The Future of Hydrogen in Texas with Dr. Emily Beagle

Electrons and molecules don't usually mix. Power grid people and gas supply people don't talk to each other much, nor do they much understand each other's worlds, languages, or businesses. The Federal Energy Regulatory Commission (FERC) cited this lack of gas and electric coordination as one of the causes of the Winter Storm Uri outages.

However, it's not just a problem for reliability and energy security. People who work in the power and gas industries need to communicate because their worlds are becoming increasingly and inextricably intertwined. As just one example of this, more and more, hydrogen will be made by clean electricity.

In a previous Energy Capital podcast, I spoke with Michael Webber and we delved briefly into the basics of hydrogen and its role in the energy transition. However, with Texas securing one of the seven Department of Energy Hydrogen Hub awards, the passage of two hydrogen-related bills by the state legislature last session, and the unveiling of numerous high-profile green hydrogen projects on a gigawatt scale by various companies, I recognized the need to dedicate an entire episode to this subject.

There’s no one better to talk with about hydrogen in Texas than Dr. Emily Beagle, a research associate with the Webber Energy Group at the University of Texas at Austin. She works on energy policy and pathways to decarbonization of the global energy system with a particular focus on the and use of hydrogen to reduce emissions and the hardest-to-abate sectors. 

In this episode, Dr. Beagle breaks down why hydrogen isn't a cure-all in the energy transition and explains the importance of targeting hydrogen use at hard-to-abate sectors. She also spoke about the current uses of hydrogen and how they’re likely to change, hydrogen incentives in the Inflation Reduction Act, how some of the unique aspects of the Texas electric market are ideal for hydrogen producers, the potential of hydrogen for long duration energy storage, the water requirements for green hydrogen and how they compare to oil and gas water use, where demand for hydrogen will come from, and much more. 

I hope you enjoy this conversation as much as I did. If you like the episode, please don’t forget to recommend, like, and share on Substack, Apple Podcasts, Spotify, or wherever you listen.

I look forward to hearing your thoughts; don’t hesitate to share them with me and fellow listeners in the comments. Thank you for listening and for being a subscriber! Transcript, show notes, and timestamps are below.

Timestamps

3:23 - About Dr. Beagle

5:06 - Hydrogen in context. How much is produced today?

7:33 - What is the future of hydrogen and potential growth for hydrogen in the next 5-10 years?

10:16 - What are the priority uses for hydrogen?

15:30 - A fully decarbonized system will still require molecules

19:46 - How hydrogen is produced and the various hydrogen colors

24:00 - Hydrogen as a Large Flexible Load

27:43 - How the IRA tax credit and recent Treasury Dept guidance will impact hydrogen

33:15 - Comparison of water needs for green hydrogen to other forms of energy

35:55 - Potential to use brackish water or produced water for hydrogen production

40:09 - Concept of hydrogen hubs and explanation of HyVelocity Hub in Houston

45:18 -Is there enough demand for hydrogen?

46:21 - Difficulties of transporting hydrogen, usefulness of hubs where transportation need is limited

50:56 - The Gulf Coast has three of the six existing salt dome storage caverns in the U.S.

54:18 - Need for policies that deal with regulation and standards for hydrogen

56:09 - Natural and other forms of hydrogen; issues with using color classifications for hydrogen

Show Notes

Webber Energy Group at the University of Texas at Austin

The HyVelocity Hub

HyVelocity Selected by U.S. Department of Energy to Develop Gulf Coast Hydrogen Hub

IEA Path to Net Zero

Renewable Electrolysis in Texas: Pipelines versus Power Lines

Clean energy experts break down hydrogen hype and hope from Canary Media

Separating Hype from Hydrogen – Part One: The Supply Side from Cleaning Up Podcast

Transcript

Doug Lewin

Dr. Emily Beagle, thanks so much for taking time to be on the Energy Capital Podcast.

Emily Beagle

Thanks for having me here, Doug.

Doug Lewin

It's my pleasure. I'm really looking forward to this conversation. Obviously a lot of discussion, a lot of excitement around hydrogen these days, really excited to go deep on that. There are a lot of great podcasts and articles out there on hydrogen in different parts of the world. We're gonna really focus in on Texas today. Why don't you go ahead and tell folks a little about yourself, your work at UT, and how you got to be there?

