The hydrogen gold rush is on. Spurred by the urgency of the climate crisis, and attracted by generous incentives in last year’s Inflation Reduction Act, companies ranging from oil majors to small start-ups are pouring money into the Next Big Thing in energy: a fuel that is flexible, transportable and carbon-free.
Is hydrogen a critical piece of the decarbonization puzzle that needs floods of new funding, or an over-hyped, not-ready-for-prime-time financial boondoggle?
At this point the answer seems to be both.
In his 2022 Energy Plan, Virginia Gov. Glenn Youngkin touted hydrogen as “a once-in-a-lifetime opportunity to reimagine Virginia’s future and meet energy needs through an abundant, dispatchable, and zero-emission fuel source where water is the only required input.”
This statement has its problems, including the fact that water is actually not the only required input. Making hydrogen from water requires a lot of energy, which must come from some other fuel. Therein lies the rub.
One way to make hydrogen — and the method everyone is talking about — is using electricity to split water (H2O) into its components, hydrogen and oxygen, through electrolysis. Energy is lost in the process, so there is no point in using hydrogen for anything that can plug into the grid. Hydrogen is also more expensive and less efficient than battery storage, which explains why automakers are focusing on electric vehicles rather than ones that run on hydrogen fuel cells.
Yet some kinds of transportation (aviation, long-haul trucking) and many industrial processes are hard or impossible to electrify, at least for now. Hydrogen, ammonia and other products can often replace fossil fuels for these uses, and perhaps also play a role in long-term energy storage for grid power.
Recognizing this potential, last year’s Inflation Reduction Act included a range of incentives to spur investment in so-called green hydrogen, defined as hydrogen made from renewable energy. Growing the supply of green hydrogen will require a massive buildout of wind and solar as well as years of technological refinement, but airlines, steelmakers and other customers are already either starting to use green hydrogen or say they want it for their operations.
Unfortunately, any time the government dangles a subsidy, some businesses will look to exploit any opening to grab free money, even if the result is contrary to the whole point of the subsidy. Those businesses do find champions among politicians who are more interested in generating economic activity than in making sound public policy (or maybe they just confuse the two). But getting the rules right is critical for the climate, and for making sure customers get the carbon-free product they sign up for.
Hydrogen is already used in many industrial processes and in the manufacture of fertilizers but today it is mostly made from methane gas, at half the cost of green hydrogen. Oil companies like Chevron have urged that to build the market quickly, making hydrogen green is “secondary” to making it affordable.
This is all wrong. The great promise of hydrogen is the potential to make it from renewable energy once wind and solar have scaled up so much that there is a glut of cheap, emissions-free power.
That is not the situation today. Nationally, fossil fuels make up 60% of electricity generation, with all renewables together representing 21.5%. The regional grid that serves Virginia includes less than 10% wind and solar in the generation mix. Renewables are growing fast while coal shrinks, but few states have so much renewable energy that some of it occasionally goes to waste. California has experienced this under ideal conditions, and is likely to be the first to have surplus renewable energy on a predictable basis.
The challenge is that a company that invests in the capital costs of a hydrogen production facility may not want to run it only when there is surplus wind and solar. These companies will make the most money by running their electrolyzers around the clock; profitability might even depend on it. Their choices are to build new renewable energy and battery storage for their own purposes and cut back production when they have to, or manipulate the rules.
So as the U.S. Treasury Department writes the rules around eligibility for green hydrogen incentives, corporate America is asking for loopholes. NextEra, the world’s largest renewable power generator, wants to be allowedto use fossil fuels to fill in whenever there isn’t enough wind or solar energy on the grid, without losing the “green” designation and all the subsidies that accompany it. The company proposes buying carbon credits as an offset.
The proposal makes climate advocates very uneasy. We have seen this movie before. When the federal government first offered subsidies for ethanol made from corn in the 1970s, the idea was that blending American-made ethanol into gasoline would reduce our dependence on foreign oil and lower greenhouse gas emissions.
Forty years later, the program still consumes some 30 million acres of corn every year, and is estimated to have cost taxpayers billions of dollars, all while actually harming the climate. But just try scaling back ethanol subsidies today. Any politician who proposes such a thing gets their head handed to them by the powerful farm lobby.
That makes it really important that rules set into place today for hydrogen and other “green” fuels do not compromise on the requirement that they be made from carbon-free sources. Make an exception once, and we’ll never close the loophole.
This article was originally published in the Virginia Mercury on April 25, 2023.
Virginia’s first commercial offshore wind farm is on track to start construction next year and to be fully operational in 2026. The Coastal Virginia Offshore Wind (CVOW) project being developed by Dominion Energy will be the single largest offshore wind farm in the U.S. and among the first full-scale commercial wind projects built in U.S. waters.
