Hydrogen and the Energy Transition

How the Inflation Reduction Act Could Accelerate Change

[Watch the Replay] Mitsubishi Power and Reuters Webinar: Building on the IRA Framework

People all over the world are searching for ways to decarbonize the energy sector, and green hydrogen can help in that effort. Although most hydrogen produced today is made from natural gas, often referred to as gray hydrogen, green hydrogen is produced through electrolysis using renewable energy, such as wind and solar power.

There are many possible uses for green hydrogen, but one that offers several benefits is as an energy storage mechanism. While it is more cost-effective to store renewable power for short durations, such as two or four hours, with a battery energy storage system, when you need to store energy for a week, a month, or a season, hydrogen quickly becomes the preferable option. In fact, when you get into those really long timeframes, it’s hundreds of times more cost-effective to use hydrogen than battery energy storage. And, as it turns out, long-duration energy storage is becoming a huge need.

Michael Ducker, Senior Vice President of Hydrogen Infrastructure with Mitsubishi Power Americas, explained the situation California and other parts of the western U.S. are currently faced with. Specifically, he noted that even with renewable energy supplying only about 30% or so of the power demand, there is significant overproduction from wind, solar, and hydro assets in springtime. That’s because there’s great wind and solar resources available at that time of year, and the spring snow melt typically fills reservoirs making more hydro available too. 

However, from a load standpoint, Ducker said the springtime is one of the lowest-load time periods of the year because the need for heating and air conditioning is at its minimum. Therefore, there’s massive overproduction from renewables. “Just in California alone, we’re averaging roughly 300 gigawatt-hours per month of wasted curtailed renewables in the springtime,” he said.

Storing Hydrogen in Underground Salt Domes

Mitsubishi Power sees this as a big opportunity. The company is one of the industry’s leaders, working to make hydrogen an economically viable long-term energy storage option. Among Mitsubishi Power’s pioneering undertakings is the Advanced Clean Energy Storage (Figure 1, ACES Delta Hub) project in Delta, Utah. When completed, the site will be the world’s largest hydrogen production and storage facility capable of providing long-term seasonal energy storage.

1. Mitsubishi Power Americas and Magnum Development’s jointly developed Advanced Clean Energy Storage Project creates a green hydrogen hub as part of a broad effort to support decarbonization efforts for multiple industries including power, manufacturing, and transportation across the western U.S. Source: Mitsubishi Power

“We are really excited about the Advanced Clean Energy Storage hub,” Ducker said. The ACES Delta Hub will combine 220 MW of alkaline electrolysis with two massive 4.5 million-barrel salt caverns to store green hydrogen. The ACES Delta Hub will capture excess renewable energy when it is most abundant, store it as hydrogen, then deploy it as fuel for an 840-MW hydrogen-capable gas turbine combined cycle power plant when the energy is needed. The power station, built with Mitsubishi Power technology, and owned and operated by the Intermountain Power Agency (IPA), will initially run on a blend of 30% green hydrogen and 70% natural gas by volume starting in 2025, and will increase to 100% hydrogen by 2045.

The scale of deployed electrolyzers, as well as the use of salt caverns to store hydrogen, are both significant innovations. The ACES Delta Hub project is being supported by the U.S. Department of Energy (DOE) through a $504.4 million loan guarantee, and is being developed by Mitsubishi Power in collaboration with Magnum Development LLC. Other companies involved in the ACES Delta Hub include: 

  • Black & Veatch, an engineering, procurement, and construction (EPC) firm, which is providing EPC services for the energy conversion facility.
  • NAES Corp., an independent provider of operations and maintenance (O&M) and repair services, which will initially provide the O&M services for the plant and will oversee the projected team of 20 plant-related personnel.
  • Utah School and Institutional Trust Lands Administration, a subdivision of the state of Utah, which is leasing the site and plans to utilize revenue generated from the hydrogen hub to benefit Utah schools.
  • WSP, an engineering firm, which is providing EPC management services for the development of the two large salt cavern storage facilities.

“The hub has secured within three years all major contracts, including EPC, major equipment suppliers, and O&M providers. It’s the first hydrogen hub to reach financial close,” said Ducker.

As of March 1, 2023, the project was in its first phase of construction. This included work on the hydrogen conversion facility, which will be a 220-MW/100-tons-of-hydrogen-per-day plant, and two salt dome caverns capable of storing 11,000 tonnes of hydrogen. Ducker said the project was “on schedule and on budget,” with completion expected in 2025.

“It’s a really exciting project, and again, the scale and magnitude and the first-of-its-kind application here for long-duration energy storage is really what makes this project unique and exciting,” Ducker said. “This gives us the ability to store a truly massive amount of hydrogen, enough to provide storage for the entire western United States.”

Projects of such large magnitude always face challenges, but Ducker said the ACES Delta team and other entities involved, including the DOE, IPA, Black & Veatch, WSP, and other contractors, were working collaboratively to identify issues and address them swiftly. “The project team hosts monthly progress meetings, so all parties are communicating and finding solutions together as issues come up,” he said.

A Diversified Business Making Game-Changing Progress

While Mitsubishi Power is well-known for its gas and steam turbines, John Young, head of Government Relations with Mitsubishi Power Americas, suggested the company’s growth engine rests in the energy transition side of the business. “It’s the exploratory side,” he said, “and as we continue to lean further into the energy transition here in the U.S., of course, in large part due to recent congressional action, this side of our business is where we’re doing it. And we’re bringing our world-class turbine expertise to bear right alongside to combine for a leading role in the race to clean energy.”