Emily Beagle

Perfect. Sounds great. Happy to. As you mentioned, I'm Emily Beagle. I'm currently a research associate with the Webber Energy Group out of the mechanical engineering department at the University of Texas at Austin. I'm originally from Wyoming, born and raised, proud graduate of the University of Wyoming, where I got my PhD and a number of other degrees in mechanical engineering. And I've also spent several years in DC. I was a congressional science and technology policy fellow, so the opportunity to work in the Senate on developing energy and climate legislation before coming here to the University of Texas at Austin. I now lead a lot of work for the group as it relates to hydrogen. We're sort of traditionally a group that is focused a lot on the energy system and energy infrastructure and supply chains, specifically looking at ways to decarbonize while maintaining energy services and reliability. And hydrogen, as you mentioned, is a really key part of that. So I'm sort of working on a number of projects as it relates to that. And I know we'll, we'll talk about some of those projects that I'm involved in throughout the podcast today.

Doug Lewin

Most definitely, what years were you working at Congress?

Emily Beagle

2020. So what a year to be there.

Doug Lewin

Interesting, right? I'm sure you have many stories to tell of 2020 in Congress, but we'll forsake those for now. All right. So yeah, let's, again, like I said from the beginning, obviously it's the Energy Capital Podcast. We focus on Texas. Can you just, let's start by talking about what is hydrogen used for now? How widespread is its use? 

Yeah, let's start there. And then we kind of want to like segue into like, where is this all heading? What is it likely to be used for in the future?

Emily Beagle

Perfect. Well, currently, hydrogen is primarily used, we can break it down into talking about the industrial sector and also in the refining sector. Primarily it's used as a feedstock for ammonia, which is used then as a feedstock for fertilizer. So that's one of its, about half of its use would fall into that category, sort of as a chemical feedstock. And the other refining category of current hydrogen use would be as a feedstock and sort of product of other refining and chemical processes that are happening. So those are the two main ways that we use hydrogen now.

Doug Lewin 

And, what is the scale at this point? How much hydrogen roughly is produced in Texas?

Emily Beagle

In Texas, we produce about three and a half million tons a year, and that's about a third of all of the hydrogen produced in the U.S., about 10 million tons a year across the U.S., which is about a tenth of global hydrogen production. I think in 2022, globally 95 million tons or so of hydrogen was consumed.

Doug Lewin

So about a third of all the US and is all of that or most of that along the Gulf Coast, all of it, right?

Emily Beagle

All of it. Yeah.

Doug Lewin

Okay. And most of that in and around Houston with maybe some Beaumont, Port Arthur, some Corpus Christi.

Emily Beagle

I think so, that sounds right. Yeah, yeah.

Doug Lewin

Yeah. Okay. And as of now, all of that would be what is called steam methane reforming, and we'll get into talking about the various colors of hydrogen and the potential problems of using colors. But what is referred to these days as gray hydrogen, meaning there is no carbon abatement or anything like that from it. Is that correct?

Emily Beagle

Yes, that's correct. Yeah, essentially taking natural gas and splitting that into hydrogen and then also getting a byproduct of carbon dioxide.

Doug Lewin

Okay, so where do you think this is heading? So we're at three and a half million tons today, one third of the production in the United States. Do you expect that will grow? And if so, will it remain steam methane reforming, as you just described it, without any abatement, or will it be something different? Will it continue to be half ammonia, what did you say, half chemical, like

petrochemical refining, things like that, or do you foresee sort of other use cases in the, let's say medium term? So not thinking like 20 years out, but not next year either, maybe in a three to five year kind of a window.

Emily Beagle

Yeah, yeah, I absolutely expect it to grow. We're seeing a lot of indications for why there would be a lot of interest in using hydrogen, particularly as a decarbonization tool. I think that's where a lot of the growth is going to come from. We may see growth in hydrogen consumption for its traditional uses, growth in demand for ammonia for fertilizer, for example, or in refining.

But absolutely a lot of the area where we're expecting to see growth in hydrogen in these alternative uses, sort of as an abatement for fossil fuels to reduce emissions. And because that new demand is drawn by a need to reduce emissions, that means we'll have to consequently also reduce the emissions associated with the production. And so we can't be building new kind of unabated steam methane reforming hydrogen production that has emissions while simultaneously using that hydrogen to meet other goals. So I expect that new growth and hydrogen production will be low carbon, lots of incentives for that we can talk about. But yeah, that's where we're heading.

Doug Lewin

So if we're at like three and a half million tons now, and I'm not asking you to make a specific prediction, but I'm just trying to understand the order of the scale, the order of magnitude here. Are we talking about, like a doubling in five years, or would you be, again, not asking you to make a prediction, but would you be surprised if we had like a 10X in five to ten years, that amount, or is that not enough or is that too high? Like what's the general order of magnitude we're looking at?

Emily Beagle

Gosh, 10x in five to ten years I think would be pretty high. Maybe 1 and ½  to 2x with a lot of that needing to be challenging. I think the IEA's most recent report looking at announced global clean hydrogen projects expects just under 40 million tons of clean hydrogen by 2030. So we wouldn't even still quite get to the full kind of 95 million tons.

