogenintheexportmarket,liquefactionhasahigheroverallefficiency,however,storagetimesarelimitedduetocryogenictemperaturerequirements.132Exportmarketscouldhelpacceleratehydrogen’spathwaytocommercialscaleby:1.SupportingasmootherandmoresustainedrampinU.S.electrolyzerproductioncapacity(e.g.,ensuringelectrolyzerfactoriesmaintainhighuptimesandfrequentorders,evenafterdomesticdemandissatisfied)2.Acceleratingthedevelopmentoflarge-scalehydrogenpipelineinfrastructurefromareasoflow-costproduction(e.g.,Midwest)tolargeexporthubs(e.g.,coasts)andthusalsolowercostofdeliveredhydrogentocoastaldemandcenters3.MorequicklydevelopinginnovativecontractstructuresandfinancingmechanismsbyleveraginginternationalexperienceoftradepartnersAtthesametime,developmentofsignificantcleanhydrogenproductionforexportcouldexacerbateU.S.workforceandsupplychainchallenges,resultinginsloweddomesticadoption.132Ifammoniaisuseddirectlyinendmarkets,theenergyefficiencytoconverthydrogentoammoniais33-67%,whichdropsto10-40%iftheammoniaisreconvertedtohydrogen.Incontrast,liquefactionefficienciesaretypically55-70%,althoughliquidhydrogenismorechallengingtostoreduetocryogenictemperaturerequirements.Assumes11-22kWhkgH2-1requiredforHaber-Boschproductionofammonia,additional~8kWhkgH2-1requiredforreconversionofammoniabacktohydrogen,and10-15kWhkgLH2-1forliquefactionAlGhafri,Saif,etal."Hydrogenliquefaction:areviewofthefundamentalphysics,engineeringpracticeandfutureopportunities."Energy&EnvironmentalScience(2022).PathwaystoCommercialLiftoff:CleanHydrogen55Chapter4:ChallengestoCommercializationandPotentialSolutionsSection4.a:OverviewofchallengesandconsiderationsalongthevaluechainKeytakeaways•Addressingthehighestpriority,near-termchallengesinthehydrogeneconomywillensurecontinuedmarketaccelerationconsistentwiththeUSDOECleanHydrogenStrategyandRoadmap.Thesenear-termchallengesareprimarilyrelatedto:(1)Securinglong-termofftake;(2)Lackofcost-effectivemidstreaminfrastructure;and(3)Pressuretoscalethehydrogenworkforce.Forelectrolysis,(4)therequiredspikeindomesticelectrolyzerproductionalsopresentsasignificanthurdle.ForreformationwithCCS,(5)developmentofregionalCO2networksandstorageisamajorchallenge(seeFigure22).•Duringindustrialscaling,(6)projectswillneedtolimitcreditrisktounlockdebtfinancing.Forelectrolysis,(7)scaleandcompetitionforrenewablepowerand(8)globalrawmaterialsabundanceforelectrolyzerspresentsachallenge.Inaddition,(9)nascentenduseswillfacetechnologyandmarket-specificconversionchallenges.•Long-term,hydrogenwillneedtoovercomechallengesrelatedto(10a)equipmentcosts;(10b)prevailingfeedstockprices;and(10c)investoruncertaintyrelatedtolong-termregulatoryimpactonsteady-statebusinessmodels.•Prevs.Post-PTC(expiration)constructiontimelinesimpactprojecteconomics.ElectrolysisprojectsthatclaimedthePTCcouldbemorelikelytooperateatfullutilizationafterthePTCsunsetduetofullydepreciatedcapitalassetscomparedtoprojectsbuiltpost-PTCexpiration(Figure23).Unlesscostsdeclinemorerapidlythanexpected,electrolyzerscouldrunatlowerutilizationpost-PTCexpirationforsomeend-uses,whileexistingreformationprojectswillbelessaffectedandnewprojectsmaybeconstrainedtocertainsectors(Figure24).Overcomingthechallengeslistedbelowwouldhelpacceleratecleanhydrogencommerciallift-offintheU.S.Figure22:Cleanhydrogencommercializationwilloccurover3horizons,eachwithitsownchallengestoaddress—thehighestprioritynear-termchallengesarerelatedtosecureofftakeagreements,midstreaminfrastructure,andworkforceavailabilityPathwaystoCommercialLiftoff:CleanHydrogen56ChallengestocleanhydrogencommercializationHighestprioritychallengesChallengestospecificpartsofthevaluechainNear-termexpansion~2023-2026Industrialscaling~2027-2034Long-termgrowth~2035+74ScaleofandcompetitionforrenewablepowerGlobalrawmaterialsabundanceforelectrolyzers8Lackofcost-effectivemidstreaminfrastructure(e.g.,local&large-scale/long-distancetransportation&storage)25Conversionchallengesforspecificenduses9Limitedavailabilityofspecializedhydrogenworkforce3Areaimpacted10Long-termcostcompetitivenessofa)H2equipment(e.g.,electrolyzers,liquefiers)b)Feedstock(e.g.,electricityornaturalgas)c)financialcapital(e.g.,duetoregulatoryandbusinessmodeluncertainty)Severalsourcesofcreditriskconstrainingdebtfinancingneededtoscale(counterparty,termvsassetlife,capabilities,underwritingrestrictions)61Hesitancytocommittolong-term,scaledofftakeEntirecleanhydrogeneconomyCapacityspikerequiredforU.S.electrolyzerproductionElectrolysisEndusesDevelopmentofregionalCO2transport&storageReformation+CCSChallengestoaddressasthenear-termmarketexpands(2023–2026):(1)Hesitancytocommittolong-term,scaledofftake:Atpresent,producersstruggletofindcredit-worthyofftakerswithsufficienthydrogendemandsitedwithinanaffordabledistancetohydrogenproductionwhoarewillingtosignlong-termcontracts.Manyofftakerswithnear-termbreak-evenpointsarerefineriesandammoniaproductionfacilitiesthatcanretrofittheirexistingfacilitieswithcarboncaptureandsequestrationratherthanseekoutanewcleanhydrogenproducer.Stakeholdersontheproduction,demand,andfinancingsideshighlighthesitancytocommitresourcesdueto:•Limitedpricediscoveryorpricecertainty:Nearterm,pricediscoveryislimited.Thereisnocommodityexchangeor“spotprice”forhydrogen,likenaturalgaspricesattheHenryHub.Manufacturers,developers,assetowners,andcapitalproviderscannothedgepricevolatilityriskandneedtoaccountforthisriskastheyassessthefinancialattractivenessofhydrogeninvestments.Offtakersarealsoreluctanttosignlong-termagreementsintheearlyyearsofhydrogenscale-upiftheybelievepriceswillfallastheindustryprogressesalongthecostcurve.•Unavailabilityandreliabilityofsupply:Someofftakersworrythat,untilhydrogenproductionscalesnationally,hydrogensupplieswillbeinsufficientand/ortoovariabletomeethighuptimeusecases.Forexample,ifstock-outssuchasthosethathavebeenexperiencedatrefuelingstationsinCaliforniaweretobecomewidespread,theindustrywouldfaceadditionalheadwindstowideradoption.•Near-termpolicyimplementationuncertainty:ImplementationdetailsforthehydrogenPTCareforthcomingfromIRSandTreasury.Untilthereisadditionalclarity,therewillbeuncertaintyaboutwhichprojectswillqualifyandwhatpricesproducerswillhavetochargetobreak-even.Theinabilitytoprojectfuturerevenuescanbeahurdletosecuringfinancingforlowcarbonintensityhydrogenproductionprojectswhile45Vimplementationpolicyremainsunderdevelopment.•Long-termpoliticaluncertainty:ThehydrogenPTCprovidesastrong10-yearincentive.However,uncertaintyaboutfederalsupportforcleanhydrogenafterthePTCexpirationleadstohesitationfromproducersdecidingwheretositelong-termproductionandfromofftakerschoosingsuppliers.OutsidetheU.S.,othergovernmentscouldimplementincentivesthatallowforeignproducerstoexporttotheU.S.atalowercostthandomesticproducers,loweringfutureprices.Theabsenceofstandardcontractstructuresalsodelaysprojectfinancing.Atpresent,hydrogenproducer/buyercontractsarebespokenegotiationswithvolumesandwillingnesstopayuniquetoeachsiteandusecase.Thisvariabilitylimitsreplicabilityforprojectdevelopers,offtakers,andfinanciers,slowingthepaceatwhichnewprojectswithsecure,long-termofftakeareestablished.(2)Limitedcost-effectivemidstreaminfrastructure:Theabsenceofaffordablemidstreaminfrastructurerisksslowingthehydrogeneconomy.Distributionandstoragecanmorethandoublethedeliveredcostofhydrogen.133Near-termusecaseswherehydrogensupplyanddemandarenotco-locatedwillbesignificantlyaffectedbythehighcostofhydrogendistribution,withtheexceptionofregionswithexisting,scaledhydrogenpipelinenetworks.Thisconstraintisespeciallytrueforestablishedindustrieslikesteel,wheremajorproductionhubsareinsomecasesnotclosesttothelowest-costhydrogenproductionregions.133Exactconditioning,storage,andtransportcostsarehighlydependentonthevolume,transportdistance,storagetime,andmethodsused.Stakeholdersreportedcurrentcostsofupto$10/kgPathwaystoCommercialLiftoff:CleanHydrogen57Storagecostscouldalsoaddcostsformanyelectrolyticprojectscomparedtoreformation-basedprojects,particularlythoseservingindustrialofftakerswhoneedanuninterruptedsupplyofhydrogen—down-cyclingindustrialplantsreducescapitalefficiencyandoftenresultsinsignificantmaintenance.Buildingsufficienthydrogenstorageinfrastructuretoprotectagainstsuppliervariabilitycanquicklyincreaseprojectcosts.Beyondpurecostconsiderations,thesafetyandinteroperabilityofhydrogeninfrastructure(e.g.,connectorandstoragetypesathydrogenofftake)mustalsobeaddressedtomitigatesafetyrisks,vendorlock-in,andlimitedworkforcemobility(acrosscompaniesorregions).Safetyandinteroperabilitywillbeespeciallycriticalasawidevarietyofnewoperatorsenterthevaluechain.(3)Limitedavailabilityofspecializedhydrogenworkforce:VividEconomicsestimatesthattheU.S.hydrogeneconomywouldneedmorethan~200,000workersacrossdirectandindirectjobsin2030(Section3c).134Rolesareprimarilyexpectedinhydrogenequipmentmanufacturingandfieldoperationslikeconstructionandmaintenance.Sub-sectorswithintheoil&gas,cryogenics,andtruckingsectorshaveextensiveexperiencewithreformation-basedhydrogenproductionaswellashydrogenconversion,distribution,andstorage,respectively.However,newskillssuchaselectrolyzerandelectrolyzercomponentmanufacturing,fuelcellexpertise,andelectrolysisfacilityengineering,procurement,andconstruction(EPC)expertiseareneeded.Additional,acceleratedcleanenergydeploymentislikelytofurtherconstrainEPCcapacity.(4)Electrolyzermanufacturingcapacity:Insomecases,producerstodayarebeingquotedwaittimesof2–3yearswhentheyorderelectrolyzers.<1GW/yearofoperationalproductioncapacitymustscaleto~20–25GW/yearby2030(seeSection3c).135Today’spipeline,basedonpubliclyavailableindustryannouncements,wouldaccountfor4GW/yearofthistotal,withatleastanadditional1GW/yearcapacityannouncedthatdoesnotyethaveatargetCOD.136Asteepreductioninelectrolyzerdemandmayfollowthisrapidcapacitybuild-outandriskstrandedassetsunlesstheU.S.becomesanelectrolyzerexporter(seeSection3d,Export).(5)CO2distributionandsequestrationinfrastructure:Forreformation-basedhydrogenwithCCS,2-20millionmetrictonnesofCO2wouldbecapturedandsequesteredannuallyby2030.137Thisquantityincreasesto100–225millionmetrictonnesannuallyby2040and175–425millionmetrictonnesby2050.138Currently,~25millionmetrictonnesCO2iscapturedandsequesteredintheU.S.acrossallsectors,requiringsignificantfurtherinvestmentinCO2infrastructureandcoordinationtomanageenvironmentalandsafetyconsiderations.NotethatthepermittingprocessforClassVIinjectionwells,usedtoinjectcarbondioxideintodeeprockformations,iscurrentlymulti-yearinstatesthatdonothaveprimacy,thoughpermittingtimesareprojectedtodecrease139134Includes~100,000jobsrelatedtodevelopmentofinfrastructure,and~120,000relatedtoon-goinghydrogenassetoperationandmaintenance135ThisscaleupassumesthatdomesticdemandforelectrolyzersismetbyU.S.domesticproduction.Asaglobalmarketforhydrogendevelops,aninternationalmarketforelectrolyzersmayalsodevelop.20–25GWisanupperboundassumingalmostentirelyelectrolyticproductionthrough2030.136Lastupdatedattheendof2022;Additional1GW/yearfacilityhasbeenannounced,butdoesnotyethaveaCOD(source)137RangeisbasedontheNetZero2050–highREandNetZero2050–lowREscenarios,70-90%capturerates,8-11kgCO2e/kgH2pre-capturecarbonintensity,and2kgCO2e/kgH2upstreammethaneemissions.138Basedonprojectedincreasesinhydrogendemand139EPA.(2022,Oct).EPAReporttoCongress:ClassVIPermitting.Retrievedfrom:https://www.epa.gov/system/files/documents/2022-11/EPA%20Class%20VI%20Permitting%20Report%20to%20Congress.pdfPathwaystoCommercialLiftoff:CleanHydrogen58Challengesthatmayemergeduringindustrialscaling(~2027–2034):(6)Creditriskconstrainingwidespreaddebt-financing:Asthehydrogeneconomyexpands,rapidandsubstantialgrowthindebtfinancingwillbeneededacrossthevaluechaintolowerthecostofcapitalandpreventanoverrelianceonequity.However,debtprovisionisconstrainedbyseveralcreditriskdriversincluding:•Businessmodel-relateduncertaintiesincludingontherevenueside(e.g.,reliabilityofofftakeagreements,fewmethodsforpricediscovery)andonthecostside(e.g.,remaininguncertaintyaboutcost/performanceforfirst-of-a-kind/N-of-a-kind(FOAK/NOAK)projects)•Fewcreditworthycounterpartiesduetolargenumberofstart-upsandfirst-timehydrogenproducersenteringtheindustrywithnoorlowcreditratingsand/orlackofadequatecollateral•Insufficientoperatinghistory(amongnewtechnologyproviders)forbankstogaincomfortwiththeriskforthetechnology,establishclearrequirementsandunderwritingcriteria(e.g.,debtcoverageandleverageratios),anddevelopdebtstructuresandtermsinlinewiththeneedsoftheproject(e.g.,debttermsbeyond3–5yearsrequireverystronglongtermmitigationmechanismslikeguaranteedofftake)•Scale-upriskinthenear-to-medium-termincludingoperatorswhomustexpandfromsmallpilotfacilitiestofullcommercialdemonstration.Ifthescale-upfromthepilot/demonstrationscaleprojectislarger(e.g.,5-10x),lenderswillshyaway.•Morenascenthydrogendealflowandlackoflendercomfortwhenconductingdiligenceoncleanhydrogenprojects,(e.g.,underwritingteamswithlimitedrepsevaluatinghydrogenprojectsincludingindustry-specificrisksandriskmitigationmechanisms)(7)Competitionforcleanelectricity:Acceleratingdemandforcleanelectricityisachallengeacrossmanycleanenergytechnologiesasnewelectricitydemand(e.g.,forelectrolysis,directaircapture)developsinparalleltoelectrificationofbuildingsandtransport.By2030,upto200GWofadditionalrenewableswouldbeneededtopowercleanhydrogenviawaterelectrolysis,140althoughthisvaluecouldbedecreasedifnuclear-poweredelectrolysisbecomesmorewidelyavailable.Ifrenewablesdevelopmentisconstrained,reformation-basedhydrogenproductionislikelytobeamoredominantproductionpathway,particularlyinthe2040sand2050s(seeFigure14).(8)Rawmaterialsconstraints:•PEM–PGMmaterials:ProjectedPEMelectrolyzerproductionmayrequirequantitiesofiridiumgreaterthanwhatiseconomicallyfeasibletomine.IfPEMelectrolyzersaccountfor~25%ofU.S.hydrogenproductionby2030andcatalystlevelsrequiredforPEMelectrolysisdonotchange,theU.S.couldrequirebetween15–30%oftoday’stotalglobaliridiumproduction.TheU.S.hasnosignificantdomesticsourceofiridiumandmustacquireitabroad(Ch3).Securinghighvolumesofiridiumcouldaddcostandcash-flowchallengestothefinancialprofileofPEMelectrolyzerfactories.•Alkaline:Alkalineelectrolyzersdonotfacecriticalmaterialconstraints;however,theymayfacehighercostsfrommaterialconstraintsformajorinputssuchasnickelthatarewidelyusedinotherexpandingindustries.AlkalineelectrolyzerscurrentlyhavemuchloweroperatingpressuresthanPEMelectrolyzers,requiringsignificantmorespaceandmaterialsforconstructionaswellasmuchmorecompression.137Thisbuild-outissignificant(onaverage,couldbe21–25GW/yearadded2023–2030forelectrolysisalone).Forcontext,theU.S.added~15.5GWofsolarJune’21-July’22.https://www.eia.gov/todayinenergy/detail.php?id=52438–200GWisanupperboundassuming>90%electrolytichydrogenproductionbuild-outtodaythrough2030.PathwaystoCommercialLiftoff:CleanHydrogen59(9)Scale-upchallengesforspecificend-uses:Whilenotachallengetotheentirecleanhydrogenmarket,specificend-usesfacechallengestoconverttocleanhydrogen.Forexample,FCEVswillrequireawidespreadrefuelingnetwork.SeeingthebuildoutofthisnetworkwouldbolsterconfidenceandwouldbeacriticalsignalforfleetoperatorstaskedwithcreatingtheirZEVstrategy.AdditionalregulationsmayalsostrengthenthecaseforFCEVsandcouldacceleratetheiradoption,similartopoliciesandsubsidiesthathelpedBEVsbegintoscalenationally.Nationally,thereare~50openretailhydrogenrefuelingstations,whichwillneedtoexpandsignificantlytoprovide5-8MMTH2in2040,allofwhichwouldbefuel-cellgrade(highestpurity)hydrogen.Todate,fuelcellstationsarelargelylimitedtoCaliforniawheretheCaliforniaEnergyCommissiondirectlysubsidizedthemajorityofstationcapexandwhererecently,thestate’sLowCarbonFuelStandardhasstrengthenedtheeconomiccaseforhydrogenasacleanfuel.Forcompetingtechnologies,thegeographiccoverageofothernetworksisfarbroader:thereare145,000gasstationsintheUSandmorethan140,000EVchargingstations,including6,000fastchargers.141Forheavy-dutyfuelcellvehiclestobeadopted,thetrucksthemselvesmustalsobedemonstratedandwidelyavailableatreasonablecost.Forthistohappen,vehiclefuelcelltechnologymustimprove,withcapexcomingdownanddurabilityincreasing.BothcategoriesrepresentanopportunityforadditionalR&D.Challengesandconsiderationsimpactinglong-termgrowth(2035+):(10)ExpirationofthePTCwilldrivemargincompression,ascoststodevelopnewprojectsarenotcurrentlyprojectedtodeclineataratecommensuratewiththedropinrevenuefromPTCexpiration.Therefore,projectcapexandopexmustfallwellinadvanceofthePTCsunsetforhydrogen(projectsthatbeginconstructionafter2032)toremainprofitable.In2035,electrolyzercapexisforecasttolandbetween$375–450/kW,meaningprojectswouldneedawillingnesstopayabove~$1.50/kgtobeprofitableatexpectedrenewablepowerpricesof$18–20/MWh.Somesectorswillnolongerbeeconomicduetothecostofcleanhydrogenrelativetoalternatives(e.g.,electrificationalternativesinhigh-capacityfactorfirmpowergeneration).