Young explained that Mitsubishi Power’s energy transition businesses include a battery energy storage business, a photovoltaic (PV) solar development business, and a group focused on major hydrogen infrastructure projects, such as the ACES Delta Hub. “We broke ground on that flagship project last summer and are actively planning to replicate that success across the country. Many of those are involved in DOE hub applications,” Young said.

Meanwhile, Young noted that a huge milestone was reached in June 2022 at Georgia Power’s Plant McDonough-Atkinson in Smyrna, Georgia (Figure 2). That was when Georgia Power, Mitsubishi Power, and the Electric Power Research Institute (EPRI) completed the world’s-largest hydrogen fuel blending demonstration. The project was the first to validate 20% hydrogen fuel blending by volume on an advanced class gas turbine in North America (Figure 3). Georgia Power said the 20% blend provided an approximately 7% reduction in carbon emissions compared to natural gas.

2. Plant McDonough-Atkinson near Atlanta, Georgia. Source: Georgia Power

3. Engineers inside the McDonough plant’s control room watch as hydrogen is blended up to 20%, mixed with natural gas. Source: Georgia Power

“All told, there are a ton of exciting things going on here at Mitsubishi Power that demonstrates our leadership in the energy space well prior to the passage of the IRA [Inflation Reduction Act] this summer,” said Young. “Now that the IRA is law, our company finds itself in an incredibly unique position to capitalize on the generational investments Congress has made here in the energy sector.”

Tax Credits Available Through the IRA

Dr. Hari Gopalakrishnan, Lead Consultant for Market Intelligence and Strategy with Mitsubishi Power Americas, examined the full green hydrogen value chain and explained how various credits provided through the IRA could be utilized to enhance project value (Figure 4). “That process begins with your upstream wind and solar generation,” Dr. Gopalakrishnan said. “Those technologies can avail the 45 credit, which is a production tax credit, and it’s a legacy credit, which has been extended in the IRA.”

4. The energy and commodity value chain and potential tax credits available. Source: Mitsubishi Power

When that renewable energy gets fed into an electrolyzer to produce green hydrogen, the electrolyzer itself can avail the 45V credit, which is a production tax credit; and/or the 48C credit, which is a manufacturing credit; and/or the 48E credit, which is an investment tax credit. “There are guidances that are available in the existing IRA provisions, which indicate that you cannot choose multiple types of credits on the same project,” Dr. Gopalakrishnan said, “but what is still yet to be cleared, and further guidance is being sought from the IRS themselves, is can these various credits be stacked on top of each other to extract the most value out of all the credits that are being offered.”

Young likened the process to playing the video game Tetris. He suggested you have to twist and turn all the pieces, and contemplate where each credit fits, to determine which approach is most beneficial to a project.

“It’s important to recognize that the hydrogen-related tax credits in the IRA are applicable to these individual components of these different hydrogen production processes, and on top of that, we have the storage process to consider as well,” Young said.

Meanwhile, after the hydrogen is produced, one option would be to inject it into a hydrogen network. One piece of that network could be a hydrogen storage facility, such as the ACES Delta Hub project. “Construction of these geological facilities can avail the 48E, which is an investment tax credit,” explained Dr. Gopalakrishnan.

As previously alluded to, the most common hydrogen production method is a process called steam methane reforming, which uses natural gas as the feedstock. While typically this produces gray hydrogen, there are ways to capture the carbon released through the process and sequester it in geological repositories. In that case, the hydrogen is commonly referred to as blue hydrogen. “Blue hydrogen can avail the 45Q credit, which is a carbon capture credit, and that happens at the carbon capture technology point,” Dr. Gopalakrishnan said.

Green hydrogen and blue hydrogen will often feed some sort of energy conversion technology such as gas turbines or fuel cells. In such cases, the power produced by these plants is decarbonized by way of the green or blue hydrogen. “But you could also do post-combustion capture at a natural gas–fired gas turbine and combined cycle plant, and that facility can avail the 45Q credit,” said Gopalakrishnan. “Conversely, if the combined cycle and the gas turbines were hydrogen capable, then they can avail the 48E credit, which is an investment tax credit.”

The Levelized Cost of Hydrogen

The IRA credits are highly beneficial to the levelized cost of hydrogen (LCOH). Dr. Gopalakrishnan noted the LCOH for green hydrogen based on current fundamentals, that is, the capital and O&M expenses associated with existing technologies, is about $6.15 per kilogram (kg) of hydrogen produced (Figure 5). “That cost reduces dramatically over this coming decade, going down to $1.69 by 2032,” Dr. Gopalakrishnan said. “That reduction is being driven by the declining costs in electrolyzers. To this situation, if we were to avail the 45V credit, which is the production tax credit, today the cost reduces to $4.55, and by 2032, it goes down to nine cents per kilogram.”

5. The levelized cost of hydrogen and projected changes over the coming decade. Source: Mitsubishi Power

While there is a lot to ponder, and much work yet to be done to finish early demonstration projects and scale up the technology, the dream of a hydrogen economy is becoming a reality. Mitsubishi Power has a detailed plan in place to provide all of these solutions cost-effectively on a commercial scale, and the company is well on its way to doing so.

“As an energy systems modeler, to me, hydrogen always made sense. It began the day the cost of renewables started declining, and it became the perfect pairing to firm up those renewables or utilize them in other cross-sectoral applications. Every model that I run for every region in the United States is indicating already—given the cost today, where we are—even without the IRA credits, hydrogen always made sense, and the IRA credit is just like an icing on the cake,” Dr. Gopalakrishnan concluded.