Plug Power and Bloom Energy Surge as Hydrogen Tax Credits Take Effect January 4, 2025 0 By ERIN KILGORE
Source：Hydrogen Fuel News
US Treasury Finalizes Section 45V Clean Hydrogen Tax Credit Rules
The US Department of the Treasury and Internal Revenue Service (IRS) recently released the final rules for the Section 45V Clean Hydrogen Production Tax Credit, established under the Inflation Reduction Act. These regulations mark a pivotal moment for the clean hydrogen industry, offering much-needed clarity and flexibility for companies aiming to decarbonize hard-to-electrify industries while qualifying for tax incentives.
Key Features of the Clean Hydrogen Tax Credit
Section 45V offers a production tax credit (PTC) of up to $3 per kilogram of clean hydrogen produced, adjusted for inflation. This credit is tied to the life cycle greenhouse gas (GHG) emissions rate of the hydrogen, ensuring cleaner projects reap greater rewards. Here’s a breakdown of applicable rates based on emissions:
- Hydrogen produced with less than 0.45 kilograms of CO2 equivalents (CO2e) per kilogram qualifies for the full $3 credit.
- Projects emitting 0.45–1.5 kilograms of CO2e receive 33.4% of the credit.
- Those producing 1.5–2.5 kilograms of CO2e fall to 25%.
- Higher-emission projects (2.5–4 kilograms of CO2e) get just 20% of the credit.
Crucially, facilities must begin construction before 2033 to qualify, and the credit spans the first 10 years of operation. Projects failing to meet prevailing wage and apprenticeship requirements risk a significant reduction, capping the credit at 60 cents per kilogram.
The rules allow an alternative option in the form of an investment tax credit (ITC) under Section 48, providing further flexibility for project financing.
Immediate Industry Impact and Company Implications
Green energy stocks showed immediate optimism following the release of the finalized rules. Plug Power and Bloom Energy, known for their early investments in clean hydrogen technology, enjoyed stock increases of 10% and 8%, respectively. These gains reflect the market’s belief that the tax credits will empower growth across the industry.
Constellation Energy stands to benefit from the inclusion of nuclear power in the eligibility criteria for clean electricity, alongside wind and solar, to produce green hydrogen. With its portfolio of nuclear reactors, the company anticipates leveraging this rule to drive innovative hydrogen projects.
These regulations also underscore the Biden administration’s commitment to clean energy, which could strengthen green investors’ confidence. J.P. Morgan analyst Bill Peterson emphasized that these new rules finally “remove a longstanding overhang,” potentially paving the way for hydrogen’s mainstream adoption.
Why This Matters for Green Investors and the Stock Market
For decades, hydrogen has been recognized as a promising tool for decarbonization but has faced challenges due to high production costs and reliance on fossil fuels. Currently, most of the world’s hydrogen is produced from natural gas using emissions-intensive processes. Clean hydrogen, made via renewable electricity or with carbon capture technology, costs significantly more to produce, ranging from $3.74 to $11.70 per kilogram versus $1.11 to $2.35 for conventional methods.
The new tax credits bridge this economic divide, incentivizing companies to innovate and scale their clean hydrogen infrastructure. This shift isn’t just good for specific companies; it bolsters investor confidence by providing a clear financial framework for projects. With clear guardrails and government backing, green energy sectors stand poised for accelerated growth, carving out a new investment frontier.
Environmental and Economic Implications
The Section 45V rules extend beyond fueling investor optimism; they’re designed to meet broader carbon reduction goals. Clean hydrogen promises to decarbonize notoriously emissions-heavy industries such as steel, cement, and chemical production. It can also replace fossil fuels in transportation and energy storage applications.
Importantly, safeguards introduced in the rule aim to ensure hydrogen projects prioritize emissions reduction. The Sierra Club, which advocated for stringent controls, noted the rule’s reliance on “three pillars.” These include sourcing power from newly built, emissions-free sources; matching energy use hour-by-hour; and emphasizing transparency to prevent fossil fuel companies from exploiting the system.
Still, tensions remain. Critics warn that loopholes or excessive exemptions could allow projects to sidestep meaningful reductions, diluting the environmental benefits. Advocacy groups have pledged to monitor implementation closely, ensuring strict emissions criteria are met.
Timelines and Future Projections
Hydrogen projects under these new rules could begin showing results as early as 2025, depending on when they start construction. The Department of Energy (DOE) is working to complement these tax credits with its Regional Clean Hydrogen Hubs program, a $7 billion investment to establish large-scale hydrogen production and use areas across the United States.