That's global hydrogen production. We have some incentives in the United States for clean hydrogen production that I think might start really accelerating the announcements of those types of projects. So we might see more than that, but that's kind of what's expected right now based on projects that have already been proposed.

Doug Lewin

So that's interesting. So like even a doubling is pretty dramatic. So is it in the exact same sectors right now? It's just more ammonia, more use of chemicals refining. Do you see it expanding? There's a lot of different use cases for hydrogen. What do you think hydrogen is good for and perhaps equally as importantly, what is hydrogen not great for and we probably shouldn't be looking to hydrogen as a solution?

Emily Beagle

Yeah, great question. So hydrogen is sometimes called the Swiss Army Knife of decarbonization tools because it can be used in almost every sector that's very versatile. You can use sort of burn it and combust it for heat and so replace it with some of our traditional fossil fuel natural gas. Applications for that you can use it as a feedstock in the way that we're using it here. You can use it as a fuel to produce other fuels. And so there's potential ways to use hydrogen, sort of, in all of our big sectors, industrial sector, industrial heat, or as a feedstock for steel, for steel, and the transportation sector as a fuel across all different types of vehicles. You could potentially use it for power generation, either with fuel cells or in a turbine, you could potentially use it for residential and commercial heat. 

So lots of different ways that you could use it, but I like to talk about hydrogen use prioritization, especially if we think that we'll have a limited amount of clean hydrogen that we can use in those applications.  So being really intentional and mindful about using it in the hardest-to-abate sectors, or the sectors where we don’t have the other alternatives. And those I would consider the industrial and the heavy duty transportation sectors. So how can we use hydrogen for things like steel or how can we use hydrogen as a fuel in aviation, in shipping, or in heavy duty transportation.

And it could take a number of forms even within those sectors. So for example we could have hydrogen used to produce ammonia for its traditional application now of producing fertilizer. Or hydrogen as a feedstock to produce ammonia which in some applications is a better fuel for say maritime shipping or hydrogen to use or to produce sustainable aviation fuel, hydrogen in the steel sector, so even within those sort of three narrowed down sectors still a lot of pathways that hydrogen can be used and help reduce emissions.

Doug Lewin

That makes a lot of sense. So what you left off that list was heating. I mean, you said it in your full list, but as far as like in your prioritization, you left out heating for residential and commercial. You said transportation, but heavy duty, so not medium duty or light duty.  You didn't put power generation on that list. So all of those, you put kind of lower on your prioritization. 

Emily Beagle

Yes, yes.

Doug Lewin

Okay, interesting.

Emily Beagle

Primarily because we have alternatives. So EVs in light duty transportation are sort of winning and perform better for a number of reasons. Electrification of home heating is far superior both in terms of efficiency, ease of use, and cost compared to trying to put hydrogen into individual homes and actually build the distribution system to move the hydrogen there because there's some of the reasons for that prioritization that I offered.

Doug Lewin

And on the power generation side, is it your view from studying this and being in the weeds and in the numbers that like for what is often referred to as sort of clean firm, you know, obviously we're going to have a lot of hours out of the year where it's wind and solar and storage can help balance out the variability, demand flexibility can do a lot of that. And then you've got nuclear, potentially gas with carbon capture, geothermal, all of these things, in your view, you would kind of come before hydrogen as a fuel in the power sector. Is that accurate?

Emily Beagle

Yes, and I think where I see the most potential for hydrogen in the power sector would be for long duration energy storage. So when we're talking about needing to store renewables over the scale of weeks or seasons, as opposed to over hours or days, like what we can provide with the battery storage that we have now. But there's so much growth of buildout of some of these other technologies, geothermal, wind and solar, that we can continue to do before we start needing vast amounts of that type of long duration storage to support the system that we should be using the hydrogen that we're starting to produce now in some of these some of these other sectors. But that's also an avenue that's being explored and has some potential as well. 

We're even thinking about hydrogen as a way to transport renewable electricity. Maybe there are some cases where it's easier to build a pipeline and move hydrogen than it is to build a transmission line to move electricity when we're talking about situations where we have renewables where the demand isn't and the question of well, how do we move it?

Doug Lewin

Very interesting. Have, have, and you've seen or participated in studies on that particular question or they're just being done?

Emily Beagle

I did not participate, but the Webber Group did put out a white paper comparing moving sort of West Texas renewables to the Houston area via hydrogen pipelines or via transmission lines.

Doug Lewin

Got it, got it. I am familiar with that one. Okay, good. We'll try to link to that one in the show notes. It's coming back to me now. 