(10a)Capex–Costofhydrogenequipment:Upstreamelectrolyzercostsmustdeclinefrom~$850/kWtoday(uninstalledandwithoutmarkup)toforecasted$200–250/kWby2035foralkalineelectrolyzers(~70–80%decrease).Midstreamliquefiers,compressors,andtankstoragemustalsoallseecostdeclines.(10b)Opex–Long-termfeedstockprices:By2025,cleanenergycouldaccountfor~50%ofthelevelizedproductioncostofhydrogenviaelectrolysis.Ascapexcostsfall,feedstockcosts(electricityornaturalgas)maygrowtoupto~80%oftheLCOHby2050.Asaresult,feedstockpriceswillbethelargestdriversofwhetherproductionprojectsremaineconomicafterthePTCsunset—bothexistingprojectsthatclaimedthePTCandprojectsbuiltafterthePTC.Figure23showsthatforelectrolysiswithoutthePTC,expectedLCOEswilltranslateintoneedingawillingnesstopayofatleast$1.25–$1.5/kgtoremainprofitable.Projectssellingtoofftakerswithlowerwillingnesstopaymayoperateatlowerutilization(e.g.,onlywhenlow-costelectricityisavailable).141“Therearemorethan145,000fuelingstationsacrosstheUnitedStates.127,588ofthesestationsareconveniencestoressellingfuel.Therestaregas-onlystations,grocerystoressellingfuel,marinas,etc.”,AmericanPetroleumInstitute,https://www.api.org/oil-and-natural-gas/consumer-information/consumer-resources/service-station-faqsPathwaystoCommercialLiftoff:CleanHydrogen60Figure23:ElectrolysisprojectsthatclaimedthePTCaremorelikelytooperateatfullutilizationafterthePTCsunsetduetofullydepreciatedcapitalassetscomparedtoprojectsbuiltpost-PTCexpirationInthelong-term,economicviabilityofhydrogenproductionprojectswillvarybyofftaker(dependentontheofftaker’swillingnesstopay),thehydrogenproductiontechnology,andwhethertheprojectbeganconstructionbeforeorafterthePTCsunsetin2032(seeFigure24).142Mostindustrialusecaseshavesufficientwillingnesstopaytojustifynewconstructionafter2032andcontinuedoperationsofexistingprojectsthatnolongerqualifyforthePTCafter10yearsinoperation.Ofcourse,thisisdependentonrealizingsignificantcost-downsforcapexandrenewablepower.Intheabsenceofthesecost-downs,producersmayneedtoraiseprices,wherefeasible,tocovertheiroperatingexpenses,likelyimmediatelybeforeandafterthePTCtermends.By2035,bothnewandexistingprojectsthatnolongerqualifyforthePTC(after10yearsinoperation)willnotbeeconomicalfornaturalgasblending(forbuildingheat)andpowerofftakers(100%H2combustionforhigh-capacityfirmpower),motivatingtheneedtofindnewofftakers,orinthecaseofelectrolysis,runatlowerutilizationduringtimesoflow-costpower.Reformation-basedhydrogencannotgenerallybeproducedeconomicallyatlowutilization.InthisLiftoffreport,IRRswerenotanalyzedforlower-capacityfactorpowerapplicationsofcleanhydrogen(combustionorfuelcells).Variationsinthecostofcapitalbyhydrogenproductioncompanyandfordevelopmentofprojectssellinghydrogenintodifferentend-useswillalsoallowcertainproducer/offtakercombinationstoremainviableatlowerwillingnesstopay.Thedevelopmentofdebt-basedprojectfinancingforhydrogenproductionwillalsoallowagreaterfractionofpotentialnewprojectstoclearinvestmenthurdleratesbyallowingincreasedleveredreturns.142Notethatwillingnesstopay(WTP)mustincludedelivery,storage,anddispensingcots–notjusthydrogenproductioncostsProfitability1criteriaforpost-PTCelectrolysisatfullutilization1Definedaspositivepresentvalueofpost-PTCfreecashflowforexistingprojectsandanIRR>7%fornewprojects2Projectbuiltin20233Projectbuiltin2035301.00101.750200.75400.501.251.502.00Existingprojectpost-PTC2Newprojectpost-PTC3OfftakerWtP,$/kgH2LCOE,$/MWhExpectedpost-PTCLCOErangeAllprojectsunprofitableAllprojectsprofitablePathwaystoCommercialLiftoff:CleanHydrogen61Figure24:Unlesscostsdeclinemorerapidlythanexpected,electrolyzerscouldrunatlowerutilizationpost-PTCexpirationforsomeend-uses.Someend-usesegments(i.e.,cleanhydrogenforlower-capacityfactorpower)werenotanalyzedinthisiterationoftheLiftoffreport.(10c)Capitalformation–Long-termregulatoryimpact:Investors,projectdevelopers,andofftakersareallseekingfurthercertaintyonthelong-termoperatingenvironment,includinghowtothinkaboutregulatoryimplicationsatthesunsetofthePTC.TheU.S.willfacecompetitionfromotherregulatoryparadigmsthatwillimpacttheattractivenessofU.S.investmentrelativetoothergeographieswithdifferentcostprofiles(landandlabor)andregulatorylandscapes(incentives,siting/permittingrestrictions).Long-term,sector-specificandeconomy-widepoliciesthatvaluelowcarboncommodities(e.g.,lowcarbon-intensitysteel,ammonia,cleanchemicals)couldfurtherstrengthenthebusinesscaseandlong-termprojectcertaintyformanyhydrogenend-uses.PathwaystoCommercialLiftoff:CleanHydrogen62SteelRoadtransportMaritimeNGblending-buildingheatPower:100%H2combustion,high-capacityfirmpowerEnduse1AmmoniaRefiningIndustrialheatChemicals-methanolPower:low-capacityfactorpower(fuelcellsorH2combustion)Reformation+CCSElectrolysisExistingproject2Builtin2023Constraint:NGpriceCutoff:>$0post-PTCFCFNewproject3Builtin2035Constraint:NGprice+capexCutoff:>7%IRR(Unlevered/levered)Existingproject4Builtin2023Constraint:LCOECutoff:>$0post-PTCFCFNewproject5Builtin2035Constraint:LCOE+capexCutoff:>7%unleveredIRR(Unlevered/levered)NotanalyzedinthisversionoftheCleanHydrogenLiftoffreportExpectedpost-PTCcostsunlikelytojustifyconstruction/fullutilizationExpectedpost-PTCcostswithin25%ofrequirementsforconstruction/fullutilizationExpectedpost-PTCcostsjustifyconstruction/fullutilizationMixedboxesshowhowan80%debtfinancedprojectcanhelpcleartheIRRcutofffornewprojectsinthe2030s1Willingnesstopay:Ammonia($1.5/kg),Refining($1.0/kg),Steel($2.0/kg),Methanol($1.5/kg),Roadtransport($4.5/kg),Aviation($1-2/kg),Maritime($1-2/kg),NGblending($0.50/kg),Industrialheat($1.0/kg),Power($0.50/kg)2ATRfacilitycapex(500kNm3/hcapacity):$1.05billion;CCScapex(500kNm3/hcapacity):$600million;Naturalgas:$4.8/MMBtu;CO2transportandstorage:$50/tonneCO23ATRfacilitycapex(500kNm3/hcapacity):$960million;CCScapex(500kNm3/hcapacity):$490million;Naturalgas:$3/MMBtu;CO2transportandstorage:$41/tonneCO24Assumes~2MW,450Nm3/halkalineelectrolyzerinstalledcapex:$1400/kW;assumesClass1onshorewind;post-PTCLCOE(2035-2049):$15-17/MWh;Capacityfactorrange(2033-2049):54-55%5Assumes~90MW,20,000Nm3/halkalineelectrolyzerinstalledcapex:$390/kW;assumesClass1onshorewind;LCOErange(2037-2061):$15-17/MWh;Capacityfactorrange(2037-2061):54-55%Sources:HydrogenCouncil,DOENationalHydrogenStrategyandRoadmap,NRELAnnualTechnologyBaselineSection4.b:PrioritysolutionsKeytakeawaysCross-cuttingsolutionswilladdressthechallengesnotedabove.Thesesolutionsinclude:1)Investinthedevelopmentofmidstreaminfrastructure2)Securesupplychaininvestments3)Developregulationsforascaledindustry4)Standardizeprocessesandsystemsacrossthehydrogeneconomy5)AcceleratetechnicalinnovationthroughR&D6)Expandthehydrogenworkforce7)ExpandandacceleratethecapitalbaseToscalethehydrogeneconomy,asetofnear-termactionswillhelpaddressthechallengesoutlinedabove.Thesesolutionsrequirecoordinationandmomentumfrombothprivateandpublicsectorstakeholders.1:InvestinthedevelopmentofmidstreamdistributionandstorageinfrastructureCost-effectivemidstreaminfrastructureiscriticaltoenabledistributedusecasesandexpandthehydrogenmarketbeyondprojectswhereco-locationisfeasible(Section4a).Inparallel,affordableCO2pipelinetransportwillbeneededforCCSconnectedtoreformation-basedhydrogenproductionwhichmayaccountforupto80%ofU.S.cleanhydrogenproductionin2050.143Toacceleratemidstreaminfrastructure,regionaldemandshouldbeaggregated144toimprovetheinvestmentcaseanddrivedownunitcoststhroughsharedutilization.Near-term,theFederalgovernment’s$8billioninvestmentinRegionalCleanHydrogenHubswillcatalyzeregionaldemandpoolsandsupportcost-sharingacrossdistributionandstorageresources.Theseandotheractionstoincentivizemidstreaminfrastructureshouldbecomplementedby:•Supplychainscale-upformidstreamequipmentcomponents(e.g.,tubetrailers)(Action#2)•Regulatoryclarityarounddistributionandstoragerequirements(e.g.,on-sitestoragecompliancerequirements)(Action#3)•Developmentofstandardstoestablishsafetyprotocolsandenableinterconnectionsacrossdifferentproductiontypes,midstreammodes,andofftakers(Action#4),and•Technologicaladvancementinmidstreamtechnologies(Action#5).2:SecuresupplychaininvestmentsGrowthofthehydrogeneconomywillrequiretherapidscale-upofmanytechnologiesthatdonotyethaveestablishedsupplychains(Ch3,Section4a)includingelectrolyzers,carboncaptureequipment,hydrogendistributionequipment(liquefiers,tubetrailers),andend-usespecificequipmentsuchasrefuelingstations.143InaconstrainedRESscenario144Intheshorttomedium-term,andtotheextentpossiblePathwaystoCommercialLiftoff:CleanHydrogen63Expandingdomesticmanufacturingcapacity,particularlyforrenewables,electrolyzers,andhydrogenmidstreamcomponents,willbecritical.Long-termpurchasingagreementsbetweenhydrogendevelopersandmanufacturerscouldhelpsmoothdemandandencouragetheramp-upofmanufacturingcapacitytoavoidbottlenecksinproductionchains.Additionally,stakeholdersacrossthehydrogenindustryshouldconsiderexploringconsortium-basedprocuremententitiesforcriticalcomponents(e.g.,PartnershipIntermediaryAgreements).Fromthepublicsector,directincentivesforelectrolyzersupplychains,analogoustotheCHIPSActforsemiconductors,couldcrowd-inprivatecapital.Industrialpolicyinterventionstomaintainidleelectrolyzerutilizationpost-2030couldalsoreducetheriskthatrapidlyscaledelectrolyzercapacitycouldbestrandedbyadropindemandafterthePTCsunsets.Inadditiontoadvanced/finishedcomponents,manysupplychainswillalsobeconstrainedbylackofrawmaterialsandcriticalinputs(e.g.,PGMcatalystsinPEMelectrolyzers).Tosecurerawmaterials,theU.S.coulddevelopstrategicreservesformineralswithconstrainedglobalavailability.TheU.S.canalsobolstersupplythroughtradeagreementswithproducingcountriesandsimultaneouslyincreaseinvestmentindomesticrefiningcapacity.Inparallel,R&Dcanreducethevolumeofconstrainedmaterialsthatareneededforequivalentoutput,andexpansionofdomesticrecyclingcapacitycanaidinfastermineralrecovery.Publicsectormomentumexistsinthisspace,withtheInfrastructureInvestmentandJobsActestablishing$500Mingrantfunding,someofwhichisintendedforrecyclingrelatedtocleanhydrogen.3:DevelopregulationsforascaledindustryIndustrystakeholdersfrequentlyciteregulatoryuncertaintyasachallengetoinvestment(Section4a).Forexample,forthcomingguidancefromIRSandTreasuryonhowprovisionsoftheIRAwillbeappliedwillprovidecrucialinformationtoinvestors,projectdevelopers,andend-users.Additionally,localpermittingandsitingchallengesalsoriskholdingbackcapitalflows.Powerpricesarethelargestcomponentofelectrolysis’levelizedcostofhydrogen(LCOH),meaningpermittingchallengesforrenewablesandnuclearenergycoulddriveincreasedcoststhatchallengeelectrolysisscale-up.Otheraspectsofthevaluechain,suchasrenewablesdevelopmentandhydrogenrefuelingstations,mayalsotakemultipleyearstopermit,whichcoulddelaycleanhydrogenliftoff.ForreformationwithCCUS,geologicstorageprojectsfaceaClassVIwellapprovalprocessthatdeveloperssaywillrequirepredictableandconsistenttimelinesandappropriatetechnicalassistance.RecentlegislationhasprovidedfundingtotheEPAtobuildouttheClassVIprogramsandprocessClassVIpermittingapplications.TheInfrastructureInvestmentandJobsAct(IIJA)alsoprovidesEPAwithadditionalfundstobothbuildregulatorycapacityatthefederallevelandtoprovidegrantstoStates,Tribes,andTerritoriesseekingtodevelopClassVIprimacy.Local,state,regional,andfederalagenciesshouldcoordinatepermittingandsitingregulations,workingtoensureprocessesarestreamlinedandconsistentwitheachotherwherepossible.Adequatestaffingtohandlepermitrequestsandguidancefordevelopersonstreamlinedpermitprocesseswouldhelptoreducewaittimes.Communication,educationandcollaborationwithlandownersandlocalcommunitiescouldalsohelpeasesitingchallenges,andleasingofpubliclandscouldprovidelandthatiseasiertosite,insomeinstances(seeSection3c,EnvironmentalJusticeConsiderations).PathwaystoCommercialLiftoff:CleanHydrogen64Hydrogeniscoveredtodaybychemicalsstandardsregulations,butmanyofthecurrentclassificationsandregulationsarenotdesignedwiththefullrangeofpotentialhydrogenend-useapplicationsinmind.Forexample,hydrogenstoragetanksaresubjecttoNationalFireProtectionAssociationregulations,whichlimitson-sitestoragevolumes.Inadditiontoevolvingexistingregulations,newregulationswillalsoneedtobedevelopedtoensuresafe,rapidprojectdevelopmentandongoingoperationswhileenablingat-scaledeploymentofnewtypesofinfrastructure(e.g.,regulationsonpurityofhydrogenthatcanbedistributedthroughhydrogen-dedicatedpipelinesthatservemanydifferentofftakers).4:StandardizeprocessesandsystemsacrossthehydrogeneconomyAlongthehydrogenvaluechain,manycompanieshavedevelopedbespoketoolingandstandardsthatcouldcreatelock-intoaparticularvendorortechnologysolution.Thisvariabilityreducesinteroperability,customerchoice,andlabormarketliquidity,andcanincreasethetimeandcostsassociatedwithprojectdevelopment.Atthesametime,lackofthorough,consistentlyappliedstandardscanleadtosafetyhazards.Hydrogenisflammableatawiderangeofconcentrationsinairandcanignitemoreeasilythangasolineornaturalgas.145Standardizedsystemsandprocessesaroundmaterials,systemdesign,ventilationinoperationalareas,andleakdetectioncanhelpmitigatepotentialrisks.Privatesectorstandardsorganizationscanplayacriticalroleindrivingcross-industrystandardoperatingprocedures(SOPs)andcomponentinteroperability(e.g.,hydrogentransferprotocolsduringdrop-off)aswellasdevelopmentofsafetystandards.Standardizationofprotocolsandcomponentsacrossgeographies(e.g.,atenergytransferports)wouldalsohelpavoiddelaysincross-bordertradeinhydrogenanditsderivativeproducts.Thepublicsectorcanplayarolebyconveningindustrystakeholderstodevelopnationalstandards,coordinatingwithinternationalgroupstoensureinteroperabilityforglobalaswellasdomestictrade.5:AcceleratetechnicalinnovationthroughR&DScalingthecleanhydrogenmarketrequires:•ContinuedR&Dtodrivedowncostincleanpower,electrolyzers,fuelcells,andCCS;•Commercializationofnascentelectrolyzers,suchasAEMWEsandSOECs;146,147•Improvedconversionefficiencyandcostofalternativeliquid-phasehydrogencarriersformidstreamdistributionandstorage;and•Reducedfuelcellcostandincreaseddurabilityforuseinroadtransportation145DepartmentofEnergyHydrogenandFuelCellTechnologiesOffice,“SafeUseofHydrogen,”(source)146Anion-exchangemembranewaterelectrolyzers147Solid-oxideelectrolysiscellsPathwaystoCommercialLiftoff:CleanHydrogen65Electrolyzersneedtosee50–80%costdeclinesby2030tofollowthegrowthpathwaydetailedinthisreport.Whilestandardization,designtovalueandmanufacturingscale-upwillrepresentasignificantportionofthecost-down,technologicalinnovationisalsoneeded.Forexample,PEMelectrolyzerscanseecostdeclinesthroughthereductioniniridiumandotherPGMrequirementsviaimprovementsiniridiumcatalystperformance,substitutionwithothercatalystcompositions,and/orincreasedcatalystsurfacearea.Foremergingelectrolyzertechnologies,thebiggestR&Dneedsincludemembranetechnology(forAEMelectrolyzers)anddurabilitypluslower-temperatureoperation(solid-oxideelectrolysiscells).Continueddevelopmentofnewcleanenergygenerationmaterialsandtechnologies(e.g.,perovskitesandotherlow-cost,thinfilmsolarcells)thatcouldreachlowercostlevelsmayalsoreducethecostofhydrogenproducedviaelectrolysisinthefuture.ForCCS,improvementsinperformanceandreductionsincostforemergingcarboncapturetechnologiessuchasadsorptionwillbemostcriticaltoreducethecostofreformationwithcarboncapture.Finally,hydrogenremainscostlytodistributeandstore.R&Dinalternativeliquid-phasehydrogencarriersthatarestableinambient/near-ambientconditions(e.g.,ammonia,liquidorganichydrogencarriers)couldreducethecostofmidstreaminfrastructurewhichtodaymustbeatcryogenictemperaturestokeepH2initsliquidphase.R&Deffortsonthesecarrierscanfocusonreducingconversioncoststoandfromhydrogenandmitigatinglifecycleemissionsandtoxicity.6:ExpandthehydrogenworkforceWhilethereissomeopportunityfortransferabilityoftalentfromadjacentindustries(e.g.,oilandgas),theengineering,operations,managerialandconstructionworkforcesforhydrogenmustscalequickly.Askilledworkforceismostneededformanufacturing(electrolyzers,liquefiers,compressors,andstorageequipment),EPCsthatinstallbothelectrolyzerfacilitiesandmidstreampipelines(Section4a),andhydrogendistributiontruckdrivers.Workforcedevelopmentcanbeacceleratedvia:•On-the-jobtrainingprogramsandflexibleworkpoliciestoallowmoretimefortraining•Collaborative,targetedtrainingprogramsbetweentheprivatesector,vocationalschools,communitycolleges,anduniversities•Skills-based(ratherthancredential-based)hiringpracticestowidenthepoolofcandidatesandfacilitatejobtransitions(e.g.,fromfossil-fuel-basedsectorsthatareexpectedtodecline).