The next few years will be pivotal. Companies in nascent stages of hydrogen development will scale operations, pivot toward cleaner production methods, and attract new investments. Coupled with innovations in electrolyzers and energy storage, experts project clean hydrogen costs could decline by 50% in the next decade, eventually achieving cost parity with traditional fuels.
Harnessing Hydrogen Now and in the Future
While the finalized Section 45V rules position clean hydrogen as a future energy pillar, there are immediate applications worth exploring. For one, hydrogen vehicles—both passenger and heavy-duty—can already operate with zero emissions, offering an alternative to electric counterparts where charging infrastructure is sparse. Industries like aviation and shipping, which demand dense energy sources, can begin piloting hydrogen as a greener fuel option. Additionally, existing heavy industries could pivot toward on-site hydrogen production using renewable electricity.
Looking ahead, clean hydrogen’s success hinges on collaboration between governments, industries, and environmental advocates. These partnerships will determine whether tax credits like Section 45V lead to innovation, wider adoption, and measurable carbon reductions. While hurdles remain, this rule creates a foundation upon which clean energy advocates and industries can build, signaling a promising step toward a decarbonized economy.
Hydrogen is no longer just a concept for the future—it’s a practical solution we can invest in today. With support from comprehensive policies like Section 45V and innovation across global markets, clean hydrogen has the potential to power one of the greenest periods of industrial transformation the world has seen.
UPDATE – An Easy To Understand Breakdown of the Newly Released Hydrogen Tax Credits and Qualifications from the US Department of Treasury:
-
Eligibility Clarifications for Hydrogen Producers:
- Eligible hydrogen production includes methods using electricity (renewables, nuclear), natural gas with carbon capture, renewable natural gas (RNG), and coal mine methane.
- To qualify for the full tax credit, projects must meet prevailing wage and apprenticeship standards.
-
Credit Determination:
- The tax credit value is based on lifecycle greenhouse gas (GHG) emissions.
- Hydrogen production must have lifecycle GHG emissions ≤ 4 kg of CO2e per kg of hydrogen to qualify as clean hydrogen.
- Four credit tiers are available, with lower GHG emissions yielding higher credit values.
- Lifecycle analysis must include both direct and significant indirect emissions.
-
Electricity-Based Hydrogen (e.g., Green and Pink Hydrogen):
- Safeguards ensure statutory lifecycle GHG emissions standards are met, addressing induced emissions from grid usage.
- Incrementality (ensuring clean electricity is “new” power):
- Electricity is considered incremental if a generator starts operations or increases capacity within 36 months of the hydrogen facility’s commissioning.
- Specific pathways include electricity from nuclear plants at risk of retirement, states with robust GHG policies (e.g., Washington, California), or plants adding carbon capture and sequestration (CCS).
- Time-Matching (aligning electricity use with generation):
- Annual time-matching rules apply until 2030, followed by hourly matching requirements.
- Deliverability:
- Electricity from generators in the same grid region or demonstrated transfers between regions meets criteria.
- Optional hourly accounting for electricity-related lifecycle emissions, providing added investment certainty.
-
Methane-Based Hydrogen (e.g., Blue Hydrogen):
- Updated rules for credit eligibility using methane reforming technologies, including carbon capture, RNG, and coal mine methane.
- Default national values for upstream methane leakage rates will be used initially, with project-specific rates incorporated later based on verified data.
- The rules expand allowable RNG sources, including wastewater, animal manure, landfill gas, and coal mine methane.
-
Lifecycle GHG Analysis:
- Separate emissions intensities calculated for different feedstocks (e.g., RNG and coal mine methane).
- Removal of the “first productive use” requirement for alternative fates improves administrative and compliance feasibility.
-
Book-and-Claim Systems:
- Systems for tracking RNG or coal mine methane usage must meet detailed requirements.
- Such systems will be available for use starting in 2027 upon approval by the Secretary of the Treasury.
-
Investment Certainty Measures:
- Hydrogen producers may use the version of the 45VH2-GREET model effective at the time of facility construction for the entire duration of the credit.
- Additional time and flexibility in meeting rules, such as extending annual time-matching requirements by two years.
-
Focus on Economic and Environmental Goals:
- Promotion of hydrogen hubs under the DOE’s Regional Clean Hydrogen Hubs program.
- Support for clean energy job creation and economic growth in difficult-to-transition sectors like heavy industry and transportation.
