Industry — 8 March 2024

Catalyzing the Hydrogen Economy

The Inflation Reduction Act (IRA) is reshaping the way we define clean energy. In December, the U.S. Treasury proposed new rules for the 45V hydrogen production tax credit, here is our take on it.

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The U.S. Treasury proposed new rules for the 45V hydrogen production tax credit, requiring green hydrogen to be produced from a clean electricity source, every hour, every day

The hydrogen industry is the first sector that will have to meet hourly matching requirements, laying the foundation for widespread adoption of 24/7 carbon-free energy (CFE). As the grid increasingly relies on renewable energy sources, the shift to hourly accounting is essential to make sure clean energy is generated precisely when it is needed. The 45V rules establish the country’s first definition of clean grid-supplied electricity - one that is shared by the UK and EU - a precedent poised to influence policy for adjacent industries like energy storage and carbon removal, as well as voluntary procurement strategies and scope 2 accounting.

Critics argue that requiring hourly matching for green hydrogen is too stringent and could jeopardize the industry still in its infancy. However, we believe that a phased transition to hourly matching by 2028 is both practical and feasible. The timeline allows sufficient time to scale up necessary solutions and aligns with the pace of technological advancements and market developments in the clean energy sector. 

In most cases, strict 100% hourly matching is not necessary as long as hydrogen developers can maintain carbon emissions below 0.45 kg CO2e/kg H2, hence qualifying for the maximum 45V credit at $3/kg H2. This allows developers to qualify only a portion of their production as 24/7 CFE, supplementing the remainder from the grid if they meet the carbon intensity requirement. Alternatively, they could temporarily halt electrolyzer operations and limit the load, say to 90%, if it fits their business strategy. 

What is unavoidable, however, is the need for electrolyzers to rely on a diverse portfolio of CFE technologies. This involves combining solar and wind capacity, leaning on dispatchable CFE sources like nuclear and hydropower, integrating battery energy storage systems, and adopting load shifting strategies. 

Many electrolyzers will also need to rely on some quantity of utility-supplied CFE to supplement PPAs and self-owned assets. We see this as an exciting opportunity for energy suppliers to develop new products that cater to the green hydrogen use case by rewarding load flexibility with favorable pricing and/or providing electricity that meets the 45V incrementality, deliverability and time-matching requirements. For example, policymakers in California have proposed the Clean Energy Development Incentive Rate (CEDIR) Tariff, which advocates for a combination of time-of-use rates, interruptibility, and hourly-matched carbon-free energy.

Central to the hourly matching transition will be the availability of time-stamped EACs (T-EACs), also known as granular certificates (GCs), and the capacity to track them on an hourly basis. While widespread implementation of hourly tracking in the U.S. is not yet feasible, three tracking systems (M-RETS, PJM, and NAR) currently possess the capability to monitor hourly data, and the majority of the others anticipate a short phase-in period of 1 to 2 years. 

Until 2028, adopting an interim approach utilizing monthly EACs alongside hourly metering data is a viable solution in areas lacking hourly functionality. Granular Energy's platform enables this strategy by automating this process in an optimized and fully auditable way. This provides a practical transition to hourly matching compliance and a robust alternative if hourly EACs are not fully implemented in the U.S. by 2028. For example, British utility Good Energy uses our platform to guarantee that its business customers achieve 90% matching on a half-hourly basis. This is achieved by using metering data to understand the “shape” of their EACs and identify the optimal allocation of those monthly certificates against their customers’ load. We believe a similar approach could be applied to “green hydrogen tariffs” so that electrolyzers can source 45V-compliant energy directly from their utility. 

Critical to the success of these types of tariffs is transparency and auditability. The 45V rules require verification reports prepared by qualified verifiers for each qualified clean hydrogen production facility and each tax year. Software platforms like ours ensure that the EACs allocated to electrolyzer ratepayers are compliant with the IRS rules, avoid double counting, and provide a transparent audit-trail that verifiers can use to inform their attestations. 

The transition to hourly matching in the context of the 45V hydrogen production tax credit represents a crucial step towards achieving widespread adoption of 24/7 clean energy and accelerating the decarbonization of the grid. While there are challenges to overcome, hourly matching provides a more accurate way of counting carbon-free energy and will accelerate the deployment of advanced clean technologies. Furthermore, the ability of existing registries to track hourly data combined with software solutions like Granular Energy’s platform make hourly matching more accessible and feasible than ever before. Embracing this change can pave the way for a true energy transition. 

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