All right, so I want to, before we, there's a few different directions I want to go, but before we kind of get more specific, I do want to stay high level for a minute here and just kind of paint the picture as we're in this amazing energy transition right now. Things are really changing quite quickly.

So the IEA in their Path to Net Zero report talked about how we are currently at about 20% of global energy needs are met through electricity. To get to net zero by 2050, that would bump up to 50%. That's a really obviously a dramatic and large increase, but that still means that 50% of global energy is not electricity. And I can't remember, it's been a while since I read that report, I'm presuming they're not thinking that a lot about, like, biomass for cooking is staying in the mix. So the other 50% is molecules. Can you talk a little bit about electrons versus molecules and the sort of, you know.

I think there's a lot of people that think because they hear electrify everything, yes, you can electrify a lot of things, but in the end you really can't electrify everything. Can you just talk about that a little bit before we go into some other specific areas?

Emily Beagle

Yeah, absolutely. Yeah, so I think electrify as much as we can, as long as that electricity is coming from low carbon renewable sources. But there certainly are areas where we can't electrify where molecules are needed. Some of those and that's one of the criteria that I use for the hydrogen use priority prioritization. So things like heavy duty industrial heat, there are just temperatures that we can't get to without a fuel or with electricity, there are certain processes that we can't do just with electricity. So they're just some of these chemical processes where we need molecules or fuels. And so it's less about the energy and more about some of the chemistry that happens in some of these processes. 

Heavy duty transportation, when we're looking at the range and the weight that we need to move when we're talking about trucking or when we're talking about needs for aviation, particularly transatlantic flights, the energy density of batteries, which are electricity, compared to our standard fuels that we're using now, jet fuel, are just not able to deliver the same services that we need and are expected to in some of those applications. And that's why we have to be looking to alternatives and essentially green, low carbon, clean molecules to be able to deliver those same energy requirements where electricity just won't cut it.

Doug Lewin

I think just a lot of the rhetoric I hear out there these days is like, these things aren't really necessary. You hear a lot of discussion around false solutions and things like that. I just think it's important to level-set that even the IEA and its very ambitious pathway to net zero, you're probably not going to be above 50%. Even if they're wrong, even if they're wrong by a lot, there's still a whole lot of molecules in the mix even 30 years from now in a decarbonized system.

Emily Beagle

Yeah, absolutely. And not just true for the IEA, but certainly every net zero, robust net zero scenario that I've looked at has that similar breakdown of electricity, clean electricity plays a big part of it, but it's not everything we need. We need molecules. We also need efficiency and conservation.

Doug Lewin

So we've talked a lot about the sort of use cases for hydrogen. Let's also talk about how hydrogen is produced. So typically these are talked about in terms of colors. The things that I hear the most are gray, which we've already talked about, which is really what it is today. Blue which is using, I think it's still steam methane reforming, but you're capturing the carbon on the backside and then sequestering it. Then there's green where you're using electrolyzers, you're using wind and solar to do electrolysis, you're splitting water and its component parts. So you've got hydrogen H2 and you've got O. So oxygen is basically your pollution there. Sometimes people talk about pink, which is nuclear.

Can you talk a little bit about where, what, what do you think the mix of these things are gonna be going for? And I understand you think it's a little problematic to use these colors. So if you'd indulge me for a minute and talk about the sort of advantages, disadvantages of each one, and then definitely wanna hear your thoughts on maybe why the colors are not the best way to think about this.

Emily Beagle

Perfect. Well, you spelled it out exactly right in terms of sort of the three main colors that we talk about being gray, green, and blue. And so one of the ideas is that since a lot of our, in the United States, nearly all, mostly all of our hydrogen production is that steam methane reforming and natural gas based pathway that adding carbon capture and storage to that either existing facilities or sort of building new facilities that take advantage of our knowledge of how already at scale how to produce hydrogen with that process, but then adding the carbon capture and storage is a big advantage. That would be a big advantage for Texas as a state that produces and have ample resources of low cost natural gas as well. 

Some of the challenges with that, or I would say criticisms of that, of if you're looking at the carbon intensity or the full life cycle emissions of that as a process you have to look at the upstream methane leakages missions as well. So any criticism or concerns about natural gas pathways and leakage and the climate effects of that released methane into the atmosphere would stay true for any pathway that is reliant on so-called blue hydrogen. 

The other place where we see this coming up a lot in the discourse is a geopolitical issue that we're seeing over in Europe as they're looking at how they can respond to the Russian invasion of Ukraine where not only are there concerns about continuing natural gas reliant pathways in a decarbonized world from the emissions perspective, there are now very real concerns about where does that natural gas come from and will they be able to have that. And so there have been some very interesting and dramatic changes to the EU's requirements or their standards or what they're putting forward as their hydrogen policy as they're thinking about natural gas and the very real geopolitical and resource risks that are associated with that as a pathway. So that's one of the concerns, or I should say two concerns, about the so-called blue or any of the fossil-dependent pathways. 

