Tax credit rules at last, plus sunshine, power... and insurance

After much delay – including “consideration of roughly 30,000 public comments” - the US Department of the Treasury and Internal Revenue Service (IRS) released the final rules for the section 45V Clean Hydrogen Production Tax Credit, established by the Inflation Reduction Act.

Perhaps the highest profile change to what had been formerly proposed is to the so-called ‘temporal matching’ requirement. This requirement covers green hydrogen projects “seeking to use Energy Attribute Certificates (EACs) to attribute electricity use to a specific generator”.

From 2030, the requirement will be that “the electricity represented by the EAC is generated in the same hour as a hydrogen facility uses electricity to produce hydrogen”. This is now in line with the hourly-matching date proposed in Europe, and is two years later than was originally planned. Up until 2030, projects can stick to annual matching (which is more lenient than Europe’s monthly requirement).

However that isn’t the only noteworthy item in these final rules.

A retained existing requirement is what the Treasury and IRS call ‘incrementality’ (usually termed ‘additionality’ in Europe), designed to make sure that electrolysers don’t simply divert existing clean electricity supply away from the grid and into hydrogen production.

The core rule there remains that “if the generator begins commercial operations within 36 months of the hydrogen facility being placed in service” (or increases its capacity in that same period), then this is deemed incremental. Again, that matches the European constraint.

However one or two interesting additions have been made to this rule in the US.

For one, “electricity produced by nuclear plants meeting certain indications of being at risk of retirement and certain indications of co-dependence on hydrogen investment” will count, providing an interesting business incentive to keep those going. Also, “electricity from a generator that has added CCS within a 36-month window before the hydrogen facility is placed in service will be considered incremental” too. So fossil-fuelled generators could even play a role.

And thirdly, if particular states are deemed to have “robust greenhouse gas (GHG) emissions caps paired with clean electricity standards or renewable portfolio standards”, then grid electricity can be deemed incremental. In practice, at present, the US Treasury “has determined that Washington and California’s policies currently meet these criteria”.

Finally, the new rules aren’t all focused on electrolytic hydrogen production.