•Thepublicsectorwilllikelyhavearoleinsupportingworkforcedevelopmentandtraining,althoughmanyoftheseinitiativesaretypicallyledbytheprivatesectorincollaborationwithuniversitiesandvocationalschools.Policycanbeusedtosupportgoodjobswhichcanthenattracttalentandmotivateinvestmentinskills.Forexample,thehydrogenPTCalreadyaccountsforsomeprevailingwageandapprenticeshiprequirementswhichcouldalsobeextendedtothe45Qsubsidy.PathwaystoCommercialLiftoff:CleanHydrogen667:ExpandandacceleratethecapitalbaseScalingcleanhydrogenwillrequirea~4–10xscale-upincapitalby2030,requiringinvestmentacrossthecapitalstack.Investorsareseekingwaystoexpandtheirdiligencecapabilitiesfornovelprojectsandtechnologies,appropriatelypriceandmanagerisk,andleveragecreativecontractingandpartnershipstructurestomovequickly.Potentialactionsinclude:•Usingpublicsectordollarsandguaranteestode-riskprojectsandcatalyzeprivatesectorinvestment:Federaldollarscanplayacriticalroleinfinancingnovel,first-of-a-kindprojectsinhydrogentechnologiesthatrequirescaleddeploymentstocomedownthecostcurve.Grantandcost-shareprogramscanbeusedtocrowd-inprivatesectordollarsviasharedinfrastructureinvestments.TheseincludeHydrogenHubswhichwillpromotesharedinfrastructureandeconomiesofscaleforregionalhydrogenassetsthatnosingleinvestororcompanycouldunderwriteonastandalonebasis.•Developingandencouragingcontractingmechanismsthatmanagepriceandvolumeriskinhydrogenprojects.Thesemechanismsmayinvolvebilaterallong-termofftakeagreementsbetweenproducers/buyersforindividualprojects,whichincludeminimumvolumesoverlongperiodsoftimeatfloorpricestoensureminimumcompensationtohydrogenproductionprojects.Intheinitialstages,thesecontractualarrangementsmayrequirepublicsectorsupportorpublic-privatepartnershipstocatalyzetheirintroduction.Forexample,somestakeholdershavesuggestedthatthegovernmentcouldguaranteepriceorvolumefloorsinofftakeagreements.Thesefloorscouldhelpcapitalprovidersevaluatecashflowsbyprovidingsomeinsulationagainstregulatoryuncertaintiesandpricingvolatility.Consortiabetweenindustryplayerscanalsohelpde-riskinvestmentandenableprivatecapital.Forexample,consortiabetweenproducers,truckmanufacturers,andfleetoperatorscande-risktransportationend-uses.•Developingahydrogencommoditymarkettofacilitatepricediscovery(similartonaturalgasandcrudeoilmarkets)andreducevolatilityinpricingexpectationsintheabsenceofbilaterallong-termcontracts.Otherpricediscoverymechanismscouldincludeusingfixed-pricecontracts,establishinghydrogenexchanges,usinghedgingcontracts,anddevelopingpricingsurveyswithwidelyavailableresults.ThegoaloftheseeffortswouldbetocreateasufficientlyliquidmarkettoenableregionalornationalpricingdistributionhubsanalogoustoWTICrudeorHenryHubnaturalgas,whichwouldlowerthecostofcapitalbyreducingtheriskforbothproducersandend-users.Thistypeofopenpricingwouldalsobeakeymetricformeasuringtheliftoffofcleanhydrogen.ThemarketclearingpriceofhydrogencouldbecomparedtothepricerequiredforTCObreakeven,allowingtheindustrytounderstandwhennewend-usesbecome“inthemoney.”•Establishingatrackrecordofat-scaleprojectsfinancedwithdebt:Mostbanksneedtoseeafewsuccessful,at-scaleprojectfinanceexamplestoconsiderthetechnologymatureenoughfortheirriskappetite.Thegovernmentcanacceleratethisprocessbyprovidingdirectlendingtoprojectsorprovidingguarantees.Inbothcases,theultimateobjectiveis“crowdingin”commercialbankstoincreasetheirfocusonthetechnologyanddevelopmentoftheirhydrogenprojectunderwritingcapabilities.Inaddition,lenderscanbuildspecificcredit“sandboxes”toexplorethesedemonstrationprojects,aspartoftheirlearningprocess.These“sandboxes”wouldneedtobeasmallfractionofabank’sassetsandwouldrequirehigherreserverequirementsfromregulators.However,itcouldrepresentanapproachforbankstomorequicklyenterareastheyexpecttogrowrapidly,particularlyifthegovernmentprovidedguaranteestopartiallyoffsettherisk.Oncetheseprojectsshowthetechnologyisbankable,thegovernmentcanaccelerateinformation-sharingamongotherhydrogenprojectownersandlenders.PathwaystoCommercialLiftoff:CleanHydrogen67•Expanddiligencecapabilitiestoaccelerateinvestorcomfortwithcleanhydrogen.LeveragethevastfederalresearchnetworkincludingNationalLabsandFederalAgenciestosupportinvestorslookingtobuildteamsandfundsaroundemergingcleanenergytechnologies.Buildananonymizedsetofpubliccasestudiesthatwouldhelpfinanciersbecomemorefamiliarwiththerisk/returnprofileofFOAKprojects.Leadinginstitutionsthatdevelopthesecapabilitieswillhavetheopportunitytogainshareinarapidlyacceleratingmarket.Buildingthesecapabilitieswouldincludeinvestingtimeandtalenttobuildexpertiseinhydrogenprojectunderwritingandcreditriskanalysis.Capitalprovidersmayalsoexploreinnovativefinancialproductsandservicessuchasgreenbonds,M&Aadvisory/financialsupport,andspecificcontractstructurestomitigaterisk(e.g.,guarantees,insurance).PathwaystoCommercialLiftoff:CleanHydrogen68Chapter5:MetricsandMilestonesTheDOEwilltracktwotypesofkeyperformanceindicatorstounderstandtheprogressneededforsuccessfulmarketscale-upofcleanhydrogentechnologies:•Leadingindicatorsareearlysignsoftherelativereadinessoftechnologiesandmarketsforat-scaleadoption;and•Laggingindicatorsareconfirmationofsuccessfulscalingandadoptionofcleanhydrogentechnologies(e.g.,includingevidenceandprogresstowardnet-zerotargets).Figure25:Cleanhydrogenmilestonesreflectproductioncapacity,cost,andinvestmentrequirementsrequiredforscale.DOEwilltrackthesemilestonesandthosedetailedinthetablebelowtoevaluateprogressionofthedomesticcleanhydrogeneconomy.TheDOEwilltrackleadingandlaggingindicatorstotrackprogresstowardsnetzeroinanintegratedway.Ineachphaseofcommercialization,thereareafewcriticalmetricswhichcanindicatewhethercleanhydrogenisontrackforthepathtocommercialliftoffasdescribedinthisreport.ThesemilestonesdonotrepresentDOEtargetsbutareimportantmarkersofprogresstocreateconfidenceacrosstheecosystem.LeadingindicatorsLaggingindicatorsNear-termexpansion~2023-2026Industrialscaling~2027-2034Long-termgrowth~2035+Announceduninstalledelectrolyzercost(lowtemp):ontrackfor$100–250/kWby2030MMTpacontracteddemandbysectorAnnouncedH2pipelines:TrackingAnnouncedGW/yeardomesticelectrolyzermanufacturingcapacity:20-25GWpaby2030OperationalGW/yeardomesticelectrolyzermanufacturingcapacity:20-25GWpaby2030OperationalH2pipelines:Trackingmilesby2030Contracteduninstalledelectrolyzercost(lowtemp):$100-250/kWby2030H2producedperyear:20MMTpaby2040OperationalH2pipelines:TrackingNumberofrefuelingstationsplannedandpermitted:TrackingCategoriesKeyMetricsUnitsMilestones203020402050LeadingindicatorsContractedofftakeContractedcleanhydrogendemandbysector(Ammonia,Oilrefining,Steel,Methanol,HDMDRoadtransport,Aviation,Maritime,NGblendinginresidential/commercial,Industrialheat,Power)MMtpaUnitsannouncedUpstream-cleanH2productioncapacity(announced)MMtpa102050Upstream–cleanH2productioncapacity(reachedFID)MMtpa102050Mid-streamH2pipelinesMilesTracking-LowthousandsTypeIVtubetrailers#Tracking-LowthousandsAnnouncedunitcostsAnnounceduninstalledelectrolyzercost(Lowtemperatureelectrolyzer,46–51kWh/kgefficiency,80,000-hrlife)$/kW100–250Announceduninstalledelectrolyzercost(Hightemperatureelectrolyzer,44kWh/kgefficiency,60,000-hrlife)$/kW200–300LCOHby2026$/kg2(by2026)TechnologyperformanceElectrolyzerefficiency-LowtemperaturekWh/kg46-51Electrolyzerefficiency-HightemperaturekWh/kgAtorbelow44ElectricalconsumptionkWh37ThermalconsumptionkWh18LiquefactionefficiencykWh/kg7bymid-to-late2020sCompressionefficiencyTotalefficiencyTrackingRefuelingstations#kg/daycapacityTrackingCleanenergyavailabilityCleanenergydeployedforhydrogenproductionGigawatts(GW)Dependentonshareofelectrolyticvsreformation-basedH2Upto200$/MWhLCOE22Over44%capacityfactor(acrosstimehorizons)1917AnnouncedsupplychaincapacityAnnounceddomesticelectrolyzermanufacturingcapacityGigawattsperyear(GW/year)TrackingPathwaystoCommercialLiftoff:CleanHydrogen69CategoriesKeyMetricsUnitsMilestones203020402050LaggingindicatorsOperationaldeploymentCleanhydrogenproducedperyearMMTpa102050Refuelingstations(Number,reliability)#TrackingUptimevsplanTrackingOperationalH2pipelinesMiles(ofnew-buildH2pipelinesdemonstrated)Tracking,tobeupdatedafterH2HubawardsOperationalH2tubetrailers#Tracking-LowthousandsContractedelectrolyzercost-Lowtemperature$/kW100–250InvestmentdeployedLevelizedcostofcleanhydrogen(LCOH)ProducedUS$perkilogram$1/kgforbest-in-classprojectsinspecificlocationsinearly2030sInvestmentincleanhydrogensupply–byendusesector$BTrackingContracteduninstalledelectrolyzercost(Lowtemperatureelectrolyzer,46–51kWh/kgefficiency,80,000-hrlife)$/kW100–250Contracteduninstalledelectrolyzercost(Hightemperatureelectrolyzer,44kWh/kgefficiency,60,000-hrlife)$/kW200–300DeliveredtofuelingstationsUS$perkilogramTracking,tobeupdatedafterH2HubawardsOperationalsupplychaincapacityDomesticelectrolyzeroutputGWperyear20-25(upperbound–seeModelingAppendix)EmissionsCO2reductionsenabledbycleanH2economyTonnesofCO2eavoidedTracking--10%by2050(vs.2005emissions)NOxreductionsenabledbycleanH2economyMMTpaNOxTracking--JobsCleanhydrogenjobscreatedortransitionedJob-yearsTracking--GDPGDPimpactUSDTracking--PathwaystoCommercialLiftoff:CleanHydrogen70Chapter6:ModelingAppendixSourcesofinsight:ThiseffortdrawsonresearchandanalysesconductedbytheDepartmentofEnergy,NationalLabs,anddatabases/modelingapproachesdevelopedthroughcollaborationwithindustryparticipants.Hydrogenindustryforums,publicationsfromresearchinstitutions,publicannouncements,andstructuredinterviewswithmorethan40organizationsacrossthehydrogenvaluechainalsoinformedthisbodyofwork.Contextualizingthiswork:•Thisreportshouldbeconsideredaworkingdocumentandwillberefreshedonaregularbasistoincorporatethelatestdevelopmentsincleanhydrogentechnologiesandbusinessmodels,aswellasadditionalinputfromindustrystakeholders.•Readersshouldexpectupdatestomodelsandinputparameters,inparticularbecauseoftheacceleratingpaceofchangeandinnovationinthedomestichydrogenmarket.•Modeledscenariosrepresentillustrativecasestudiesandshouldnotbereadascomprehensiveofalltechnologyinputparameters,commercialoperatingconditions,orexogenousmarketconsiderations.•Questionsandfeedbackonthisreportshouldbedirectedtoliftoff@hq.doe.govtohelpinformfollow-upresearchandrefreshesofthisdocument.Inputandfeedbackshouldnotincludebusinesssensitiveinformation,tradesecrets,proprietary,orotherwiseconfidentialinformation.PleasenotethatinputandfeedbackprovidedissubjecttotheFreedomofInformationAct.Thebelowappendixshouldbeusedforreaderstounderstandthescopeandlimitationsofscenariospresentedinthereport.Methodology1:RoleofhydrogenindecarbonizingglobalCO2emissionsThedatashowninFigure1waspublishedintheMcKinseyGlobalEnergyPerspective2021basedonglobalemissionsdatafromtheIEAWorldEnergyOutlook2021.Thesegmentationofendusesby“strong,”“some,”and“limited”potentialwasmadethroughexpertinputfromtheDOEHydrogenandFuelCellsTechnologyOffice.Sectorslabeled“strongpotential”aresectorswherehydrogenisoneoffewdecarbonizationoptionsandislikelytobeadoptedonalargescaleifdecarbonizationispursued.Sectorslabeled“somepotential”aresectorswherehydrogenisoneofseveraldecarbonizationoptionsandcleanhydrogenmayfacemorechallengestoadoptionwhencompetingonspecificdimensionswithalternativetechnologies(e.g.,resourcematurity,marketacceptance–seeDOEAdoptionReadinessLevelsforspecificcommercializationchallenges.Sectorslabeled“lowpotential”aresectorswherehydrogeneithercannotplayaroleindecarbonizationorwheretheeconomicsofhydrogenusearenotfavorable.Keyinputsandassumptions:Seemethodologysection.Objectiveofanalysis:Illustratehydrogen’smyriadusesandpotentialtodecarbonizebasedonaglobalemissionsdataset.PathwaystoCommercialLiftoff:CleanHydrogen71Considerations&limitationsofapproach:Thesepercentagesrepresentthepercentageoftotalemissionsrepresentedbyendusesectors,notthepotentialemissionsreductionduetohydrogeninthatsector.Forexample,cementalsohasemissionsduetoconversionreactionsduringprocessingandthatcannotbemitigatedwithhydrogen.Thelowendofthe"strongpotential"rangerepresentshydrogenplayingaroleonlyinchemicals,long-haultrucks,andrefiningdecarbonization.Thehighendoftherangealsoincludesironandsteel,maritime,andaviation.Methodology2:CarbonintensitybyproductionpathwayCarbonintensitydataisfromtheHydrogenCouncilreport“Hydrogendecarbonizationpathways:Alife-cycleassessment”andrefinedwithexpertopinionfromDr.AmgadElgowainy(ArgonneNationalLaboratory).ThemethodologyfortheHydrogenCouncilreportisdescribedbelow.Thisreportisanassessmentthatusesalifecycleanalysis(LCA)approachforgreenhousegas(GHG)emissions.TheanalysisincludesGHGemissionsrelatedtoenergysupplyanduse.Fugitivegasemissions,suchasmethaneleakageacrossgasproductionandsupply,orhydrogenlossesfromflushingprocedures,havebeenconsideredintheassessmentsassumingbestavailabletechnologyandoperationalpracticesforagivenregionalenergysourceorroute.Productionconditionscanvarysignificantlyfromproducertoproducerandregiontoregion-globalassumptionshavebeenappliedforageneralizedLCAassessment.Forlife-cyclemodelingandcalculations,theLBSTsoftwareE3databasewasusedinaccordancewithstandardpracticesregularlyappliedtolife-cycleassessmentsforclientssuchastheJointResearchCentreoftheEuropeanCommission,EUCAR,Concawe,andotherindustryaswellasenvironmentalinterestgroups.Keyinputsandassumptions:Forgrid-basedcarbonintensities,therangeofgridcarbonintensitiesbystatewereusedfromtheScottInstituteforEnergyInnovationatCarnegieMellonUniversity.Thelowerboundrepresentsapartofthegridandtimeofthedaythatispoweredexclusivelybyrenewablesornuclear.AllotherinputassumptionswereimbeddedintheHydrogenCouncilreport.Objectivesofanalysis:Highlightthedifferencesincarbonintensitybetweendifferentproductionpathwaysaswellastheproject-to-projectvariabilitywithinapathway.Considerationsandlimitationsofapproach:Methaneleakageisinherentlychallengingtomeasureandvariesfromproject-to-projectandoperator-to-operator.SincethePTCcarbonintensitycutoffsincludemethaneleakage,accuratemeasurementofthesevalueswillbecritical.Methodology3:ElectrolyzerandreformationcapexcostsTheelectrolyzercapexcostsshowninFigure3arebasedonreportsfromtheHydrogenCouncilandBloombergNewEnergyFinance.ThemethodologytheHydrogenCouncilusedintheirreport“Pathtohydrogencompetitiveness:acostperspective”tocollectelectrolyzercapexcostsisdescribedbelow.xxviPathwaystoCommercialLiftoff:CleanHydrogen72Anindependentthird-partycleanteamcollected,aggregated,andprocessedelectrolyzercostforecastdatafromparticipatingHydrogenCouncilmembersfor2020,2025,2030,2040and2050,producinganonymizedmedianandtopquartileperformancedata.Thisdataincludeselectrolyzersystem,assembly