For green hydrogen, which is the electrolysis powered very specifically by renewable electricity, the biggest concern would be where is that renewable electricity going to come from? How much are we going to need? Are we potentially scavenging renewable electricity capacity from places where it would otherwise be able to be used in addition to that makes the hydrogen very, very high in cost. So how can we make that hydrogen, that green hydrogen cost competitive with not only existing hydrogen production, but blue hydrogen, which is lower cost than what we're expecting for green hydrogen.

One of the other, one of the criticisms that I have, the colors you also brought pink hydrogen, because is pink hydrogen – electrolyzers powered by nuclear energy – a form of green hydrogen because nuclear is zero carbon or not? So one of the, you know, there's disagreement about whether green hydrogen includes nuclear hydrogen or nuclear power. And that's one of the challenges about policies that define hydrogen production based on these colors is some of those inconsistencies as well.

Additionally, and we’re seeing this about some of the discussions of the hydrogen in the tax credit in the United States, which I think we'll get a chance to talk about our grid connected electrolyzers because the carbon intensity or the life cycle emissions of that as a way to produce hydrogen is dependent upon the intensity, the carbon intensity of the grid that you're drawing that electricity from. And so, which can double the carbon intensity depending on your grid of unabated SMR. So it's can really add to the carbon emissions associated with hydrogen production if you're using grid electricity to power your electrolyzer. So it's really important to have low carbon electricity as the source within your electrolyzer, but there are challenges with electrolyzer technologies if they try to respond to variable profiles. 

So it's not as easy as sort of plugging it directly into a wind turbine or into a solar panel that could impact the longevity of your electrolyzer, that it could impact the hydrogen production that could cause hydrogen leakage and purging within the system. A lot of unknowns as well still, a lot of research to be done to best understand and improve technologies to respond to variable inputs in electrolyzers. So those are some of the concerns with those pathways.

Doug Lewin

So my understanding of the electrolyzers is there are, there's a class of them that are being built now that are being built specifically to deal with that kind of variability, that they become what, in effect, in the parlance of ERCOT these days would be an LFL, a large flexible load. Most of the discussion in ERCOT around large flexible loads these days is around Bitcoin mining, and it's very controversial and all that. But whenever somebody asks me about, what do I think of Bitcoin mining on the grid? I'm always like, I'm actually much more interested in these other large flexible loads that are coming, including electric vehicles, including direct air capture machines and including electrolyzers. So are you, are you hearing some of that though, that some of these electrolyzers will be able to be more variable so they can actually you know, ramp down when there's scarcity on the grid or when the grid is really dominated by fossil fuels, which really those two things are kind of the same now, right? When the grid is dominated by fossil fuels, it's expensive. When the grid is very renewable, it's very cheap. So they would run, oh, anyway, are you hearing that kind of technology is coming or not so much?

Emily Beagle

Yes, absolutely. And I think in some ways that technology already exists. But we're talking about electrolyzers that have been on the scale of megawatts. And now we're talking about gigawatt size installations. So there's still some research and sort of lab or field testing to show, yes, we have some idea this technology is being developed so that they can respond and then just to actually show at scale and out in the real world that they perform as expected and as the way that they've been designed. But lots of interest in thinking about, and I think opportunity, particularly in environments like what we have here with Texas for electrolyzers to serve as those large flexible loads on the grid.

Doug Lewin

Yeah, and really the economic opportunity, that's pretty extraordinary because you'd be talking about, and we'll come back to this a little later, but the very low energy cost from wind and solar, which is, I haven't looked today, but every day this week, we're talking in February, has been basically zero dollar energy cost in ERCOT basically every day this week.

We're obviously still building a whole lot of solar, some wind, a lot of storage. And then the way we do transmission costs, if you're a variable load, you can actually have zero or near zero transmission costs as well. And then you're adding a $3 a kilogram tax incentive from the Inflation Reduction Act on top of that. Plus whatever, if you are selling the power back to the grid in a period of scarcity, there's money to be made there. So, the economics of green hydrogen specifically in ERCOT are looking particularly favorable. If you want to talk more about that, I'd love to hear your thoughts about that, but also want to understand that $3/kilogram tax credit, what's called the 45V tax credit. There's some guidance from the Treasury Department recently on this, which does require, you were talking about earlier, one of the potential problems with green hydrogen is you're using renewables that would have gone other places, or you're pulling from a grid from a dirtier mix. My understanding is this guidance does put in place some safeguards against those things happening. So yeah, if you want to talk about the ERCOT economics, but also the 45V, I would love to hear it.