Yet it has taken us 10 years to get this far. Future projects will have shorter timelines now that the industry is gaining its footing and government bodies have figured out how to regulate it. Even so, the complexity of planning, permitting and building giant wind turbines 25 miles out in the ocean means Virginia needs to start planning the next project now to ensure that the supply chain businesses that have located here, and the workers we are training to build CVOW, still have reason to remain in Virginia come 2027.
For most Virginians, offshore wind may still feel experimental because it has produced only two small projects in the U.S.: a 5-turbine wind farm off of Rhode Island’s Block Island built in 2016 and a two-turbine pilot project 27 miles out from Virginia Beach that started generating power in 2020. But at least 30 other projects are underway up and down the East Coast, including one currently under construction off Massachusetts and another off of New York that will begin construction this year. Plans are also underway for wind farms in the Great Lakes, off the West Coast and in the Gulf of Mexico.
Together these projects add up to more than 53,000 megawatts (MW), exceeding the Biden Administration’s 30,000 MW by 2030 goal – enough to power 10 million homes with clean, renewable energy. According to the U.S. Department of Energy, independent forecasts show that goal to be solidly realistic. The U.S. offshore wind industry itself recently announced a longer-term target of 110,000 MW, reflecting the business community’s expectations for growth.
The industry is also far more mature in other parts of the world. Global capacity passed the 50,000 MW milestone last year, and the global pipeline stands at more than 368,000 MW. (Surprise, surprise: China is eating our lunch, installing 13,790 MW in 2021 alone.)
Perhaps the most compelling evidence for the promise of the offshore wind industry in the U.S. is the size of industry events. In the course of a dozen years, U.S. offshore wind conferences have gone from gatherings of a few hundred academics, environmentalists and entrepreneurs in a hotel ballroom to the nearly 4,000 business people and hundreds of exhibitors who packed the Baltimore convention center at the end of March for the Business Network for Offshore Wind’s International Offshore Wind Partnering Forum (IPF).
Often the governor of a state hosting one of these annual conferences uses the occasion to unveil new goals or infrastructure investments; Maryland Gov. Wes Moore did not miss his chance this year. He announced that Maryland plans to develop 8,500 MW once the federal Bureau of Ocean Energy Management makes new lease areas available, a goal behind only New Jersey’s 11,000 MW target and New York’s 9,000 MW. Virginia’s goal begins to look cautious by comparison.
The industry does face challenges. Inflation and supply chain issues have disrupted timelines and threatened profitability. There aren’t enough workers. Transmission constraints hinder the ability to get power to customers. Permitting is a pain in the neck. Here in the mid-Atlantic, it’s hard to identify new areas of the ocean suitable for wind farms, in large part because the Department of Defense wants it all for itself.
Other challenges are more of the good kind, such as the fact that wind turbine sizes are increasing faster than ships capable of transporting and installing them can be built. Larger turbines mean more power at less cost, and no one is quite sure what the upper size limit might be. On land, the difficulty of transporting blades that can be the length of a football field means turbines are limited to about 3 MW. Fabricating parts at coastal facilities allows turbines to scale up as far as physics and advanced material manufacturing allow.
Dominion installed 6-MW turbines for its pilot project, which was seen as the new standard a few years ago. Today the company plans to use 15-MW turbines. Each one of these massive turbines is said to produce enough energy to power 20,000 European households. I have not seen that figure translated into U.S. suburban McMansions, but it is still an eye-popping amount of emissions-free power from a single structure.
Oh, and Dominion handled the installation ship issue by building its own vessel, which it will rent out for the Massachusetts and New York projects until it is needed for Virginia’s and others in the queue. Problem solved, at least for Virginia, though the industry needs many more ships.
Will the cost of energy come down?
Virginia’s CVOW project has been criticized for its high overall cost, largely the result of our immature domestic industry. The Biden Administration has set a goal to lower costs by one-third by 2030. If history is any indication, this should be readily achievable. A National Renewable Energy Laboratory (NREL) analysis shows costs have fallen by more than half since 2016, and projects that by 2030, the levelized cost of energy from offshore wind turbines will fall by another third.
Scaling up turbines to capture more wind energy is one approach to bringing the per-kilowatt-hour price down. Economies of scale, a U.S. supply chain, and a range of innovative technologies are all expected to contribute. And of course, the Inflation Reduction Act, with its tax credits for domestic manufacturing and renewable energy, is creating a gold rush of sorts, as companies compete to get a piece of the action.