,transportation,andinstallationcapexcosts.Electrolyzertechnologiesincludedwerealkalinewaterelectrolyzers(AWE),protonexchangemembrane(PEM)electrolyzers,andsolidoxideelectrolysiscells(SOECs).Costsforthreesizes,~2MW,~18MW,and~90MWwereincluded.Foreachelectrolyzersizeandtechnology,opexcostswerealsoincludedsuchasforoperationsandO&Mcostsaswellasrefurbishment(AWE)orstackreplacement(PEMandSOEC).Thefindingswerethentestedwithinsightsfromanindependentgroupofexpertsingovernmentandacademia,includingDr.AlanFinkel,Australia’sChiefScientist;Dr.TimurGül,HeadEnergyTechnologyPolicyDivisionattheInternationalEnergyAgency;TomHeller,ChairmanoftheClimatePolicyInitiative;Dr.NoévanHulst,HydrogenEnvoyattheNetherlandsMinistryofEconomicAffairs&ClimatePolicy;andLordTurner,ChairoftheEnergyTransitionsCommission.TheelectrolyzercapexcostrangesshownincludeboththeHydrogenCouncilmedianandtopquartiledataaswellastheBloombergNewEnergyFinancedataforalkalineandPEMconfigurations.xxviiOnlyHydrogenCouncildataisavailableforSOECcapexcosts.Thesecostsareusedasinputsinotheranalysesacrossthereport,includingthereformationandelectrolysisproductioncapacitysplit(Methodology11,Figure14),requiredhydrogenvaluechaininvestments(Methodology16,Figure16),levelizedproductioncostcalculations(Methodology4,Figure2,11,12),andcashflowmodeling(Methodology17,Figure24).Liketheelectrolysiscostinformation,throughtheHydrogenCouncil’sreport“Pathtohydrogencompetitiveness:acostperspective”,anindependentthird-partycleanteamcollected,aggregated,andprocessedsteammethanereforming(SMR)andautothermalreforming(ATR)costforecastdataandtheanalogouscarboncaptureandstorageforecastdata.iThesedataarefromparticipatingHydrogenCouncilmembers,forecastedfor2020,2025,2030,2040and2050.Forthisreport,thecarboncaptureandstoragedatawerefurtherrefinedthroughexpertopinionandadditionalstakeholderengagement.Thesecostsareusedasinputsinotheranalysesacrossthereport,includingthereformationandelectrolysisproductioncapacitysplit(Methodology11,Figure14),requiredhydrogenvaluechaininvestments(Methodology16,Figure16),levelizedproductioncostcalculations(Methodology4,Figure2,11,12),andcashflowmodeling(Methodology17,Figure24).Keyinputsandassumptions:ThecurrentcapexcostsshowninFigure3assumea~2MW(450Nm3/h)systemforthecurrentcostsanda~90MW(20,000Nm3/h)systemforthe2030costs,consistentwiththeexpectedincreaseinsystemsizebasedonincreasedproductionprojectsizes.Objectivesofanalysis:Toshowhowelectrolyzercapexcostsareexpectedtoevolveovertimefordifferenttechnologies.Figure3alsoshowstheadvantages,disadvantages,andpotentialapplicationsofeachtechnology.Considerationsandlimitationsofapproach:Thesecostsrepresentthesystemcapexcosts,whichincludesthestack,transformer,rectifier,compressorfor30barcompression,andpurification/dryingfor99.9%purityhydrogen.Thecostsdonotincludethecostofassembly,transportation,building,andinstallation.Thereportedvaluesarebasedonindustryestimatesforelectrolyzercapexcostsdevelopedby3rdpartiesin2020using2020USDunits.Forecastedelectrolyzercapexvaluesarerapidlyevolvingandmaydifferbetweensources.TheDepartmentofEnergyisintheprocessofdevelopingindependentcapexcostforecastsinaforthcomingpublication.PathwaystoCommercialLiftoff:CleanHydrogen73Methodology4:LevelizedhydrogenproductioncostsLevelizedhydrogenproductioncostswerecalculatedbasedontheelectrolyzer,reformation,andCCSindustrydatadescribedinMethodology3.ThesedataareshowninFigure2,Figure11,andFigure12.Theyarealsousedasinputsinotheranalysesacrossthereport,includingthetotalcostofownershipanalysis(Methodology10,Figure15,30),andthecashflowmodeling(Methodology17,Figure23,24).Electrolysislevelizedcostswerecalculatedassumingan~2MW(450Nm3/h)electrolyzerforcurrentcosts,an~18MW(4000Nm3/h)electrolyzerfor2025costs,anda~90MW(20,000Nm3/h)electrolyzerfor2030andbeyond.ThelevelizedcostsareallcalculatedusingwindpowerfromtheNRELAnnualTechnologyBaseline(ATB)2022report.xxviiiInthecaseofgridpowerforelectrolysis,acapacityfactorof95%wasusedtorepresentthereliabilityofgridpowerandtheLCOEswerebasedontheEIAAnnualEnergyOutlook2022referencecaseIndustrialElectricityprices.xxixMedianperformancebycensusregionwasused.Tocalculatethefullyloadedcosts,installedelectrolyzercapexvaluesareused,includingassembly,transportation,building,andinstallationcosts.Forreformation-basedhydrogen,thecapexcostscollectedusingMethodology3wereusedtocalculatelevelizedproductioncosts.Thesecostsassume$3/MMBtunaturalgasprices,inlinewithnaturalgaspriceassumptionsthroughoutthisreport.Tocompareindustrydatasources,levelizedproductioncostsfromBloombergNewEnergyFinancewerealsoincludedintheerrorbars.iiKeyinputsandassumptions:NRELATBClass5onshorewindwasusedforthedatashowninFigure11andthestackedbarchartsinFigure2.Class1andClass9onshorewinddatawasusedtogeneratetheerrorbarsshowninFigure11.Figure2showselectrolysislevelizedproductioncostsassumingalkalineelectrolyzers,whileFigure11showslevelizedproductioncostsforbothtechnologies.Objectivesofanalysis:Thesecalculationsshowthathydrogenproducedviaelectrolysisiscurrentlymoreexpensivethanreformation-basedhydrogenbutisexpectedtoexperiencelargercostdeclines,duetofuturedeclinesinrenewablesprices.Considerationsandlimitationsofapproach:Theselevelizedcostsuseindustryestimatesforelectrolyzercapexcostsdevelopedin2020using2020USD.ForecastedelectrolyzercapexvaluesandrenewablesLCOEsarerapidlyevolvingandmaydifferbetweensources.ThecalculatedlevelizedcostsshowndonotachievetheHydrogenShotby2031.Asdiscussedinthereport,thisgapbetweenindustryforecastsandDOEtargetssuggeststhatadditionalR&DinnovationisrequiredtomeettheHydrogenShot.PathwaystoCommercialLiftoff:CleanHydrogen74Methodology5:Hydrogencompression,liquefaction,anddistributioncostsGascompressionandliquefactionGascompressioncostsarebasedonindustrycapexcostsandcompressorefficienciescollectedthroughstakeholderinterviews.PowercostsarebasedonNRELAnnualTechnologyBaselineClass5onshorewindandutilitysolarlevelizedcostsandcapacityfactors.iiiLiquefactioncostsarebasedoncapexvaluesforrecentpublicannouncements,combinedwithinputsfromtheHydrogenDeliveryScenarioAnalysisModelatArgonneNationalLaboratory.xxx,xxxi,xxxiiGasphaseandliquidhydrogentruckingTheinputcoststodevelopthegasphaseandliquidhydrogendistributionlevelizedcostsarefromtheHydrogenCouncilreport“Pathtohydrogencompetitiveness:acostperspective.”iAsdescribedinFigure5,thesecostsrepresentindustryinputs.Thelevelizedcostisthendevelopedusingtheassumptionsfordistances,pressures,andthroughputsdescribedbelow.Hydrogenpipeline(newbuild)ThehydrogenpipelinecostsarebasedontheHydrogenDeliveryScenarioAnalysisModelatArgonneNationalLaboratoryusingtheinputassumptionsdescribedbelow.DispensingcostsDispensingcostswerecollectedfrom1)stakeholderinterviewsandfromtheHydrogenCouncilusingthemethodologydescribedinMethodology3and2)fromArgonneNationalLab.KeyinputsandassumptionsGascompressionandliquefactionSeemethodologysection.GasphasetruckingAssumeshydrogeniscompressedusinga50tonnesperdaycompressorto500barandtransportedusingadrop-and-swapapproachwhereafulltubetrailerisswappedwithanemptytrailer,insteadofemptyingandrefillingthesametrailer.Rangeisbasedonregionalvariationindriversalaries,whichrepresentsthegreatestcostvariabilityandisthequantitythatcausesgasphasetruckingcosttoincreaseforlongerdistributiondistances.LiquidhydrogentruckingAssumeshydrogenisliquefiedusinga50tonnesperdayliquefierandtransportedtoanofftakerwithaleakrateof6-15%duringtransfertotheofftaker.Leakrateswerebasedonstakeholderinterviews.Hydrogenpipeline(newbuild):Assumeshydrogeniscompressedto80barandtransportedinanewlybuilt,dedicatedhydrogenpipeline.LevelizedcostrangeshowninFigure5isbasedondifferencebetweenhigh-costregions(e.g.,NewEngland)andlow-costregions(e.g.,GreatPlains)PathwaystoCommercialLiftoff:CleanHydrogen75DispensingcostsAssumesstationdispenses700kgperdayat700bar,withvariabilityinstationutilizationfrom15-20%to70+%.RangeofutilizationconsidersbothregionswithlimitedadoptionofH2-basedroadtransportandearlieradopterregionswithgreaterH2-basedroadtransportpenetrationrates.ObjectivesofanalysisIllustratethelevelizedcostsofmidstreaminfrastructureandtherelativecostsofvariousmidstreampathwaysaswellastheboundaryconditionsunderwhicheachtypeofhydrogendistributionmightbepreferred.ConsiderationsandlimitationsofapproachGascompressionLevelizedcostsarehighlydependentonthetypeofelectricityusedandthecapacityfactorofthehydrogenproductionpathway.Forproductionfromelectrolysiswithvariablerenewables,alow-costvariablerenewablesourceistypicallyusedtopowerthecompressor,matchingtheup-timeoftheelectrolyzer.Forhighercapacityfactorproduction,suchasreformation-basedhydrogenwithcarboncapture,highercostgridelectricityisoftenusedtopowercompressorstoallowhigherup-time.GasphasetruckingThisapproachassumesgaseoushydrogenisdistributedusingadrop-and-swapapproachwhereafulltrailerisdeliveredtotheofftakerandtheemptytrailerfromtheprevioustripisremoved.Adrop-and-swapapproachlimitstimeonsiteandthereforedriversalariesbecausethedriverdoesnothavetowaitforthetubetrailertoempty.Thealternativepressuretransferapproachwherethedrivertransfersthehydrogenfromatubetrailertoanon-sitestorageunit,isaslowerapproach,increasingdistributioncosts.LiquidhydrogentruckingAnimportantconsiderationofliquidhydrogentruckingistheleakrateduringtransferfromacryogenictankertotheon-sitestorageunit.Theleakratewilllowertheamountofhydrogenthatcanbedeliveredinonetrip,effectivelyincreasingthelevelizedcost.Hydrogenpipeline(newbuild):Atscale,multiplesizesofhydrogenpipelinewillberequired.The600tonnesperdaypipelinesizerepresentsdistributionbetweenasmallnumberofproducersandofftakers.Apipelinebackbone,analogoustotheU.S.naturalgasnetworkortheEuropeanHydrogenBackboneproject,wouldrequirepipelinesthatcantransportseveralthousandtonnesperdayoverlongerdistances.ThedifferenceincostsisillustratedinFigure5.Dispensingcosts:Sincedispensingcostsareprimarilyrelatedtothecapextobuildthehydrogenrefuelingstationandsupportinginfrastructure,theutilizationrateisasignificantdriverofcosts.Fortheusecaseinthesecalculations,Class8trucks,thelongerdrivingrangeallowsforfewer,higherutilizationstationsalongmajorhighwaycorridorscomparedtopotentialsmaller-scaleroadtransportapplications.Assuch,highutilizationwasassumed.PathwaystoCommercialLiftoff:CleanHydrogen76Methodology6:HydrogenstoragecostsHydrogenstoragecapexcostsarereportedinFigure6,alongwithcalculatedlevelizedcostsandthetradeoffsbetweenstoragemethods.Thesestoragecostsareusedinthecashflowmodelinganalysis(Methodology17,Figure23,24),andarealsoshowninthemultimodalpathwaysfigure(Figure10).CompressedgastankstorageandliquidhydrogenstorageTheHydrogenCouncilreport“Pathtohydrogencompetitiveness:acostperspective”wasusedforcompressedgastankstorageandliquidhydrogenstoragecapexandopexcosts.iThesedataarefromindustrialsourcesusinganalogousapproachtoMethodology3.Thelevelizedcostswerecalculatedwithanassumedlifetime,utilization,pressure,andvolumedescribedbelow.SaltcavernandlinedhardrockstorageSaltcavernstorageandlinedhardrockstoragelevelizedcostswerecalculatedusingthecapexvaluesreportedintheArgonneNationalLaboratoryreport“SystemLevelAnalysisofHydrogenStorageOptions”withtheHydrogenDeliveryScenarioAnalysisModel.xxxiii,iiiSeebelowforthedetailedinputassumptions.Keyinputsandassumptions:Storagecostsdonotincludethecostofcompressionorliquefaction,whichisincludedinthedistributioncostsshowninFigure5.Assumptionsspecifictoeachstoragetypeareincludedbelow:•Compressedgastankstorage:Assumesthat950kgH2arestoredat500bar,with1cycleperweek.A7%WACCand20-yearlifeareassumed.•Liquidhydrogenstorage:Assumes50TPDcapacity,cycled1timeperweek,witha7%WACCand20-yearlife.•Saltcavernstorage:Assumes80barstoragepressurewithsufficientcapacitytostore7daysofthroughputfroma600TPDdedicatedH2pipeline.Thegeologicstoragegasisassumedtobe~40%byvolume,sotheutilizationofstoragecapacityis~60%.•LinedHardrockstorage:Usesanalogousassumptionstosaltcavernstorage,butstoragepressureisassumedtobe150bar.Objectivesofanalysis:Highlightthatgeologicstoragehasthelowestcostbutisgeographicallyconstrained,whilegaseoustankstorageandliquidstoragearenotgeographicallyconstrainedbutarehighercost.Outputs:Geologicstorage,usingbothsaltcavernsandlinedhardrockcaverns,arethelowestcosthydrogenstorageoption,butaregeographicallyconstrained.Assuch,thelocationsoftheseformationswillaffectwhereearlyhydrogenproductionprojectsaredeveloped,particularlyforelectrolysis-basedproductionwithvariablerenewablesources.Liquidphasestoragehasalowlevelizedcostaswellbutcanonlystorehydrogenforupto10daysandrequiresexpensiveandenergy-intensiveliquefaction.Compressedgastankstorageisthehighestcost,butisalsothemostflexible,makingitappropriateforsmallscale,distributedusecases.PathwaystoCommercialLiftoff:CleanHydrogen77Considerationsandlimitationsofapproach:CompressedgastankstorageCostestimateisforType1stationarystorage.Variousgastankstoragemethodshaveawiderangeofcosts.Maturationofgasstoragesupplychainsandnarrowingofsafetyparameterscouldbringlowergastankstoragepricestomarketby2030.Over-the-roadgastanksmustalsobetestedannually,whichisnotincludedinthecostshereforstationarystorage.Readersshouldevaluatere-testingandrecertificationasanaddedcost.LiquidhydrogenstorageLiquidhydrogenallowsstorageoflargerquantitiesofhydrogeninasmallerspacethangaseousstorage,makingitidealforlargequantitieswhengeologicstorageisnotavailableandforlong-distancedistribution.However,thetimethathydrogencanbestoredisaliquidislimitedduetohydrogenboiloff.SaltcavernstorageCavernstorageistypicallyoneofthelowestcoststorageoptionsandhassignificanteconomiesofscaleeffects,makingitidealforhydrogenhubsandareaslargeproduction/offtakecapacity.However,cavernsaregeographicallylimitedandstorageofothergases,includingnaturalgasandCO2,limitavailability.LinedhardrockstorageThesametradeoffsforsaltcavernstoragearealsoobservedforlinedhardrockstorage.Methodology7:Hydrogenfeedstocktotaladdressablemarket(TAM)ThepotentialhydrogenfeedstockmarketsizewascalculatedundertwoscenariosandshowninFigure7:•H2feedstockTAM:Representsthemarketsizeforcleanhydrogenfeedstocksineachenduse;calculatedbymultiplyingthecleanhydrogeninthe“Netzero2050–highRE”scenariobythemidpointintherangeofwillingnesstopaybyendusereportedintheDOENationalHydrogenStrategyandRoadmapiii;dispensingcostsaresubtractedfromtheroadtransportTAMandmarketsizewithfulladoption•H2feedstockTAMwithfulladoption:Representsthemaximummarketsizeifthehydrogen-basedsolutionhad100%shareofeachenduseThesetwoquantitiesallowreaderstounderstandthepotentialassociatedwitheachendusebasedonsurpassingornotmeetingthedemandforecast.TocalculatetheTAMforeachenduse,thewillingnesstopayforcleanhydrogenineachendusewasmultipliedbyahydrogendemand.ThedetailedmethodologyisdescribedinFigure26.PathwaystoCommercialLiftoff:CleanHydrogen78PathwaystoCommercialLiftoff:CleanHydrogen79Figure26:MethodologyforcalculatingTAM,leveragingpublicreportsandprojectionsxxix,xxxiv,xxxix,xxxvProfitability1criteriaforpost-PTCelectrolysisatfullutilizationEnduseAmmoniaRefiningSteelMethanolRoadtransport1AviationfuelsMaritimefuelsNGblendingforbuildingheatIndustrialheatPower–20%H2(Combustion)2H2feedstockTAMapproachH2demandfromNationalStrategyWtPH2demandfromNationalStrategyWtPH2demandfromNationalStrategyWtPH2demandfromNationalStrategyWtPH2demandfromNationalStrategy(WtP–dispensingcosts)(H2forbiofuelsdemandfromNationalStrategybiofuelsWtP)+(H2forPtLdemandfromNationalStrategyPtLWtP)H2forprojectedcleanammoniaandmethanolmaritimefuelammoniaandmethanolWtPZerodemandH2demandfromNationalStrategyWtPH2demandfromMcKinseyPowerModeloutputpowerWtPSourcesNationalHydrogenStrategyNationalHydrogenStrategyNationalHydrogenStrategy,DOEIndustrialDecarbonizationRoadmapNationalHydrogenStrategy,IEAandOECM,“TheFutureofPetrochemicalsTowardsmoresustainableplasticsandfertilizers,”InternationalEnergyAgency,France,October2018NationalHydrogenStrategy,EIAAnnualEnergyOutlook2022SAFGrandChallenge,EIAAnnualEnergyOutlook2022MissionPossibleProjectreport“AStrategyfortheTransitiontoZero-EmissionShipping”NationalHydrogenStrategy,EIAAnnualEnergyOutlook2022NationalHydrogenStrategyMcKinseyPowerModel,EIAAnnualEnergyOutlook2022H2marketsizewithfulladoptionapproachSameasTAMapproach,usingNationalStrategyassumptionof100%cleanhydrogenpenetrationSameasTAMapproach,usingNationalStrategyassumptionof100%cleanhydrogenpenetrationNationalStrategyassumptionthatH2candecarbonize10-20%ofsteeldemand,scaledtofullpotentialbasedontotalforecastedU.S.steeldemandNationalStrategyassumptionthatH2candecarbonize50%ofmethanoldemand,scaledtofullpotentialbasedontotalforecastedU.S.methanoldemandProjectedClass8long-haulandregionaltruckmilesdrivenfuelefficiency(WtP–dispensingcosts)Assumes~39Bgallonsin2050(100%penetration)basedonSAFGrandChallenge,scaleddownin203and2040basedonU.S.jetfueldemandOverallprojectedU.S.maritimefueldemand(inEJ)WtPTotalforecastedresidential/commercialheatingdemandconvertedtohydrogenvolumeusingspecificenergyWtPNationalStrategyassumptionthatH2candecarbonize20-50%ofindustrialheat,scaledtofullpotentialTotalforecastedpowerdemandconvertedto20%hydrogenvolumeusingspecificenergyandheatingvaluesWtP1.H2feedstockTAMusesH2demandfromtheDOENationalHydrogenStrategyandRoadmapassumingbothmedium-andheavy-dutytrucks;H2marketsizewithfulladoptionisbasedonenergyusagefromClass8long-haulandregionaltrucks,whichrepresentthesignificantmajorityofallmedium-andheavy-dutytruckenergyconsumption2.Willingnesstopayisbasedonhigh-capacityfactorfirmpowerNOTE:Willingnesstopay(WtP)isbasedonthemid-pointoftherangesreportedintheDOENationalHydrogenStrategyandRoadmapKeyinputsandassumptions:ThewillingnesstopayforcleanhydrogenandhydrogendemandforecastswerebasedontheDOENationalCleanHydrogenStrategyandRoadmapxforecasts,exceptformaritimedemand.Tocalculatethemonetaryvalueofthehydrogenfeedstockopportunityineachenduse,themidpointofthewillingnesstopaywasmultipliedbytherelevanthydrogendemand.Inthecaseofroadtransportation,dispensingcostsweresubtractedfromthewillingnesstopay.HydrogendemandfrommaritimeenduseswascalculatedbasedontheUniversityMaritimeAdvisoryServicesreport“AStrategyfortheTransitiontoZero-EmissionShipping:AnAnalysisofTransitionPathways.”xxxviGlobalzeroemissionfuelandthesplitbetweenammoniaandmethanol-basedfuelwasscaledtoU.S.demandbasedonthepercentageofglobalmaritimeusageinU.S.ports.Hydrogendemandwascalculatedbasedonthehydrogencontentinmethanolandammoniafueldemandforecast.TocalculatethecleanhydrogenfeedstockTAMwithfullenduseadoption,thetotalfuturedemandforeachendusewasneeded.ThesourceslistedinFigure26wereusedforthesefuturedemandforecasts,consistentwiththesourcesusedintheDOENationalCleanHydrogenStrategyandRoadmap.Forhydrogendemandfrommaritimefuel,aprocessanalogoustotheapproachdescribedabovewasused,exceptwiththetotalforecastedmaritimefueldemandratherthanthezero-emissionfueldemandforecast.Objectivesofanalysis:EvaluateillustrativemarketsizeandpotentialgrowthforH2asafeedstockinvariousenduses.Considerationsandlimitationsofapproach:Inenduseswithmultipledecarbonizationoptions(e.g.,transportation,steel,power,heat)thereisinherentuncertaintyinthecleanhydrogenpenetrationrate,whichwillaffecttheoverallTAM.Thereisalsoinherentuncertaintyinthelong-termprojectionsfortotalendusemarketsize.Finally,thewillingnesstopaybyendusemayvaryovertimeandwillvaryonaproject-by-projectbasisbasedonproject-specificbreakeveneconomicsandwillingnesstopayagreenpremium.Methodology8:HydrogenProjectandInvestmentTrackerThedatashowninFigure8andFigure9wascollectedandsharedfromMcKinsey’sHydrogenProject&InvestmentTrackerasoftheendof2022.TheHydrogenProject&InvestmentTrackerservesasadatabaseforannouncedhydrogenprojectsandinvestmentsglobally.ThetrackerhasbeenbuiltaspartofMcKinsey'spartnershipwiththeHydrogenCouncil.TogetherwiththeHydrogenCouncil,theHydrogenSolutionInsightsteammaintainsthetrackertoensurehighqualityofdata,whichisleveragedinpublicationswiththeHydrogenCouncil(e.g.,intheHydrogenInsights2022Report).Theproductionprojectscapacitybytargetendusesector,showninFigure9,isbasedonannouncedplansandprojectslistedinthetracker.TheshareofU.S.hydrogenproductionbypathwayforelectrolysis,reformationwithCCS,andpyrolysis,showninFigure14,isalsobasedondatafromthetracker.Thebalanceofproductioncapacityisassumedtobereformation-basedwithoutCCS.Keyinputsandassumptions:TheHydrogenProject&InvestmentTrackerincludespubliclyannouncedprojectsgloballyacrossthevaluechain:productionprojects(includingdifferentcleanproductionpathwaysandexcludingreformation-basedhydrogenwithoutcarboncapture),distributionprojects(e.g.,conversionandre-conversiontoacarrier,shipping,pipelines,trucking,hydrogenrefuelingstations),andend-useprojects(e.g.,steel,powergeneration,refining,sustainablefuels,derivatives).Thetrackerexcludessmallprojects(<1MWinstalledcapacity)andresearchprojects.Objectivesofanalysis:Highlightthequantityandtypesofprojectsthatarebeingannounced,funded,andconstructed,aswellasthetypesofofftakerspurchasingcleanhydrogen.Outputs:Currentproductionprojectannouncementsare45%electrolysisbycapacityand55%reformationwithcarboncapture.TheelectrolysisprojectsthatareeitherattheFEEDstudystageorunderconstructionrepresent700MWtotalelectrolyzercapacity.AlsoseetheDOE’selectrolyzertracker(link).PathwaystoCommercialLiftoff:CleanHydrogen80Considerationsandlimitationsofapproach:DuetotheInflationReductionActtaxcredits,thenumberofnewprojectannouncementsisrapidlyincreasing.Whiletherewillbeattritionateachstepintheprojectdevelopmentpipeline,therapidpaceofprojectannouncementssuggeststhatthetotalannouncedcleanhydrogenproductioncapacitywillincreaseinthenear-term.Thecleanhydrogenprojectsbytargetendusesectorarebasedoncurrentannouncementsandpartnerships,however,thetargetendusesectorsforproductionprojectsmaychangeovertimeaspartnershipschange,projectsexperienceattrition,andnewprojectsareannounced.Methodology9:HydrogendemandscenariosFigure13.1showssixpotentialfuturehydrogendemandscenariosunderdifferentconditions.Thesescenariosareusedasinputsinotheranalysesacrossthereport,includingthequantityofelectrolyzersandiridiumrequired(Methodology12and13,Figure18),jobsandgrossvalueadditions(Methodology14,Figure19),totalhydrogenaddressablemarket(Methodology7,Figure7),reformationandelectrolysisproductioncapacitysplit(Methodology11,Figure14),andrequiredhydrogenvaluechaininvestments(Methodology16,Figure16).WhilethreescenariosareshowninFigure13.2,atotalofsixscenarioswereconsidered,servingvariouspurposes:•Estimatingcurrentstatetrajectory:Scenario(A)–“Businessasusual(BAU)–currentpolicy”scenariorepresentscurrentstatetrajectorywithIRAimpactsbutwithoutadditionalcommercializationinterventions•Forecastingleastcostpathwaystomeetdecarbonizationgoals:Netzerodecarbonizationscenariosforecastwhatitwouldtaketoreachnetzeroby2050underdifferentlevelsofconstraintonrenewableandtransmissioncapacity,andwith/withoutachievinginterimcleanpowerby2035.Thespecificscenariosare:–Scenario(B)–U.S.DOENationalCleanHydrogenStrategyBaseCase–NetZero2050–constrainedrenewableenergy(RE):1.1TW145REconstraint–showninFigure14(electrolyticvs.reformation-basedhydrogeninthelowREScase)–Scenario(C)–NetZero2050–highRE:noconstraintonREcapacity–NetZero2050+2035cleanpower–constrainedRE:1.1TWREconstraintwithadditionalconstraintthatpowersectorachievesnetzeroby2035◦ModelrunsnotshowninthisiterationoftheCleanHydrogenLiftoffReport–Scenario(C)inFigure14.2illustratinganadditional~2MTTpaofpowersectordemandin2030duetocleangridconstraints–NetZero2050+2035cleanpower–highRE:noconstraintonrenewablescapacity,butthepowersectormustachievenetzeroby2035•Exploringtechnologyupsidepotential:technology-specificspikescenarios(e.g.,Scenario(D)–“Hydrogentechnologyspike”)representconditionsforanoptimistic-realisticupsidecaseforthattechnology•HighlightingCleanGridconsiderationsanditsimpactoncleanhydrogendeployment:IncludingNREL100%CleanElectricityby2035Study(ScenariosE–AllOptions,F–Infrastructure)PathwaystoCommercialLiftoff:CleanHydrogen811451.1TWconstraintbasedonNRELNetZeroby2035reportconstrainedscenario,inparticular,twosensitivitiesregardinglesssolarandlesswind.ThiscapisalsosimilartoNet-ZeroAmerica2050report’sconstrainedrenewablecapof~35/GWyearForeachpurpose,anon-powersectorhydrogendemandscenariowasdeveloped.PowersectordemandforScenariosA,C,andDisbasedontheoutputofpowersectormodelingusingtheMcKinseyPowerModeltoenableconsistencyacrosstheLiftoffreports.AlltheNetZero2050scenariosusedthesamehydrogendemandforecast.ThehydrogendemandinScenarioA–BAU–currentpolicyscenarioandtheNetZero2050scenariosarebasedonthedemandforecastsintheDOENationalHydrogenStrategyandRoadmapwhilethedemandinthehydrogenspikecaseisbasedontheMcKinseyGlobalEnergyPerspectiveAcceleratedCommitmentscase.x,iiScenarioA–BAU–currentpolicydemandscenarioisderivedfromtheDOENationalHydrogenStrategyandRoadmapasfollows:x•2030:Onlyforecasted2030cleanhydrogendemandfromrefiningandammoniademandarerealized,representingapartialtransitionforbothenduses•2040:Lowendofthecorerangeofestimatesforlong-termcleanhydrogendemandisused•2050:Highendofthecorerangeofestimatesforlong-termcleanhydrogendemandisusedScenarioC–TheNetzero2050demandscenarioisderivedfromtheDOENationalHydrogenStrategyandRoadmapasfollows:•2030:Refiningandammoniademandfullytransitiontocleanhydrogen•2040:Highendofthecorerangeofestimatesforlong-termcleanhydrogendemandisused•2050:2050cleanhydrogendemandshowninFigure12oftheDOENationalHydrogenStrategyandRoadmapFortheNetZero2050scenario,theunconstrained/highrenewablescaseisused.Thiscaseisconsistentwiththestrongpositioningofcleanhydrogentocompeteforcleanelectronsinthenear-termbasedonPTC-drivenfavorableproductioneconomicsandinthelongrunbytheabilitytoavoidlonggridinterconnectionqueues.TheCleanGrid2035scenarioisalsoshowninFigure13.1andcanbeexploredfurtherintheNRELCleanGrid100%CleanElectricityby2035Study.Keyinputsandassumptions:Scenario(A)–BusinessasUsual(BAU)–CurrentPolicyIncludestheIRAandassumesthat,despitetheadditionalfundingforcleanhydrogen,thecurrentcommercializationchallengesarenotovercome,holdingbackindustrygrowth.Ammoniaandoilrefiningdrivedemandthrough2030withsignificantgrowthinfuelcell-basedroadtransportpost-2030.Scenario(B)–U.S.DOENationalCleanHydrogenStrategy–BaseCasePulledfromreportFigure12,whichdepictspotentialscenariosforend-useofcleanhydrogenin2030,2040,and2050,enablingatleast20MMTperyearby2040and50MMTperyearby2050.Scenario(C)–Netzero2050–HighRenewablesIncludestheIRAandassumesthattheexpansionofthehydrogenindustryadvancesinlinewithanetzeroby2050economyunconstrainedbyrenewablesdeployment.Ammoniaandoilrefiningcompletelytransitiontocleanhydrogenby2030andpost-2030fuel-cellbasedroadtransportandaviationdemandacceleratesmorerapidly.PathwaystoCommercialLiftoff:CleanHydrogen82Scenario(D)–HydrogenspikecaseIncludestheIRAandassumesthatcleanhydrogentechnologiesadvancemorequicklythanotherdecarbonizationtechnologies–particularlyLDESandCCUS,causingincreaseddemandfromallenduses.Increased2030powersectordemandduetoIRAincentivescombinedwithslowerLDESandCCUSdevelopment.Scenarios(E),(F)-canbeexploredfurtherintheNRELCleanGrid100%CleanElectricityby2035StudyObjectivesofanalysis:Thisanalysislaysoutthepotentialfuturehydrogendemandforthreetypesofscenarios,formingthebasisforadditionalanalysisthroughoutthereportontheimplicationsandrequirementsassociatedwithmeetingthislevelofdemand.Considerationsandlimitationsofapproach:Asdiscussedinthereporttext,thereisuncertaintyovertheroleofcleanhydrogenforsomeenduses,suchaspowerandbuildingheat.Otherrecentlypublishedreportsforecastalargerroleforhydrogenintheseenduses,whichisdiscussedinChapter3.Methodology10:Totalcostofownership(TCO)analysisTheoverallmethodologyforcalculatingtotalcostsofownership(TCOs)byenduseisbasedontheapproachoutlinedintheHydrogenCouncil’sreport“Pathtohydrogencompetitiveness:acostperspective,”withsomemodifications.iThisanalysiscomparestheTCOofelectrolytichydrogenapplicationsagainstspecificlow-carbonandconventionalalternatives.Forexample,fuelcellelectrictrucksversusdieseltrucks.WhiletheHydrogenCouncilreportanalyzed35applications,asubsetisshownheretounderstandtheeffectoftheH2PTC.Foreachhydrogenapplicationanditscompetingalternatives,acomprehensiveTCOtrajectorywasdevelopedtodetailtherelevantcostcomponents,cost-reductiondriversweredetermined,andthebreak-evenpointwasidentifiedbetweencompetingsolutions.Thiswasdoneviaanindependentthird-partycleanteamwhocollected,aggregated,andprocesseddatafromparticipatingHydrogenCouncilmembers,producinganonymizedcostestimatesbyapplication.Inalimitednumberofusecaseswhereinsufficientinternaldatawereavailable,suchasindevelopingthecosttrajectoryforaviationsynfuels,externalprojectionswereused.Subsequently,theH2PTCwasintroducedtotheanalysisatthemaximum$3/kgvalue,consistentwiththelowcarbonintensityofelectrolytichydrogen.Apost-PTC(aftercreditexpiration)pricefloorof$0.4/kgwasusedbasedonthewillingnesstopayforhydrogeningasblendingandthepowersector,whichcouldactaslargevolumeofftakerstopreventthepost-PTC(expiration)pricefrombecomingnegative.Additionally,naturalgaspriceassumptionswerealignedwiththeotheranalysesinthisreport,assuming$4.8/MMBtucurrentpricesthatlinearlydecreaseto$3/MMBtuby2030andonwards.Thespecificassumptionsbyendusearediscussedbelow:•Refining:DirectLCOHcomparisonofconventionalreformation-basedhydrogenwithoutcarboncaptureandelectrolytichydrogen.ConventionalhydrogencostswerebasedonHydrogenCouncilprojectionsforSMR-basedhydrogenproduction.•Ammonia(electrolytichydrogen):Comparisonbetween750ktp.a.conventionalammoniaplantwithSMRon-siteproductionandanalogousplantusingon-siteelectrolytichydrogenPathwaystoCommercialLiftoff:CleanHydrogen83•Steel–newbuildDRI:2MMTp.a.steelplantusing60%DRI-basedgreensteelwithscrapEAF.Electrolytichydrogenusedasthereductant,assumingaminimumof$0.4/kgLCOHafterH2PTC.•Chemicals–methanol:440ktp.a.methanolplant.Carbonfeedstocksourcedfromdirectaircapturefore-methanolornaturalgas(viasyngasroute)forconventionalalternative.Assumesminimumof$0.4/kgLCOHafterH2PTCand$3/MMBtunaturalgaspriceby2030.•Heavydutytruck:RangedusingHydrogenCouncilandNREL’sTEMPOmodel.ForHydrogenCouncil,a40-tonweightclassheavydutytrucktraveling90,000miles/yearrefueledat700barusingelectrolytichydrogen;assumesminimumof$0.4/kgLCOH,$2/kgH2LCFScreditinCalifornia,Oregon,andWashington.DieselpricecomparisonisfromtheEIAAnnualEnergyOutlook.•SustainableAviationFuel(SAF):ElectrolytichydrogenandCO2capturedfromindustrialprocessesusedwithaFischer-TropschprocesstosynthesizeSAF.Assumesminimumof$0.4/kgLCOHafterH2PTCandjetfuelpricesfromEIAAnnualEnergyOutlook.•Containerships:Largecontainership(~15,000TEU)traveling86,000milesperyearusinge-methanolfromDAC.•High-capacityfirmpowergeneration:Comparisonbetween800MWCCGTpowergenerationusing100%hydrogenfeedstockand100%naturalgasfeedstock.Assumes61%efficiency,74%loadfactor,and$3/MMBtunaturalgaspriceby2030.•Lower-capacityfactorpower-fuelcell:ModeledusecasesarebasedonascaledH2Hubwithopenaccesspipelinesin2035.Hydrogencombustionwasnotanalyzedforlower-capacityfactorpowerinthisLiftoffreport.•Longdurationenergystorage:Hydrogenistheprimarytechnologyexpectedtoprovideseasonalshiftingforapplicationsinneedof160+hoursdurationinadditionotherend-uses(e.g.,industrials).However,configurationslikeHydrogenfuelcellswithsaltcavernstorage(H2+Salt)havebeenevaluatedasatechnologytoprovideMulti-dayLDESofapproximately48to120hours.HydrogenprojectsforMulti-dayLDESwouldhavelargeminimumdeploymentsizes(1GW+)andrequirespecificgeologicalfeatures(i.e.,saltcaverns).WhileLCOStodayforH2+Saltisbetween$200-400/MWh,futurecostsareprojectedtobecompetitivewithtechnologieslistedabove.LocationswithHydrogenHubswouldlikelyseeimprovedeconomics.IfHydrogenmeetsprojectedcosts,itcouldcompetewithotherMulti-dayLDEStechnologiesandNaturalGasCT-CCSforpeakingcapacity.Hydrogenisparticularlyattractivewhereutilizationratesareexpectedtobelow.InsightsdrawninpartfromHunter,C.A.,Penev,M.M.,Reznicek,E.P.,Eichman,J.,Rustagi,N.,&Baldwin,S.F.