Emily Beagle

Yeah, absolutely. I'll say that this last summer when some of the news about the amount of money that Bitcoin mines were getting just because they turned off during those periods of high demand, my colleagues and I sat down and said, well, what if electrolyzers could do that? So we're in the process of trying to better understand the economic potential for electrolyzers, specifically in the context of Texas and some of these large flexible loads and demand response programs that ERCOT has. So we don't have the full results on that but I would expect that given, as you mentioned, that as an opportunity unique to Texas, coupled with the tax credit, an opportunity unique to the United States will be very impactful in addressing the economic challenges that green hydrogen has and coming within the system. 

In terms of that tax credit, so that was the 45V Clean Hydrogen Production Tax Credit that was passed in the Inflation Reduction Act. It's a really neat tax credit, I'll say, as a policy, a little bit of a policy nerd, a policy wonk myself, because it is tiered in value in that the amount of credit that you get changes based on the emissions intensity of your hydrogen. So hydrogen, by definition or standard here within the United States, becomes, quote, “clean” if its carbon intensity is less than four kilograms of CO2 per kilogram hydrogen. So the way that 45V tax credit is structured is sort of the lowest or the highest emitting eligible hydrogen, which I think is between two and a half to four kilogram CO2 per kilogram hydrogen can earn up to 60 cents a kilogram hydrogen. And then between one and a half and two and a half kilogram CO2 per kilogram hydrogen, they can earn up to 75 cents. It's between 0.45 and one and a half, it can earn a dollar. And then that lowest emitting tier, which is where everyone is really focusing on, so hydrogen that has a carbon intensity of less than 0.45 kilogram CO2 per kilogram hydrogen can earn up to $3. So there's a really big jump even just from that $1 to $3 between those two lowest emitting tiers, but also a lot between that 60 cents and $3. 

The other thing that I'll note that I think is missed a lot is that those values, that $3 includes hydrogen that meets the bonus tax credit requirements, which for 45V are prevailing wage and apprenticeship programs, I believe. And so projects would have to meet both of those requirements as well as being able to show that they have life cycle carbon intensity of hydrogen production of less than 0.45 kilogram CO2 per kilogram hydrogen. 

So pretty stringent standards, both in terms of the bonuses, but also in terms of that life cycle emission intensity. And that is really impactful and pretty stringent for both main production pathways, both abated fossil gas and electrolyzers, even with renewable electricity.

Doug Lewin

And then didn't they also put out some guidance around like hourly matching and new sources have to be built in the last three years, I think. Is that right?

Emily Beagle

Yes, yes, that's right. Thank you for reminding me of the rest of your question there. Yes, so the Treasury Department released their initial guidance, so their proposed guidance for this tax credit, specifically for grid-connected electrolyzers, because there were a lot of producers that were concerned. There are a lot of limitations to areas with renewable resources and concerns about trying to directly tie. So they issued their guidance for grid-connected electrolyzers to be able to show that they are using low-carbon electricity to qualify for the tax credit and the three criteria for that guidance.

The first is, and they're calling it incrementality, but it's basically additionality, which is the more common term in the electricity space, which essentially is that any renewable generation used for the hydrogen must be additional or new to the system. So in the case of this guidance, I believe it has to be built within three years of the hydrogen production coming online. So sort of new renewable electricity is the first standard.

The second standard is a geographic requirement. So the electricity has to be produced in the same region as the hydrogen. 

And then the third requirement is the temporal requirement. So the renewable electricity has to be generated within the same time as the hydrogen production. And that starts as an annual requirement, and then in 2028 transitions to an hourly matching requirement.

Doug Lewin

So interesting. So this hourly matching in the 24/7 clean energy, Google has done a lot of work on this. It's gonna be really interesting. I think that this is gonna give an even bigger push to that. And yeah, there's a lot of ways that could play out and I have a million follow-up questions, but there's so many different things I wanna ask. So I'll stop there.

I do wanna talk to you about the HyVelocity Hub. But just one other question though, before we go there, when we were talking about the challenges and potential drawbacks of green hydrogen, you may have said it and I may have missed it, but isn't water one of those as well? You do need a lot of water, right? That's your feedstock, I mean, wind and solar, but you're using, you're splitting water and you have to have fresh water right? Or can you use brackish water? Talk about the water impacts of green hydrogen and how much of a barrier that is, or are those concerns overdone? I don't know.