Another significant factor in reducing costs is automation and machine learning. Some of the gains are incremental, such as optimizing turbine operation and improving turbine siting through improved wind and wake modeling. Other advances seem like windows into a future where robots take charge. Multiple exhibitor booths at IPF displayed crewless, self-piloting survey and depth-monitoring vessels and underwater robots capable of doing more tasks than humans can. Biologists and geologists stay comfortably ashore while on-board computers collect information at sea around the clock and send the data back.
Today’s innovation will inform the next great leap forward for the industry: floating wind turbines that open deep water to energy production. Right now, floating turbines must be tethered to the seafloor and connected to cables to bring power to shore. For various reasons this technology is more expensive than fixed-foundation turbines, but here, too, the industry expects to become competitive in the future.
Some people are thinking much bigger. Walt Musial, a principal engineer at NREL who is one of the top researchers in the field, gave an IPF audience a look into the future. There, automation and AI could make it possible for unmoored, cableless turbines to pilot themselves around the oceans, chasing the best winds, avoiding hurricanes and turning electricity into liquid fuels like ammonia to drop off at ports of call or offshore “energy islands.” Musial even referred to these turbines as “vessels,” evoking a whole new kind of wind-powered transportation.
It’s a great time for workers entering the industry — if you can find them
Though un-crewed, AI-directed traveling wind turbines may be the future, the present still requires foundations, cables, service vessels and, especially, a large workforce. Attracting and training an offshore wind workforce has become such an urgent issue that the topic earned its own track at IPF.
To its credit, this heavily male, heavily white-dominated industry says it is committed to recruiting a diverse workforce and ensuring equitable development of offshore wind, also a goal of the Biden Administration. It will have to; right now, no one has enough workers, so finding them means recruiting from overlooked communities and addressing the social and economic barriers that have kept many people out of the skilled labor force.
While not new to other large infrastructure projects, Community Benefit Agreements with detailed commitments covering local job creation and other investments, are new for offshore wind. Dominion has not entered any such agreement in Virginia, but as part of its case before the State Corporation Commission last fall in which it received permission to proceed with CVOW, the company signed a stipulation agreeing to an extensive and diverse community outreach program. Eileen Woll, Offshore Energy Program Director for the Sierra Club’s Virginia Chapter, told me Dominion is following through on this pledge.
Woll is also part of a task force made up of academic and community groups from the Hampton Roads area that has developed a plan for community engagement and outreach to identify potential workers from harder-to-reach demographic groups. She told me the “Breaking Barriers” project team has applied for a $500,000 grant from the U.S. Department of Energy to fund their work.
Halting steps towards Virginia’s next project
The Virginia Clean Economy Act made special provision for Dominion’s CVOW project as part of an overall target of 5,200 MW. If CVOW makes up 2,600 MW, where will the rest come from? A project under development off Kitty Hawk, North Carolina, would connect to the grid in Virginia Beach, but Dominion has shown no interest in buying the power; nor has Duke Energy. Dominion makes more money acting as its own developer. Huge energy users like the data centers operated by Amazon Web Services in Virginia could absorb all the energy from several Kitty Hawks, but Amazon hasn’t stepped up either.
Meanwhile, the federal Bureau of Ocean Energy Management (BOEM) has identified 1.7 million acres offshore North Carolina, Virginia, Maryland and Delaware with potential for new leasing. The challenge is to make space for wind in an area already claimed by fishing interests, the Coast Guard, and the Department of Defense. If Virginia leaders are serious about building an enduring offshore wind industry here, they will have to engage in some tough negotiations.
For his part, Gov. Glenn Youngkin seems to be trying to ensure that the next Virginia project will be subject to competitive bidding to avoid a repeat of the process that made Dominion Energy the sole developer and holder of the only Virginia lease area. The governor amended an offshore wind bill from Sen. Mamie Locke, D-Hampton, that was something of a nothingburger as passed by the General Assembly. Youngkin’s amendment turns the legislation into a plan requiring Dominion to work with the State Corporation Commission and other government agencies on a competitive solicitation process for the next offshore wind project.
There is no guarantee that this will work, given that BOEM awards leases to high bidders. But if BOEM offers multiple wind energy areas for lease near Virginia, and awards the leases to multiple developers, then an SCC-led competitive process seems feasible, with a better result for consumers.
The governor’s language may have been inspired by a House bill from Del. Suhas Subramanyam, D-Loudoun, that would have had the SCC study the ownership structure of offshore wind projects and report on how to achieve the best outcome for consumers. Republicans killed that bill, but presumably they will be more open to promoting competition when the idea comes from their own party.
The General Assembly will consider the governor’s amendment when it reconvenes on April 12. Let’s hope his amendment indicates that Youngkin is ready and willing to start the next phase of Virginia’s offshore wind industry.