(2021).Techno-economicanalysisoflong-durationenergystorageandflexiblepowergenerationtechnologiestosupporthigh-variablerenewableenergygrids.Joule,5(8),2077–2101.https://doi.org/10.1016/j.joule.2021.06.018ObjectiveofanalysisEvaluatechangestototalcostofownership(TCO)forseveralendusesbasedonhydrogenproductionwiththePTC.KeyinputsandassumptionsUnlessotherwisenoted,rangesweredevelopedinFigure27usingvariationsinthepriceoffossilfuelorcleanhydrogenfeedstocks.FossilfuelfeedstockpricerangeswerebasedontheEIAAnnualEnergyOutlook2022lowoilpriceandhighoilpricescenarios,includingfornaturalgas,diesel,jetfuel,andheavyfueloil.ivCleanhydrogenfeedstockswereassumedtobebasedonelectrolytichydrogen,withlevelizedproductioncostscalculatedusingPEMoralkalineelectrolyzersbasedoneitherClass1orClass5onshorewindpower.iiiPathwaystoCommercialLiftoff:CleanHydrogen84ForthecurrentTCOs,a~2MW(450Nm3/h)electrolyzerwasusedandfor2035valuesa~90MW(20,000Nm3/h)electrolyzerwasused.Severalend-usespecificassumptionswerealsomade:•Steel:TheincumbenttechnologyTCOrangeisbasedontheTCOforBF-BOFandEAFsteel•Heavydutytrucks:TherangesshownincludeboththeTCOcalculatedinthisreportusingdatafromtheHydrogenCouncilaswellasrunsfromtheNationalRenewableEnergyLaboratory’sTEMPOmodel.CurrentrunsoftheTEMPOmodeldonotcontainthePTCintheirexistingscenariosbutwereinsteadmodifiedtoincludehydrogenfuelpricesunderPTC-assumptionsprovidedbytheHydrogenCouncil.•Sustainableaviationfuel(SAF):HydrogenTCOassumescarbonsourcedusingCO2fromeitherindustrialprocessesorbio-basedprocesses.•Containerships:HydrogenTCOrangeassumesbothammoniaandmethanol-basedfuelOutputsPathwaystoCommercialLiftoff:CleanHydrogen85Figure27:Hydrogenisnotalways'inthemoney'andinsomecasesfacesfiercecompetitionwithfossilincumbents.HydrogenisabreakevendecarbonizationoptioninlocationsfavorableforelectrolysiswhenfossilfuelpricesfollowaBAUscenario,buteitherlowfossilfuelpricesorlessfavorableelectrolysislocationscouldlimitbreakevenSomeprojectsarecompetitiveMostprojectsarecompetitiveFewprojectsarecompetitiveCurrentTCO2035TCOIndustryTransportGasreplacementDemandtypeIncumbentCleanH2tech(withPTC)CleanH2tech.(post-PTCexpiration)IncumbentEnd-useUnitsRangesprimarilyrepresentvaryingfossilfuelpriceassumptionsandcleanhydrogeninputassumptionsIncumbenttech.300-350200-385380-450300-400Ammonia(viaelectrolysis)1,2$/tonneHighCIammonia450-465470-5107495-510450-460Steel–newbuildDRI2,3$/tonneBF-BOF,EAFsteel0.9-1.30.4-1.31.3-1.60.9-1.4Refining1,2$/kgHighCIH21.4-1.61.38-2.691.18-1.5101.4-1.7HeavydutytruckwithLCFS4$/mileDieseltruck1.4-1.61.58-2.7111.38-1.6121.4-1.7Heavydutytruck4$/mileDieseltruck1.9-3.4143.1-4.5132.2-2.62.4-4.014SustainableAviationFuel(SAF–RWGS+FTpathway)1,2,5$/galJetAfuel22-28k29-39k1535-44k1521-34kContainerships1,2,6$/yearHeavyfueloilship31-3336-8075-9531-34High-capacityfirmpowergen–100%H2(Combustion)1,2$/MWhNaturalgasCCGT31-3334-3637-3831-34High-capacityfirmpowergen–20%H2(Combustion)1,2$/MWhNaturalgasCCGT160-330N/A180-290160-340Lower-capacityfactorpower–H2fuelcell16$/MWhNaturalgasCCGT1100-14001800500-600TBCLongdurationenergystorage17$/kwRangeoftech1RangebaseonEIAAnnualEnergyOutlook2022lowoil/highoilscenario2RangebasedonelectrolytichydrogenrangewithClass1orClass5onshorewindandPEMoralkalineelectrolyzers3.RangebasedonBF-BOFandscrapEAFTCO4RangebasedonLiftoffreportmethodologyandVTO/HFTOmodel,noothercreditsassumed5Carbonsourcedusingcarboncapturedfromindustrialprocesses6Rangeincludesbothmethanolandammoniafuel7RangeincludesvaluecalculatedforH2DRI-EAFsteelreportedbyZang,Guiyan,etal."CostandLifeCycleAnalysisforDeepCO2EmissionsReductionforSteelMaking:DirectReducedIronTechnologies."SteelResearchInternational.8LiftoffreportmodelwithLCFSandH2PTC;adjustedforFCEVcredit($40k),Refuelingstationcredit($100k)9DerivedfromNRELTEMPOmodel(2021)–Centralscenario,adjustedforPTC,LCFS,FCEVcredit($40k),Refuelingstationcredit($100k)withdrivercostandstackreplacementadded10DerivedfromNRELTEMPOmodel(2035)adjustedforPTC-drivencost-downsbotnoactivecredit,LCFS,FCEVcredit($40k),Refuelingstationcredit($100k)withdrivercostandstackreplacementadded11DerivedfromNRELTEMPOmodel(2021)–Centralscenario,adjustedforPTC,FCEVcredit($40k),Refuelingstationcredit($100k)withdrivercostandstackreplacementadded12DerivedfromNRELTEMPOmodel(2035)adjustedforPTC-drivencost-downsbotnoactivecredit,FCEVcredit($40k),Refuelingstationcredit($100k)withdrivercostandstackreplacementadded13CO2conversionwithRWGS+FSand~1.8kgH2/galSAF,adjustedforH2pricesunderthePTC.Scenariodoesnotincludeotherfuelscredits.14BasedonEIAAnnualEnergyOutlook2023and2035-referencecasevshighoilpricecase.15Ammonia:29k/year(current,low),37k/year(current,high),39k/year(2035,low),44k/year(2035,high);Methanol:34k/year(current,low),39k/year(current,high),35k/year(2035,low),39k/year(2035,high)16Usecasesrequiresuccessful,scaledH2Hubwithopenpipelineaccess17InsightsdrawnfromHunter,C.A.,Penev,M.M.,Reznicek,E.P.,Eichman,J.,Rustagi,N.,&amp;Baldwin,S.F.(2021).Techno-economicanalysisoflong-durationenergystorageandflexiblepowergenerationtechnologiestosupporthigh-variablerenewableenergygrids.Joule,5(8),2077–2101.https://doi.org/10.1016/j.joule.2021.06.018Source:EIAAnnualEnergyOutlook2022,NRELAnnualTechnologyBaseline2022,HydrogenCouncil,McKinseyHydrogenInsightsAnalysis,NRELTEMPOModel(CentralScenario),ANLAutonomieModelMethodology11:ReformationandelectrolysishydrogenproductionsplitThesplitbetweenreformation-basedhydrogenandelectrolytichydrogenwascalculatedusingtheMcKinseyPowerModelandshowninFigure14.Seethe[Modelingappendix]fordetailsontheMcKinseyPowerModelmethodology.Thisproductionpathwaysplitwasalsousedasinputinotheranalysesacrossthereport,includingtherequiredhydrogenvaluechaininvestments(Methodology16,Figure16)andthejobsandgrossvalueadditions(Methodology14,Figure19).Keyinputsandassumptions:ElectrolyzerandreformationinputcostswereconsistentwiththecostsreferencedinMethodology3and4.TwoiterationsoftheNetzero2050scenariowereincluded–onewithnoconstraintsonrenewableenergysources(RES)development(“highRES”)andonewithacapof1.1TWthrough2050(“lowRES”).Non-powersectorhydrogendemandwasinputconsistentwiththeNetzero2050scenarioshowninFigure13.PowersectorhydrogendemandwascalculatedbytheMcKinseyPowerModelbasedontheamountofhydrogenrequiredtodecarbonizethegrid.Asubsequentscenariowasalsoanalyzedimposingacleangridby2035constraintwiththesamenon-powersectorhydrogendemand.Thenon-hydrogenassumptionsdescribedinthe[Modelingappendix]werealsousedinthisanalysis.Objectivesofanalysis:EvaluaterelationshipbetweenrenewablesexpansionandthesplitofhydrogenproductionbetweenreformationwithCCSvs.waterelectrolysis.Methodology12:SupplychainanalysisForcleanhydrogentoscale-upaccordingtothedemandscenariosshowninFigure13,theassociatedsupplychainwillalsoneedtoscale.Whilesomeaspectsofthesupplychainarealreadyat-scale(e.g.,steammethanereforming),otherareassuchaselectrolyzers,tubetrailers,hydrogenstorage,andcarboncapturewillneedtoscalesignificantly.Thepotentialsupplychainconstraintsacrossthecleanhydrogenvaluechainexpectedin2025,showninFigure17,werecompiledfromarangeofsources;buildingonandthroughdiscussionswiththeauthorsofthe“WaterElectrolyzersandFuelCellsSupplyChain”reportpublishedbytheDepartmentofEnergyinFebruary2022,complementedbyinsightsfrominterviewswithcleanhydrogenindustryexperts.Theheatmapsummarizestherisklevelacrossseveraldimensionsofpotentialvulnerabilityalongthevaluechain,fromrawmaterialsavailability,throughtodomesticconstruction&operationstalentavailability,formanyofthekeycleanhydrogentechnologycomponents.Thesecomponentsaredefinedasfollows:•Globalrawmaterialsavailability:Theglobalabundanceofcriticalmaterialinputsrequiredforproductionofthetechnology•Domesticsub-componentsupplybase:CurrentandplannedU.S.capacityforproductionofsub-components(e.g.,electrolyzermembranes,metalcomponentsforstoragetanks)•Domesticequipmentmanufacturingcapacity:CurrentandplannedU.S.capacityforproductionoffinalassembledequipment,relativetoexpectedU.S.demand.Availabilityofglobalequipmentsupply:Currentandplannedglobalproductionoffinalassembledequipment,relativetoexpectedglobaldemandPathwaystoCommercialLiftoff:CleanHydrogen86•Availabilityofglobalequipmentsupply:Currentandplannedglobalproductionoffinalassembledequipment,relativetoexpectedglobaldemand•Diversityofglobalequipmentsupply:Geographicalbreadthofactiveglobalsuppliersforeachcomponent•Domestictechnical&designtalent:CurrentandexpectedpipelineforU.S.baseddesignandengineeringexpertise,includinghighlyskilledpositionssuchasuniversityresearchers•Domesticconstruction&operationstalent:CurrentandexpectedpipelineforU.S.basedconstruction&operationsexpertise,includingprojectmanagement,planning,andregionalfieldoperationsteamsforinstallationsoftechnologyOneareaoffurtherfocuswasiridiumrequiredforPEMelectrolyzercatalysts.Theforecastedscale-upinPEMelectrolyzerdemandwillincreasedemandforiridium,however,asaplatinumgroupmetal(PGM),iridiumdepositsarelimitedandonlyminedonasmallscale.Inthisanalysis,therequiredquantityofiridiumwasestimatedbasedonPEMelectrolyzerscaleupandcomparedtocurrentminingcapacity.KeyinputsandassumptionsSeemethodologysectionforkeyinputstosupplychainanalysisinFigure17.Thefigureassumesrapidgrowthofthecleanhydrogenindustry,inlinewithprojectionscoveredelsewhereinthisreport.Therisklevelsareassignedassumingthecurrenttrajectoryoftrendsforeachcomponentcontinues;forexample,assumingthattherearenoexternalsupplyshocksthatimpacttheavailabilityofU.S.domesticmanufacturingcapacityforlargediameternaturalgaspipes.Toforecastthedemandforiridium,25%oftheproductioncapacityshowninFigure18wasassumedtobemetbyPEMelectrolyzers.ThisassumedPEMsharelikelyrepresentsaconservativeassumption–theHydrogenProject&InvestmentTrackerdescribedinMethodologyDshowsthat~1/3ofannouncedelectrolysisproductiongloballyusesPEMelectrolyzersand,asdescribedinSection3c,PEMelectrolyzersintheU.S.mayachieveahighersharethanglobally.Nonetheless,thequantityofiridiumrequiredissignificant.Tocalculatethetotaliridiumrequired,aniridiumcatalystloadingof0.25kg/MWelectrolyzerwasassumedandthe2021globaliridiumsupplyof8.1tonneswasused.xixObjectivesofanalysisTomeettheforecastedrapidaccelerationincleanhydrogendemand,thesupplychainwillneedtoexpandrapidlyaswell.Thisanalysisshowsthenear-termsupplychainrisksacrossthevaluechain,whichifunaddressed,couldconstrainscaleupofcleanhydrogen.FurtheranalysiswasalsocompletedtoassesstheamountofiridiumrequiredtoscalePEMelectrolyzers,motivatingtheneedforadditionalR&Dinnovations.ConsiderationsandlimitationsofapproachTheheatmapshowninFigure17representspotentialvulnerabilitiesin2025;longertermvulnerabilitiesshouldbeassessedseparately.Giventheinherentinterrelatednatureofcleanenergytechnologies,unexpectedshiftsinthedemandorsupplypatternsfromotherindustries(e.g.,oil&gas,directaircapture,renewables)mayimpactthisassessment.Theassessmentfocuseson2025tominimizetheuncertaintyintroducedthroughtakingthisapproach.Italsodoesnotassumeanybreakthroughtechnologyinnovations;Italsodoesnotassumeanybreakthroughtechnologyinnovations;forexample,nosignificantreductionsintheIridiumloadingrequirementforPEMelectrolyzerproductionareassumed.PathwaystoCommercialLiftoff:CleanHydrogen87Whileglobalrawmaterialshortagesarenotcurrentlyanissue,theglobalabundanceofcertainmaterials,particularlyplatinumgroupmetals(PGMs),maybestressedbyelectrolyzerproductionin2030andbeyond.WhileeachminingareahasadifferentmixofPGMconcentrations(e.g.,40%vs50%platinum),theminingratesforthesemetalsareoftencoupled–andassuch,thefeasibilityoframpingupproductionforonlyasubsetofthesemetalsisimpractical.xixAPGMrefinerycouldhypotheticallybebuiltintheU.S.forrawmaterialsecurity,butthelowPGMreserves(~5%ofglobalreserves)andsmallannualproduction(representing~5%ofglobalproductionin2021),wouldmaketheeconomicschallenging.xxxix,xiInadditiontoiridium,U.S.electrolyzermanufacturerswillneedgraphite,yttrium,platinum,andstrontium;theU.S.dependsheavilyonforeignsupplyforallthesematerials,mostofwhichcannotbefounddomesticallyinsufficientquantities.ThisrelianceonforeignsupplierscouldhindergrowthofU.S.basedelectrolyzermanufacturing.Methodology13:ElectrolyzerproductioncapacityrampupElectrolyzerproductioncapacitydatashowninFigure18wascollectedandsharedfromMcKinsey’sHydrogenInsightsElectrolyzerandFuelCellOEMSupplyTrackerasoftheendof2022.Thetrackerservesasadatabaseforannouncedmanufacturingproductioncapacityglobally.ThetrackerhasbeenbuiltaspartofMcKinsey'spartnershipwiththeHydrogenCouncil.TogetherwiththeHydrogenCouncil,theHydrogenSolutionInsightsteammaintainsthetrackertoensurehighqualityofdata,whichisleveragedinpublicationswiththeHydrogenCouncil(e.g.,intheHydrogenInsights2022Report).xviTheU.S.productioncapacityrequiredbyyear,showninFigure18,isbasedonmeetingtheNetZero2050–highREhydrogendemandscenarioshowninFigure13andtheelectrolysisvs.reformationproductionsplitshowninFigure14withdomesticelectrolyzermanufacturing.KeyinputsandassumptionsThecapacityramp-upcurveshownhereisbasedonanupperproductionboundtoproduce~10MMTcleanhydrogenfromelectrolysisby2030(meetingNetZero2050–highREhydrogenscenario),basedonFigure13andFigure14.Theaveragesizeofanelectrolyzerproductionplantisassumedtobe1.5GW/year,basedontheaveragesizeofadvancednewproductionfacilitiesunderconstructiontodayintheEUandChina.TheaverageUSproductionfacilityiscurrentlysmallerthanthissizebutisexpectedtoincreaseovertimetoalignwiththefacilitysizeinmorewell-developedhydrogeneconomiesinEU.Eachnewfacilityismodeledusingagradualproductionrampupovertimetosimulatelearningcurvesandadditionaldowntimeinthefirstcoupleofyears.Eachfacilityisassumedtooperateat40%oftotalcapacityduringYear1,70%oftotalcapacityinYear2,and100%(i.e.,fullcapacity)byYear3.ObjectivesofanalysisThereareonlyafewsmall-scaleelectrolyzermanufacturersintheU.S.,sothisanalysishighlightstherapidandsignificantramp-upincapacitythatwillberequiredtomeetprojecteddemandandavoidanelectrolyzerbottleneck.Italsohighlightsthatpost-PTC-expiration,theU.S.willlikelyneedtoexportelectrolyzerstofullyutilizeelectrolyzercapacity.PathwaystoCommercialLiftoff:CleanHydrogen88Considerationsandlimitationsofapproach:Thisanalysisassumesthatthereisnoconstraintonthescaleupofnewelectrolyzerproductionfacilities(i.e.,limitedlaboravailabilityorcomponentsupplychaindelays),andthateachplantfollowsthesame40-70-100%annualproductionrampupoverthefirstthreeyearsofoperation.Italsodoesnotconsidertheoptionofextendingorincreasingcapacityofexistingproductionfacilities,nordoesitaccountforlongperiodsofproductiondowntime.Themodeldoesnotaccountforimportorexportofelectrolyzersanddoesnotdirectlyconsidertheeconomicsofeachproductionplant;ifdemandfornewelectrolyzersintheUSdeclinespost-PTCexpiration.Thereisariskofstrandedproductioncapacity,whichmayinturnbereflectedinthescale-upplansforeachfacility.Methodology14:JobsandGVAcalculationsJobsandGrossValueAdditions(GVA)calculationswerecompletedbyVividEconomicsusingtheI3Meconomicmodelwithinput-outputtablesdevelopedbyIMPLAN.xliInputswerebasedontherequiredcumulativecapexinvestmentsthrough2030and2050calculatedusingtheHydrogenCouncil-basedinvestmentmethodologydescribedinMethodology16,withrequiredinvestmentssegmentedbyvaluechainstepandfurtherbyproductiontype,storage,anddistributiontype,andbyenduse.Investmentstobuildoutlow-carbonelectricityproductionwerealsoincluded.Eachtypeofinvestmentwasassignedoneof546IMPLANsectors.TheIMPLANapplicationwasthenusedtoderivethesocioeconomicimpacts(jobsandGVA)per$1millionofcapitalinvestmentwithintherespectivesectorandthenmultipliedbythespecificrequiredcapexinvestment.Tocalculatethenumberofactivehydrogenassetinstall,OEM,andcapex-drivenjobsin2030,thecumulativecapexinvestmentthrough2030wassegmentedbyyearusingalinearramprate.TherelationshipbetweencapexinvestmentineachofthesesectorsandtheassociatedopexoncetheassetisbuiltwasalsodeterminedusingtheIMPLANsectorstocalculatetheopexjobsandGVAimpact.Keyinputsandassumptions:TherequiredcapexinvestmentswerecalculatedusingtheHydrogenCouncil-basedinvestmentmethodologydescribedinMethodology16.TheIMPLANdatasetsaresourcedfromavarietyofgovernmentdatabases,includingfromtheBureauofEconomicAnalysisandBureauofLaborStatistics.IMPLANalsodevelopsestimatesfornon-discloseddataanddatafornon-censusandnon-surveyyearsaswellasdisaggregatingdataintofinergeographicsscalesandindustrydetail.Tocalculatetheactivehydrogenassetinstall,OEM,andcapex-drivenjobsin2030,alinearramprateforcapexinvestmentwasusedthrough2030.Objectivesofanalysis:Illustratescaleofworkforceopportunityacrossthecleanhydrogeneconomy.Considerationsandlimitationsofapproach:Directemploymentbenefitsestimatethenumberofjobssupportedbycapitalexpendituresandoperatingexpenditurestomaintainthoseassets.Indirectjobsarejobssupportedbytheshareofcapitaloroperatingexpendituredirectedtospendingongoodsandservicesinthewiderdomesticsupplychain.Finally,inducedjobsaresupportedbyspendinginthewidereconomyfromemployeesinvolvedindevelopingandoperatingthenewfacility,aswellasthoseacrossthedomesticsupplychainsupportingthisactivity.GVAcanbedefinedasthemeasureofthevalueofgoodsandservicesproducedinanarea,industryorsectorofaneconomy.ItiscomparabletoGDPbutdoesnotincludetaxesorsubsidies.PathwaystoCommercialLiftoff:CleanHydrogen89Methodology15:GlobalHydrogenFlowsThegloballevelizedproductioncostsshowninFigure21andtheexportflowsshowninFigure22arefromtheHydrogenCouncilreport“GlobalHydrogenFlows:Hydrogentradeasakeyenablerforefficientdecarbonization.”Thereportmethodologyisreproducedbelowwithminormodifications.xliiTheGlobalHydrogenFlowsPerspectiveiscoauthoredbytheHydrogenCouncilandMcKinsey.Tosupporttheanalysis,theHydrogenCouncildevelopedabespokeadvanced-analyticsoptimizationmodelthatbalancessupplyanddemandacrossallregionsandmultiplecarriersandendproducts.Intotal,theGlobalHydrogenTradeModeloptimizesacross1.5millionpotentialtraderoutes.Thedemandviewisalignedwithanet-zeropathwaydevelopedbybothorganizations,withprojectionsinlinewithglobalclimatetargetsmodeledfor2025,2030,2040,and2050.ThelevelizedproductioncostsaredevelopedbytheHydrogenCouncilbasedonindustrydatausingthesamemethodologydescribedinMethodology3.TheflowsshowninFigure22arebasedonthereferencecasescenario,whichconsiderseconomicallyefficientdecarbonizationwithminimizedoverallsystemcosts.Thescenariopurposefullydoesnotconsidercurrentgeopoliticaltradelimitationstobeafactorinthelongrun.Tobetterunderstandtheenergytransitionandtheroleofhydrogentrade,threeotherscenariosweredevelopedtotestthereferencecasescenario.Thesealternativescenariosevaluatethedevelopmentofhydrogentradeifthedecarbonizationtransitionisdelayed,ifcountriesprioritizelocalsupplychainsandproduction,andiftheworldprioritizesrenewableoverlow-carbonpathways.Thereportalsoassessestheimpactofano-tradescenariotounderstandthefullbenefitsoftradeonoverallinvestmentsandcosts.Toreviewtheeffectsofthesescenarios,pleaserefertothefullHydrogenCouncilreport.Keyinputsandassumptions:TheHydrogenCouncilreportusesindustrydataprovidedbyHydrogenCouncilmembers,asdescribedinMethodology3.iObjectivesofanalysis:Thisanalysisillustratesthepre-PTCcost-competitivenessofdomesticallyproducedhydrogenrelativetotherestoftheworld.Italsoprovidesa3rdpartyassessmentof2050U.S.hydrogenexportpotentialandglobalproductioncostcompetitiveness.Considerationsandlimitationsofapproach:Thereferencecasescenariopurposefullydoesnotconsidercurrentgeopoliticaltradelimitationstobeafactorinthelongrun,althoughtheoptimizationmodelallowsustoflexiblymodeltrade-routeblockagesandobservetheirimpact.Theprojectionsoffuturetradeflowsaresubjecttomanyuncertainties.TheHydrogenCouncilreporthastestedtheresultsrelativetovariationsininputassumptionstofinddifferentanalyticaloutcomesbasedonleast-costconsiderations.Seethereportforfulldetails.Theseresultsservetoinformstakeholders,ratherthantopredictthefuture.Inreality,(geo-)politicalconsiderations,existingassets,capabilitiesandcapital,businessdecisions(forexample,firstmovers,lock-ineffects,andsoon),andotherfactorswillinfluencewhichtraderouteswillemerge,wherehydrogen-productioncostswillfallfastest,andwhereuptakewillkeeppacewithprojectionsorfallbehind.PathwaystoCommercialLiftoff:CleanHydrogen90Generally,themodeldoesnottakeintoaccountregulatoryincentivessuchasEUImportantProjectsofCommonEuropeanInterest(IPCEI)funding.Additionally,thisanalysiswasdonepriortotheenactmentoftheInflationReductionAct(IRA)intheUnitedStates.TheIRA’sfullextentandapplicationisuncertaingiventhatregulationsarestillbeingimplemented.Assuch,theultimateimpactontradeflowsisuncertain.Ifitwereconsidered,thelikelyeffectwouldbetomakeaportionofUSproductionmorecompetitiveinthefirstdecade—from2022to2032—withunknownlong-termimpactontradebalances.PathwaystoCommercialLiftoff:CleanHydrogen91Figure28:ThirdpartyanalysisfromtheHydrogenCouncil-Pre-PTC,theU.S.wasnottheleastcosthydrogenproducerrelativetocountrieswithfasterpermitting,lessexpensivelabor,andextremelyfavorableconditionsforrenewablesbuild-out;withthePTC,U.S.productionisgloballycompetitive,insulatingtheU.S.fromimportcompetition.156U.S.productioncostsarebasedonreformation-basedhydrogenwithCCS,alignedwithFigure12.Costofhydrogenproductionbymarket2030(withoutPTC)1,$/kg01530105203525NetExporterCumulativeexports,MMTpa(rightscale)0.61.20.400.20.81.01.44.41.61.84.6xxxxChileQatarChinaUSASpainFranceGermanyJapanS.Korea1.U.S.costsassumeSMR-basedhydrogenwithCCSand$3/MMBtunaturalgasprice;SMRfacilitycapex(100kNm3/hcapacity):$215million;CCScapex(100kNm3/hcapacity):$135millionSource:HydrogenCouncilNetImporterMethodology16:RequiredinvestmentsacrossthehydrogenvaluechainRequiredinvestmentsacrossthevaluechain,showninFigure16,werecalculatedusingthemethodoutlinedintheHydrogenCouncilreport“HydrogenforNet-Zero:Acriticalcost-competitiveenergyvector”andthehydrogendemandforecastsshowninFigure13fortheNetzero2050–highREscenarioandthehydrogenspikecasescenario.Theproductionpathwaysplitbetweenelectrolysisandreformation-basedhydrogenfromFigure14isalsousedtodetermineupstreamproductioncapexinvestmentrequirementsandnetnewlowcarbonenergyproductioninvestmentrequirements.TheHydrogenCouncilmethodologyissummarizedbelow.Hydrogenvaluechaindirectinvestmentrequirement:Thisreportpresentsanovelviewofthedirectinvestmentsrequiredtorealizetheprojectedhydrogeneconomy.Itemploysdetailedhydrogenapplicationtotalcostofownership(TCO)modelsandhydrogencostandinvestmentdatacollectedfromHydrogenCouncilMembersthroughacleanteam(pleasereferto“Pathtohydrogencompetitiveness”and“HydrogenInsights”(fromJanuary2021).iTheanalysisconsidersthreemainvaluechainsteps:hydrogenproduction;hydrogenmidstreaminfrastructure,includingdistribution,storage,andconversion;andenduseinfrastructure.HydrogenproductionEstimatesincludetheinvestmentsrequiredtobuildoutnewelectrolysisandreformation-basedhydrogenproductioncapacityintermsofelectrolyzersandnaturalgasreformerswithrequiredcarboncaptureequipment.Further,itconsiderstheinvestmentsrequiredfortheconversionofexistingreformation-basedproductioncapacitywithoutcarboncapturetolow-carbonproduction.Italsocalculatestheupstreamenergyinvestmentsrequiredtobuildoutnetnewlowcarbonenergyproduction.HydrogenmidstreaminfrastructureThereportderivesinvestmentrequirementsfromsegment-specificestimatesaccountingforthreetypesofconversionprocessesofvaryingsizes(gascompression,liquefaction,andammoniaconversion/cracking).Theinvestmentrequirementsalsoconsiderthreetypesofdistribution:pipelines,gaseoustrucking,andliquid-phasetruckingofvaryingsizesanddistances.Hydrogenend-applicationsDownstreaminvestmentsincludeequipmentandplantsrequiredtosupporthydrogendemandacrossapplications.Intransportation,forinstance,fuelcells,hydrogentanks,andrefuelinginfrastructureareincluded.Otherequipmentincludesturbines,generators,plantinvestmentforconventionalindustrialfeedstockusessuchasammoniaandmethanol,andnewhydrogenapplicationslikesteel.KeyinputsandassumptionsRequiredinvestmentswerecalculatedbasedonthehydrogendemandscenariosdescribedinFigure14.TheforecastednumberofdedicatedhydrogenpipelinemilesandthedistributionofpipelinediametersovertimeusedtocalculatetherequiredpipelineinvestmentwereinputfromtheScenarioEvaluationandRegionalizationAnalysis(SERA)model(NationalRenewableEnergyLaboratory).xlivPathwaystoCommercialLiftoff:CleanHydrogen92ObjectivesofanalysisIllustrateinvestmentassociatedwithannouncedhydrogenprojectsandidentifycapitalgapthrough2030across1)netnewlowcarbonenergyproduction2)hydrogenproduction3)midstreaminfrastructureand4)enduseinfrastructure.ConsiderationsandlimitationsofapproachTheseinvestmentsdonotincludeindirectvaluechaininvestments,suchasfactories,mines,andR&Dexpenses.Forfuelcell-basedtrucks,thevalueofthetruckandbuildoutoftherefuelinginfrastructureisincludedinrequiredinvestments,butthesupplychainandmanufacturingcostsforthetruckisnotincluded.Methodology17:CashflowmodelTheeconomicsofproductionprojectsforasetofenduseswasanalyzedusingacashflowmodeldevelopedaspartofthisreport.TheprojecteconomicswereconsideredforelectrolysisproductionandATR-basedreformationwithcarboncapture.Sensitivityanalyseswerealsocompletedforasubsetofendusestounderstandtheeffectofkeyinputssuchascustomerwillingnesstopay,electricityandnaturalgasprices,aswellaswhetherproductionandofftakewereco-located.Figure24alsoshowstheproductionprojecteconomicsoncethePTCsunsets,bothforexistingprojectsthathadusedtheir10-yearPTCcreditandforprojectsconstructedafter2032thatwerenoteligibleforthePTC.Assuch,projecteconomicsareshownforelectrolysisandATR-basedproductionwithcarboncaptureforprojectsthatbeginconstructionsoonandthosethatbeginconstructionin2035.Thefollowingenduseswereconsidered:(1)ammonia,(2)refining,(3)steel,(4)methanol,(5)roadtransport,(6)maritime,(7)naturalgasblendingforbuildingheat,(8)industrialheat,and(9)high-capacityfirmpowergeneration(100%hydrogencombustion)Notethatmaritimefuelsrepresentthehydrogenthatisdeliveredtoabiofuelsorsynfuelsplantthatproducescleanmaritimefuel.Ared,yellow,greencolorschemeisusedinFigure24toshowthepost-PTC(aftercreditexpiration)projecteconomicsbyproductionmethod,projectconstructionperiod,andenduse.Forexistingprojects,ifthepresentvalueoftotalfreecashflowispositiveforthetimeperiodafterthePTCcannolongerbeclaimed,theenduseismarkedgreen.Ifthepresentvalueofthepost-PTCtotalfreecashflowisnegative(aftercreditexpiration),buta25%reductionincapexandopexcostswouldresultinapositivepost-PTCtotalfreecashflow(aftercreditexpiration),theenduseismarkedasyellow.Otherwise,theenduseismarkedasred.Fornewprojectsstartingconstructionin2035,ananalogousapproachisused,butthecutoffusedisa7%IRRforthelifeoftheproject(bothleveredandunlevered).Additionally,Figure23showstheeffectofcleanelectricitypricesonthewillingnesstopaycutoffwhereexistingprojectsretainapositivepost-PTC(aftercreditexpiration)freecashflowandnewprojectscleartheIRRthreshold–ifelectricitypricesdecrease,producerswillbeabletoremainprofitablesellingtoofftakerswithlowerwillingnesstopay.Objectiveofanalysis:Illustratethehydrogenproductionprojecteconomicsandtheirdependenceonkeyvariablesincludinginputcosts,willingnesstopay,enduse,andthePTC.PathwaystoCommercialLiftoff:CleanHydrogen93Keyinputsandassumptions:ElectrolysisprojectsthatclaimedthePTCaremorelikelytooperateatfullutilizationafterthePTCsunsetduetofullydepreciatedcapitalassetscomparedtoprojectsbuiltpost-PTCexpiration.ForFigure24,thecashflowsforanelectrolysis-basedproductionprojectco-locatedwithanofftakerdemanding~260ktp.a.cleanhydrogenwasanalyzedforarangeofwillingnesstopay.Twoscenarioswereconsidered:existinghydrogenproductionprojectsbuiltin2023thatwerenolongereligibleforthePTC,andnewhydrogenproductionprojectsbuiltin2035thatwerenotabletoclaimthePTC.Forbothcategories,thefreecashflowsandIRRswerecalculatedataseriesofwillingnesstopayvaluesandLCOEs.Thecutoffpointforwhenexistingprojectsbuiltin2023werenolongerprofitablewassetasthepresentvalueofthepost-PTC(creditexpiration)freecashflows.Fornewprojects,thecutoffwassetata7%IRR.Excludingroadtransport,forbothtypesofproduction,inthebasecasethemodelassumestheproductionprojectisco-locatedwithanofftakerthatrequiresconstantofftakevolume.Theproducerandofftakerareassumedtobeconnectedviaashortpipeline.Forammoniaofftakers,electrolytichydrogenwascompressedto200barfordelivery,whileforallotherusestheproducedhydrogenwascompressedto80bar.Forreformation-basedhydrogen,noadditionalstorageisassumedduetothefirmnatureofreformationproduction,whileforelectrolysis,sufficientstoragefor50%ofdailyproductionfor1-dayisassumetosmoothintermittencyandshort-termvariability.Storageisbasedonasaltcavernwitha200-milepipelinebetweenthecavernandtheproductionsite.Roadtransportassumesdistributionfromproductionfacilitiestorefuelingstationsviagas-phasetruckingandnoadditionalstoragecostsforelectrolysisduetogreaterofftakeflexibility.Dispensingcostsforroadtransportapplicationsaresubtractedfromtheoverallwillingnesstopayforcleanhydrogentomodelproductionprojecteconomicsusingthewillingnesstopayforproduction.ThewillingnesstopaybyendusewasbasedonthemidpointofthewillingnesstopayrangereportedintheDOENationalHydrogenStrategyandRoadmap.xMaritimewillingnesstopaywasbasedonthewillingnesstopayforbiofuelsandsynfuels.Willingnesstopayforpowerandnaturalgasblendingwascalculatedassuminga~$4/MMBtulong-termnaturalgasprice.Theexactwillingnesstopayvaluesusedare:•Ammonia:$1.5/kg•Refining:$1.0/kg•Steel:$2.0/kg•Methanol:$1.5/kg•Roadtransport:$4.5/kg•Maritime:$1.5/kg(basedonammoniaandmethanolwillingnesstopay)•Naturalgasblending:$0.5/kg•Industrialheat:$1.0/kg•Power(100%hydrogencombustionforhigh-capacityfirm):$0.5/kg•Power(fuelcellorhydrogencombustionforlower-capacityfactorpower):NotanalyzedinthisversionoftheCleanHydrogenLiftoffreportAseriesofassumptionsweremadeforbothelectrolysisandreformation-basedhydrogenwithCCS.Forbothtypesofprojects,10-yearstraightlinedepreciationwasused,and100%equityinvestmentswereassumed,inlinewiththefinancingofcurrentprojects.A25-yearassetlifetimeand15%taxratewerealsoassumed.Forreformation-basedhydrogena5-yeardevelopmenttimewasassumedwhile2yearswereassumedforelectrolysis.PathwaystoCommercialLiftoff:CleanHydrogen94ATRandelectrolyzercapexcostswerederivedusingMethodology3.Inallcases,a500,000Nm3/hATRfacilitywithcarboncapturewasassumed,whilethealkalineelectrolyzersystemsizeincreasedovertime,consistentwithMethodology4.A~2MW(450Nm3/h)electrolyzerwasassumeduntil2025,thena~18MW(4000Nm3/h)electrolyzeruntil2030,andfinallya~90MW(20,000Nm3/h)electrolyzerfrom2030onwards.A750ktammoniaofftakerplantwasassumed,whileforroadtransportation10ktp.a.hydrogendemandwasused,representingafewnearbyrefuelingstations.An800MWcombinedcyclegasturbine(CCGT)plantrepresenting~260ktp.a.hydrogendemandwasassumedforpowerofftakers(100%hydrogencombustionforhigh-capacityfirmpower).Otherofftakerswereassumedtohavethesamehydrogendemand(~260ktp.a.)ashigh-capacityfirmpowerofftakers.Notethatforreformationfacilities,thehydrogenoutputislargerthanthedemandfromasingleammoniaorroadtransportationofftaker,sothereisanimplicitassumptionthatareformationfacilitywillserviceseveralnearbyofftakers.Forelectrolysis,thesameistrueforroadtransportationapplications–onefacilitywilllikelyserviceasetofrefuelingstations.MoredetailedassumptionsandsensitivityanalysesareshownbelowinFigures29-38.Outputs:AmmoniaPathwaystoCommercialLiftoff:CleanHydrogen95Unlevered17%200-300250-350-200-250-150-1000100-5015050300375228232425262729303132363334354045OpexRevenue-H2CashtaxesRevenue-PTCCapexFCFLoadfactor95%1Includes5-yeardevelopmenttime2Represents500,000Nm3/hfacilitysinceATRfacilitiesarenoteconomicalatsmallscale;additionalofftakerswouldberequiredtomatchproductionvolume3IncludesequipmentandinstallationNOTE:AllrevenuesandcostsarebasedoncurrentrealdollarsFigure29:ProjecteconomicsofhydrogenproductionfromATR+CCSco-locatedwithammoniaofftakersInputsandkeyvariablesKeyoutputsKeyParametersIRR,%Unleveredcashflow,$million/yrPaybackperiod1,yearsFinancingCAPEX$800M10Entirefacilityis$1.6B2CategoryVariableValueRevenuesH2willingnesstopay$1.5/kgH2PTC$0.75/kgfor10yearsCAPEXConstruction3$1.05billion(ATR)and$600million