Emily Beagle

Yeah, yeah, that is a really great point because water is an important feedstock for both pathways. So in the case of electricity, electrolysis, water is what we're actually splitting to get the hydrogen from. But in the case of steam methane reforming, steam is water. So there's water needed for part of that reaction in that process as well, as well as water that is consumed for cooling in those processes. So water for both of those pathways is required to produce the hydrogen. 

In the case of the electrolysis pathway, it does need to be very high quality water because it's going into the electrolyser and it's what we're actually splitting, which is different from the water requirements for steam methane reforming. 

The water consumption for hydrogen is, I think, an interesting and important issue that I'm glad to see being brought up as part of the discussion. It's something that we're thinking about and doing water quantity required even for electrolytic hydrogen production and particularly compared to the amount of water we currently use in our energy system, I think a lot of people don't realize how much water we currently use in the way that we produce energy both with produced water that we have from extraction of oil and gas and then water that we use at cooling thermal plants and all of that. 

So, compared to the amount of water we currently use for our fossil energy system the water quantity required by a future hydrogen economy is pretty small, in some cases negligible. However, water quality is an important part and water resource availability is very regionally specific. So I think there's one area of taking a global estimate of the amount of hydrogen that we would need and the amount of water to support that hydrogen and saying, oh, it's small compared to the amount of hydrogen we use for fossil systems, and we're replacing those fossil systems with hydrogen. So theoretically, we wouldn't be consuming more water, we might get water benefits by switching to hydrogen because we replaced lower water consumption. However, that becomes very different when you start proposing projects in places like parts of Texas that are subject to drought and saying, we're going to take your fresh water in a time of drought and use it to produce hydrogen. So getting to those more regionally specific considerations of hydrogen production and the water consumption required for it is an important part of conversations with communities and regional areas where these projects are being developed.

Doug Lewin

So this may be too far out there, and this may just be a terrible idea, but I'm wondering if this comes into the discussions. I mean, could you not conceivably, you talk about areas of the state where there's not a lot of fresh water, but there's a lot of times in those areas, a lot of brackish water. Could you use wind and solar to effectively, like desalinate, clean up that water, then feed it into hydrogen, feed it into your electrolyzer, create hydrogen and sort of create this loop or cycle where you're purifying water and then using that water to split and make more hydrogen.

Emily Beagle

Yeah, I think so. That's some research that we're looking at. We're looking at possibilities of reusing produced water from the Permian Basin in Texas as a feedstock to produce hydrogen in that area, since that's the area where we also have the best renewable resources. From some initial analysis that we've done, it looks like the cost of water is such a small part of the total cost of producing hydrogen. The biggest costs are the capital costs of the electrolyzer itself, and then the cost of the renewable electricity.

So you could pay a lot more for water by adding pennies to the dollar on the total cost of hydrogen. So if you think about costs of treating brackish water or costs of treating produced water, hydrogen might be easily able to absorb those without having a meaningful increase on the final results of hydrogen. And so that's one exciting opportunity to explore, which sort of both lends as a way to add a value to produced water, which is an in of itself a problem in parts of Texas, managing that as a waste, while also providing that critical feedstock for a future hydrogen economy in that part of the state as well. So we're excited to see and continue some work looking at that as a possibility.

Doug Lewin

Yeah, that just seems like one of those areas that's just really ripe for some creative policy thinking because like you said, it's solving multiple problems at once. The problem, produced water sounds so benign, but we're talking about water that has, it's not produced, it has all sorts of toxic stuff in it. And if you could clean that up and then put it to good use, that's a win, win. You could keep going down the line, right?

Emily Beagle

Yeah, yeah, absolutely, absolutely.

Doug Lewin

Yeah. Okay, great. All right. So you mentioned just a minute ago, electrolyzers and how that's the largest cost for green hydrogen. Are we seeing any kind of a learning curve? It's probably just too early because there really aren't many deployed yet, right? But we do expect there to be some kind of reduction hopefully following the path of like solar and storage with like a 90% decrease, but is that too optimistic? Do we think this is gonna be a much slower or we're all just guessing, we don't know.

Emily Beagle

That's the hope and the expectation from what I've seen. Very significant cost declines in electrolyzer CapEx curves, for sure.

Doug Lewin

Okay, all right, let's talk about HyVelocity. So this is the hub, one of the seven hubs the DOE has announced as the winners of what was a very long and difficult competition. And I know you had some involvement there. Can you talk a little bit about both the HyVelocity hub, what it is and what you expect to kind of come out of there? And I'm also interested in this whole concept of hubs, right? I mean, there was a great discussion, and we'll link to this in the show notes, that Michael Liebreich and Jesse Jenkins had on a Canary Media podcast where Michael Liebreich, who's written a lot about hydrogen, separating hype from hydrogen, he calls it, and really trying to, like you were doing with the prioritization, get clear about what hydrogen's good for and what it's not, he really emphasized that like, hubs are where it's at, because you need to have these sort of ecosystems of production and demand because you don't want tax credits just creating something because there's a tax credit that doesn't have a use. So you need these hubs where it can be put to use. 

So I'm interested in your sort of thinking around these hubs. Do you share Michael Liebreich's view that they're really important for that reason, are they important for other reasons, but also just, yeah, what is HyVelocity and what do you expect?

Emily Beagle

Yeah, absolutely. Well, maybe I'll start with the high-level discussion of the concept of hubs and the US federal regional clean hydrogen hubs before talking about HyVelocity specifically. 

So the regional clean hydrogen hubs program $8 billion that was allocated in the bipartisan infrastructure law to create this program and then went to DOE. And there are a number of requirements, the first of them being that they're required to take this hub design, which in that legislative language means that the production and the demand need to be co-located. So you're essentially creating this hub, this ecosystem, you're eliminating the need for extensive distribution infrastructure where you have production and consumption co-located in this hub sort of environment.

And across the full suite of hubs that the DOE is supporting they're required to demonstrate hydrogen production from renewable energy, from fossil energy, and from nuclear energy. They're also required to demonstrate, so at least one hub must demonstrate hydrogen use across our four key sectors, so heating, industry, transportation, and in the power sector. And then they're also required to be in different regions of the United States, and at least two of them need to be a natural gas producing region.

If you look at the total portfolio, those seven hubs that were selected last October to be award recipients from the DOE, you can sort of see that they meet. They're all in different regions on the map of the U.S. And you can see that across them, they meet all of these different requirements. 

And so, as you mentioned, Texas got our hub, our HyVelocity hub, which will be centered around the Gulf Coast area. As you also mentioned, and I'll disclose, I was a member of, UT is a part of that, hub and I was a member of the UT team that worked on putting that application together. So very excited not just as a researcher who is interested in expanding the hydrogen economy but specifically because of the work that I did on that application to see that the Texas hub was selected. We've alluded already to a number of reasons why Texas is a fantastic place for a hub which was a strong part of its application including we already kind of have an existing hydrogen hub within the state with all of the production and consumption that we have in that Gulf Coast area where this hub will be located. 

So that hub was awarded $1.2 billion and I suppose I should put a caveat that we don't have any of that money yet. We're still in negotiations. There are a number of phases. So this is not a program where the hub is just going to get a cut, a $1.2 billion check from DOE, but that was the amount of money put forward or suggested for the HyVelocity hub. 

It's expected that the HyVelocity hub will create over 45,000 jobs and reduce over 7 million tons of CO2 each year. It will have multiple hydrogen production pathways, so it will demonstrate hydrogen production from both kind of that traditional abated SMR plus CCS or that “blue” pathway, and also will have renewable hydrogen in there as well, so we'll get both of those within the hub.

And then it's also looking to use hydrogen, sort of across all four of those sectors for heating, for transportation and industrial applications, and also in the power sector. So it will be really exciting to see. I think there are seven or so main project partners and projects that are part of that hub, members such as Orsted, ExxonMobil, Chevron, Sempra, Air Liquide, and others as well as sort of GTI Energy, UT, and HARC are all partners on that hub, and hundreds of other supporting partners, so a really extensive coalition, all coming together with the focus on catalyzing a hydrogen economy in Texas. So very excited to see that go forward.

Doug Lewin

That's incredibly exciting. I didn't realize, so you're saying HyVelocity is actually gonna hit all four of those: heating, industry, power and transportation, or you're saying the seven, just the one hub is gonna hit that.

Emily Beagle

Yeah, HyVelocity, yeah. All of the hubs will hit hydrogen in multiple different sectors, but at least, and I should maybe caveat that as well, at least with the publicly available information that all of the hubs have released about their plans. So what I've been able to find, it seems that HyVelocity is the only one, to my knowledge, that we'll have across all four of those sectors.

Doug Lewin

And when you talk about heating, we're talking about heat for… like steelmaking or other industrial uses, not for homes or buildings, right? 

Emily Beagle 

Yeah. 

Doug Lewin

Okay. Great. And on transportation, similarly, we're talking about trucking, which I guess makes sense because there's a lot of trucks coming in and out of the ship channel. 

Emily Beagle

Yeah. 

Doug Lewin

Okay, great. That is super exciting, I mean, that mix of industry partners is really compelling. One of the things on that, that Canary Media event I was talking about with Liebreich and Jenkins. One of the things on that, the event that Canary did that I was just talking about with Liebreich and Jenkins that they had raised concerns about, particularly Liebreich had, is the demand side of this. Given how beneficial this tax credit is, there was just a lot of discussion around