(CCS)per500,000Nm3/hcapacityOPEXNaturalgas$3.50/MMBtu(initial),$3/MMBtu(final)Carboncapture$30/tonneCO2FinancingandtimelinesH2productionfacilityFinancingDebt/equitysplit100%equityTaxrate15%Depreciation10years,straightlineTimelinesDevelopmenttime5yearsAssetlifetime25yearsProductiontypeATR+CCSProductionofftake~130ktp.a.Ammoniaofftakedemand750ktammoniap.a.Co-locatedYesAssumptionsPipelinetoconnectco-locatedproducerandofftakeCostsLevelizedproductioncost$1.2/kg(initial),$1.1/kg(final)Costs$0.1/kgDistributionandstorageILLUSTRATIVEEXAMPLEFigure30:SensitivitiesforprojecteconomicsofhydrogenproductionfromATR+CCSco-locatedwithammoniaofftakersHigherIRRLowerIRRWillingnesstopay-permanentchanges-6%-17%-5%Willingnesstopay-temporarychanges2%3%Co-located-5%0%Naturalgasprice-2%3%PTCrate11CorrespondstoEIAreference,lowoilprice,andhighoilpricecases;Naturalgasbasecasepricelinearlydecreasingto$3/MMBtuby2030,thenholdingconstant2Assumesgas-phasetruckdistributionoveranaverageof100kmIRRfromkeysensitivities,percentSensitivityrangeBasecaseunleveredIRR=17%HigherIRRLowerIRRConstantat$1.50/kg$2/kgfrom2032-2036$0.50/kgfrom2032-2036$2/kgfrom2032onwardsConstantat$1.50/kg$0.50/kgfrom2032onwardsCo-locatedNot-co-located2$1/kg$0.60/kg$0.75/kg$3.50/MMBtu(initial),$3/MMBtu(final)$3.70/MMBtu$3.10/MMBtu(initial),$2.50/MMBtu(final)Figure31:Projecteconomicsofhydrogenproductionfromalkalineelectrolysisco-locatedwithammoniaofftakersUnlevered13%0-1,200-800-1,000-600-400200-20040060023402426252728293031323334354549Revenue-H2Revenue-PTCFCFCapexOpexCashtaxesInputsandkeyvariablesKeyoutputsKeyParametersIRR,%Unleveredcashflow,$million/yrPaybackperiod1,yearsFinancingCAPEX$2.1B81Includes2-yeardevelopmenttime2Includesbothequipmentandinstallation3Costisnormalizedbyfullproductionvolume,notbytheamountstored/compressed.Levelizedcostofstorageis$0.1/kgbasedonaninstalledcapexof$35/kgforsaltcavernstorageand$0.2/milelevelizedcostfornew200-milepipelinetoconnectproductionwithsaltcavern(includescompressionto200bar)4.BasedonNRELAnnualTechnologyBaselineClass1onshorewindNOTE:AllrevenuesandcostsarebasedoncurrentrealdollarsCategoryVariableValueCostsRevenuesH2willingnesstopay$1.5/kgH2PTC$3/kgfor10yearsCAPEXConstruction2$1400/kWOPEXElectricity$1.1/kg(10yr),$0.7/kg(final)Refurbishments$0.1/kgOperations<$0.1/kgWater<$0.1/kgFinancingandtimelinesH2productionfacilityFinancingDebt/equitysplit100%equityTaxrate15%Depreciation10years,straightlineTimelinesDevelopmenttime2yearsAssetlifetime25yearsProductiontype1.5GWalkalineelectrolyzerProductionofftake~130ktp.a.Ammoniaofftakedemand750ktammoniap.a.Co-locatedYesCapacityfactor451%(initial),55%(final)LCOE4$23/MWh(10yr),$15/MWh(final)Distributionandstorage$0.3/kgCosts3AssumptionsPipelinetoconnectco-locatedproducerandofftake,50%H2storedfor1day(avg),restcompressedto200barandtransportedLevelizedproductioncost$2.1/kg(initial),$1.7/kg(final)PathwaystoCommercialLiftoff:CleanHydrogen96ILLUSTRATIVEEXAMPLEILLUSTRATIVEEXAMPLEPathwaystoCommercialLiftoff:CleanHydrogen97Basecase1Assumesgas-phasetruckdistributionoveranaverageof100kmBasecaseunleveredIRR=13%HigherIRRLowerIRRSensitivityrangeConstantat$1.50/kg$2/kgfrom2032-2036$0.50/kgfrom2032-2036$2/kgfrom2032onwardsConstantat$1.50/kg$0.50/kgfrom2032onwardsCo-locatedNot-co-located1Class1onshorewindClass5onshorewindFigure32:Sensitivitiesforprojecteconomicsofhydrogenproductionfromalkalineelectrolysisco-locatedwithammoniaofftakers1%1%-7%-2%-5%Willingnesstopay-temporarychangesWillingnesstopay-permanentchangesElectricityprices-3%Co-locatedIRRfromkeysensitivities,percentSensitivityrangeHigherIRRLowerIRRUnlevered0%-600-400-700-300-500-200-1000100200300400452537232724262832293036313433354052Revenue-H2Revenue-PTCCapexOpexCashtaxesFCFNegativeIRRKeyoutputsKeyParametersIRR,%Unleveredcashflow,$million/yrPaybackperiod1,yearsFinancingCAPEX$1.6BN/AUndermostsensitivities,apartfromdelayedprojectconstructionandhigherdebtleverage,baseloadpowerretainsanegativeIRR1Includes5-yeardevelopmenttime2IncludesbothequipmentandinstallationNOTE:AllrevenuesandcostsarebasedoncurrentrealdollarsInputsandkeyvariablesProductionofftake~260ktp.a.(800MWplant)CategoryVariableValueRevenuesH2willingnesstopay$0.5/kgH2PTC$0.75/kgfor10yearsCAPEXConstruction2$1.05billion(ATR)and$600million(CCS)per500,000Nm3/hcapacityOPEXNaturalgas$3.50/MMBtu(initial),$3/MMBtu(final)Carboncapture$30/tonneCO2FinancingandtimelinesH2productionfacilityFinancingDebt/equitysplit100%equityTaxrate15%Depreciation10years,straightlineTimelinesDevelopmenttime5yearsAssetlifetime25yearsProductiontypeATR+CCSCo-locatedYesLoadfactor95%AssumptionsPipelinetoconnectco-locatedproducerandofftakeCostsLevelizedproductioncost$1.2/kg(initial),$1.1/kg(final)Costs$0.1/kgDistributionandstorageFigure33:ProjecteconomicsofhydrogenproductionfromATR+CCSco-locatedwithhigh-capacityfirmpowerofftakersILLUSTRATIVEEXAMPLEILLUSTRATIVEEXAMPLEHigh-capactiyfactorfirmpoiwer(100%hydrogencombustion)PathwaystoCommercialLiftoff:CleanHydrogen98Figure34:Projecteconomicsofhydrogenproductionfromalkalineelectrolysisco-locatedwithhigh-capacityfirmpowerofftakersHeavy-dutyfueltrucksUnlevered0%-2,500-1,000-1,500-2,000-50005001,00023402425262728492930313233343545Revenue-H2OpexCapexRevenue-PTCCashtaxesFCFInputsandkeyvariablesKeyoutputsKeyParametersIRR,%Unleveredcashflow,$million/yrPaybackperiod1,yearsFinancingCAPEX$4.1BN/ANegativeIRRUndermostsensitivities,apartfromdelayedprojectconstructionandhigherdebtleverage,baseloadpowerretainsanegativeIRR1Includes2-yeardevelopmenttime2Includesbothequipmentandinstallation3Costisnormalizedbyfullproductionvolume,notbytheamountstored/compressed.Levelizedcostofstorageis$0.1/kgbasedonaninstalledcapexof$35/kgforsaltcavernstorageand$0.2/milelevelizedcostfornew200-milepipelinetoconnectproductionwithsaltcavern(includescompressionto200bar)4.BasedonNRELAnnualTechnologyBaselineClass1onshorewindNOTE:AllrevenuesandcostsarebasedoncurrentrealdollarsOPEXElectricity$1.1/kg(10yr),$0.7/kg(final)CategoryVariableValueRevenuesCostsH2willingnesstopay$0.5/kgH2PTC$3/kgfor10yearsCAPEXConstruction2$1400/kWRefurbishments$0.1/kgOperations<$0.1/kgWater<$0.1/kgFinancingandtimelinesH2productionfacilityFinancingDebt/equitysplit100%equityTaxrate15%Depreciation10years,straightlineTimelinesDevelopmenttime2yearsAssetlifetime25yearsProductiontype3GWalkalineelectrolyzerProductionofftake~260ktp.a.(800MWplant)Co-locatedYesCapacityfactor451%(initial),55%(final)LCOE4$23/MWh(10yr),$15/MWh(final)Distributionandstorage$0.3/kgCosts3AssumptionsPipelinetoconnectco-locatedproducerandofftake,50%H2storedfor1day(avg),resttransportedatpipelinepressureLevelizedproductioncost$2.1/kg(initial),$1.7/kg(final)Figure35:ProjecteconomicsofhydrogenproductionfromATR+CCSwithfuelcelltruckofftakersUnlevered29%10-20-30-102003040293437232425262728303132523335364045Revenue-H2FCFRevenue-PTCOpexCapexCashtaxesKeyoutputsKeyParametersIRR,%Unleveredcashflow,$million/yrPaybackperiod1,yearsFinancingCAPEX$50M8Entirefacilityis$1.6B21Includes5-yeardevelopmenttime2Represents500,000Nm3/hfacilitysinceATRfacilitiesarenoteconomicalatsmallscale;additionalofftakerswouldberequiredtomatchproductionvolume3IncludesbothequipmentandinstallationNOTE:AllrevenuesandcostsarebasedoncurrentrealdollarsInputsandkeyvariablesCategoryVariableValueRevenuesH2willingnesstopay$4.5/kg,incl.dist.Costs;excesssoldtorefinersat$1/kgH2PTC$0.75/kgfor10yearsCAPEXConstruction3$1.05billion(ATR)and$600million(CCS)per500,000Nm3/hcapacityOPEXNaturalgas$3.50/MMBtu(initial),$3/MMBtu(final)Carboncapture$30/tonneCO2FinancingandtimelinesH2productionfacilityFinancingDebt/equitysplit100%equityTaxrate15%Depreciation10years,straightlineTimelinesDevelopmenttime5yearsAssetlifetime25yearsProductiontypeATR+CCSProductionofftake~10ktp.a.Co-locatedYesLoadfactor95%AssumptionsAssumestransportviaGH2trucking,nolong-termstoragecostsCostsLevelizedproductioncost$1.2/kg(initial),$1.1/kg(final)Costs$2.5/kg(initial),$1.9/kg(final)DistributionandstorageILLUSTRATIVEEXAMPLEILLUSTRATIVEEXAMPLEPathwaystoCommercialLiftoff:CleanHydrogen99Figure36:SensitivitiesforprojecteconomicsofhydrogenproductionwithATR+CCSforfuelcelltruckofftakersILLUSTRATIVEEXAMPLEILLUSTRATIVEEXAMPLE1CorrespondstoEIAreference,lowoilprice,andhighoilpricecases;Naturalgasbasecasepricelinearlydecreasingto$3/MMBtuby2030,thenholdingconstantIRRfromkeysensitivities,percentSensitivityrangeBasecaseBasecaseunleveredIRR=29%HigherIRRLowerIRRNoLCFScredit,WtPbasedondist.costs$2/kgLCFScreditDistributioncostsdecline50%slowerthanexpected$4.85/gal(initial),$5.50/gal(final)$3.15/gal(initial),$3.50/gal(final)$2.30/gal(initial),$2.40/gal(final)$1/kg$0.60/kg$0.75/kg$3.50/MMBtu(initial),$3/MMBtu(final)$3.70/MMBtu$3.10/MMBtu(initial),$2.50/MMBtu(final)HigherIRRLowerIRRWillingnesstopay(WtP)-dieselprices1-10%15%Willingnesstopay(WtP)-8%13%-1%2%PTCvalue-2%0%Naturalgasprices120%Unlevered-120-20-100-80-60-4002040608034402324252627282930313249333545Revenue-H2CashtaxesCapexRevenue-PTCOpexFCFInputsandkeyvariablesKeyoutputsKeyParametersIRR,%Unleveredcashflow,$million/yrPaybackperiod1,yearsFinancingCAPEX$210M71Includes2-yeardevelopmenttime2Includesbothequipmentandinstallation3BasedonNRELAnnualTechnologyBaselineClass1onshorewindNOTE:AllrevenuesandcostsarebasedoncurrentrealdollarsCategoryVariableValueRevenuesCostsH2willingnesstopay$4.5/kg,incl.dist.costs;excesssoldtorefinersat$1/kgH2PTC$3/kgfor10yearsCAPEXConstruction2$1400/kWOPEXElectricity$1.1/kg(10yr),$0.7/kg(final)Refurbishments$0.1/kgOperations<$0.1/kgWater<$0.1/kgFinancingandtimelinesH2productionfacilityFinancingDebt/equitysplit100%equityTaxrate15%Depreciation10years,straightlineTimelinesDevelopmenttime2yearsAssetlifetime25yearsProductiontype150MWalkalineelectrolyzerProductionofftake~10ktp.a.Co-located3YesLoadfactor51%(initial),55%(final)Distributionandstorage$3.0/kg(initial),$1.9/kg(final)CostsAssumptionsAssumestransportviaGH2trucking,nolong-termstoragecostsLevelizedproductioncost$2.1/kg(initial),$1.7/kg(final)LCOE3$23/MWh(10yr),$15/MWh(final)Figure37:ProjecteconomicsofhydrogenproductionwithalkalineelectrolysisforfuelcelltruckofftakersPathwaystoCommercialLiftoff:CleanHydrogen100Figure38:SensitivitiesforprojecteconomicsofhydrogenproductionwithalkalineelectrolysisforfuelcelltruckofftakersILLUSTRATIVEEXAMPLEIRRfromkeysensitivities,percentSensitivityrangeConsiderationsandlimitationsofapproach:Therearealsoaseriesofimplicitassumptionsusedindevelopingthecashflowmodel,whichareoutlinedbelow.Supplychain/workforce•Electrolyzer/laboravailability:Thereissufficientelectrolyzermanufacturingcapacityandskilledlabortobuild>1GWelectrolyzerfacilitiesstartingin2023(i.e.,similartotheHydrogenCityproject)Supportinginfrastructure•CCSinfrastructure:CCSistechnologicallymatureandcanbedeployedatscale•Pipelines:apipelinecanbebuiltconnectingtheproductionprojectwithasaltcavern•Windpower:anotherdeveloperiswillingtobuilda>1GWwindfarmtopowerelectrolysisfacilitiesatacompetitiveLCOE,inlinewiththeNRELAnnualTechnologyBaseline•Fuelcelltrucks:refuelinginfrastructureisbuiltoutasexpectedwithdecliningcapexcostsovertime•Seasonalstorage:Electrolysisprojectscanavoidpayingforlong-termseasonalstoragebyacquiringhydrogenfromotherproducerstomeetcontracts•Capexandelectricityprices:ElectrolyzercapexandrenewableelectricitypricescontinuetodeclineinlinewithindustryforecastsBasecase1.CorrespondstoEIAreference,lowoilprice,andhighoilpricecasesNoLCFScredit,WtPbasedondist.costs$2/kgLCFScreditDistributioncostsdecline50%slowerthanexpected$4.85/gal(initial),$5.50/gal(final)$3.15/gal(initial),$3.50/gal(final)$2.30/gal(initial),$2.40/gal(final)Class5onshorewindClass1onshorewindHigherIRRLowerIRR-5%-5%Willingnesstopay(WtP)8%10%Willingnesstopay(WtP)-dieselprices1-4%ElectricitypricesBasecaseunleveredIRR=20%HigherIRRLowerIRRPathwaystoCommercialLiftoff:CleanHydrogen101Projectspecific•Geographicconstraints:projectshavenearbycarbonsequestrationsites,saltcavernstorage,andalarge-scalewindfarm•Wages:projectscanmeetfairwageandapprenticeshiprequirementstoobtainthefullPTCEnduser•Contracting:Buyeriswillingtosignalong-termofftakecontractatthemidpointofthewillingnesstopayfortheirenduse•Switchingcosts:costsforenduserstoswitchtocleanhydrogenaresmallenoughtonotsignificantlyhinderimplementationofcleanhydrogenFinancing,policy,andbroadermarket•Financing:thereissufficientequityfinancingavailablefor>$1Bprojects•Policy:H2PTCsremainineffectintheircurrentformforprojectsthatbeginconstructionpriorto2033TableofFiguresTableofFiguresFigure1:GlobalenergyrelatedCO2emissionsin2019,GTCO28Figure2:Comparisonofdomestichydrogenproductionpathways10Figure3:Fourelectrolyzertechnologiesareatvariousstagesofcommercialreadiness:13Figure4:Preferredhydrogendistributionmethodbyvolumeanddistance14Figure5:Industry-informeddistributioncosts15Figure6:Industry-informedstoragecosts17Figure7:Hydrogenisalargeandgrowingdomesticmarket19Figure8:Currentlyannouncedcleanhydrogenproductionprojectswouldmeet2030demand23Figure9:AnnouncedU.S.cleanhydrogenproductionprojectsbytargetendusesector,MMTpa24Figure10:2030costsacrossthevaluechainifadvancesindistributionandstoragetechnologyarecommercialized26Figure11:Low-costcleanenergyisthelargestcostdriverofhydrogenproductioncosts27Figure12:LevelizedhydrogenproductioncostforSMRwith>90%CCS28Figure13.1:MMTpacleanhydrogendomesticdemand33Figure13.2:SummaryofscenariosA,C,andD34Sidebar:34Figure14:Splitofproductionpathwaysovertimeforhigh&lowrenewableenergysource(RES)deploymentscenarios37Sidebar38Figure15:Breakeventimingforhydrogenvs.conventionalalternative39Figure16:Investmentsintohydrogenvaluechain42Figure17:Potentialsupplychainvulnerabilities45Figure18:Publiclyannounced(EOY‘22)&requiredU.S.electrolyzerproductioncapacity47Figure19:Newhydrogenassetinstall,OEM&capex-drivenjobs,byvaluechainstepin203049Figure20:TheUnitedStateshasdiversedomesticresourcestoproducecleanhydrogen53Figure21:TheUnitedStateshasanabundanceofdifferentgeologiesthatcouldbeusedforscaled,low-costhydrogenstorage54Figure22:Challengestocleanhydrogencommercialization56Figure23:Profitability1criteriaforpost-PTCelectrolysisatfullutilization61Figure24:Unlesscostsdeclinemorerapidlythanexpected,electrolyzerscouldrunatlowerutilizationpost-PTCexpirationforsomeend-uses62Figure25:Cleanhydrogenmilestonesreflectproductioncapacity,cost,andinvestmentrequirementsrequiredforscale68Figure26:Profitabilitycriteriaforpost-PTCelectrolysisatfullutilization79Figure27:Hydrogenisnotalways'inthemoney'andinsomecasesfacesfiercecompetitionwithfossilincumbents85Figure28:Costofhydrogenproductionbymarket2030(withoutPTC)91Figure29:ProjecteconomicsofhydrogenproductionfromATR+CCSco-locatedwithammoniaofftakers95Figure30:SensitivitiesforprojecteconomicsofhydrogenproductionfromATR+CCSco-locatedwithammoniaofftakers96Figure31:Projecteconomicsofhydrogenproductionfromalkalineelectrolysisco-locatedwithammoniaofftakers96Figure32:Sensitivitiesforprojecteconomicsofhydrogenproductionfromalkalineelectrolysisco-locatedwithammoniaofftakers97Figure33:ProjecteconomicsofhydrogenproductionfromATR+CCSco-locatedwithhigh-capacityfirmpowerofftakers97Figure34:Projecteconomicsofhydrogenproductionfromalkalineelectrolysisco-locatedwithhigh-capacityfirmpowerofftakers98Figure35:ProjecteconomicsofhydrogenproductionfromATR+CCSwithfuelcelltruckofftakers98Figure36:SensitivitiesforprojecteconomicsofhydrogenproductionwithATR+CCSforfuelcelltruckofftakers99Figure37:Projecteconomicsofhydrogenproductionwithalkalineelectrolysisforfuelcelltruckofftakers99Figure38:Sensitivitiesforprojecteconomicsofhydrogenproductionwithalkalineelectrolysisforfuelcelltruckofftakers100PathwaystoCommercialLiftoff:CleanHydrogen102Referencesi.ThefirstEnergyEarthshot—HydrogenShot—seekstoreducethecostofcleanhydrogenby80%to$1per1kilogramin1decade("111").Source:Energy.gov.(2021).HydrogenShot.Retrievedfromhttps://www.energy.gov/eere/fuelcells/hydrogen-shotii.McKinseyEnergyInsightsGlobalEnergyPerspective.(2021)iii.U.S.Departm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