Insight

Why Reliable Hydrogen Supply Plays a Critical Role in the Adoption of Fuel Cell Technologies

April 12, 2024

As the hydrogen industry continues to develop and evolve, many industries, including the manufacturing, transportation, construction, industrial, and retail industries have transitioned parts of their operations to incorporate hydrogen and fuel cell technologies.

The demand for hydrogen exists. More and more companies use hydrogen fuel cell powered material handling equipment such as forklifts, airport tugs, and wheel loaders. This is likely due in large part to the many benefits that hydrogen fuel cell powered vehicles and equipment have to offer. In addition to being a zero-emission technology that can help to reduce emissions in the working environment, these benefits include the ability to operate at full power without loss of voltage before refueling, withstand cold environments, and refuel quickly.

The transition to using hydrogen as a decarbonization tool and hydrogen fuel cell technologies in vehicles and equipment are backed by substantial government funding and incentives that support the continued development of hydrogen infrastructure and fuel cell technologies, the production of clean hydrogen, and investment in hydrogen production facilities.

It is also supported by federal and state mandates, commitments, and strategies that prioritize decarbonization of hard-to-abate sectors, including the transportation sector. The National Zero-Emission Freight Corridor Strategy, issued on March 12, 2024 prioritizes and sequences the deployment of zero-emission medium-duty and heavy-duty vehicle charging and hydrogen fueling infrastructure in key hubs and corridors over four phases between 2024 and 2040.

States such as California have mandated the transition to zero-emission vehicles. The Environmental Protection Agency’s (EPA) greenhouse gas (GHG) pollution standards are also expected to accelerate the development and deployment of zero-emission vehicles.

The EPA recently announced stronger standards to reduce GHG emissions from heavy-duty vehicles beginning in model year 2027 in a final rule issued on March 29, 2024 (the Greenhouse Gas Emissions Standards for Heavy-Duty Vehicles – Phase 3). These new standards apply to heavy-duty vehicles, which account for 25% of all GHG emissions from the transportation sector.

Incorporating and deploying hydrogen fuel cell technologies at scale will require consideration of a multitude of factors, including the production, transportation, and storage of hydrogen, the buildout of a nationwide infrastructure, and the availability of reliable hydrogen supply.

Hydrogen Production

Hydrogen can be produced in several ways, using different sources, and in various locations. The more common methods for producing hydrogen are steam methane reforming and electrolysis—i.e., splitting water with electricity. Hydrogen can be produced from a variety of sources, including natural gas, biomass, and electricity, which all play into the overall environmental impact of the produced hydrogen.

For example, green hydrogen is produced by electrolysis of water using renewable electricity and is a clean and sustainable energy source, whereas grey hydrogen is produced from natural gas using steam methane reformation without capturing the greenhouse gases made in the process.

Hydrogen remains a relatively expensive fuel to produce. And, when production costs are combined with the cost of delivering the hydrogen to the end user and potential cost of storage, the overall cost of using hydrogen balloons to a level that often prices out hydrogen as an economical option.

However, federal tax incentives and credits available at the state level, such as the California Low Carbon Fuel Standard (LCFS) credits, can help reduce the overall cost. The Inflation Reduction Act made available a clean hydrogen production tax credit under Section 45V of the Internal Revenue Code, as well as an investment tax credit under Section 48 of the Code, which should help incentivize the production of hydrogen and development of hydrogen production facilities. These tax incentives are discussed in detail in a previous Morgan Lewis LawFlash.

The impact of the Section 45V tax incentives on the hydrogen industry will turn on the eligibility requirements and how strictly the “three pillars” of temporal matching, additionality (or incrementality), and geographic correlation (or deliverability) will be applied under the final guidance and regulations that are forthcoming.

Hydrogen Transportation

Hydrogen can be produced at a location that is relatively close to the point of consumption, but it often requires some form of transportation to the end user. While gaseous hydrogen can be transported by pipeline, the availability and reach of hydrogen pipelines is limited, as the existing infrastructure is largely concentrated in specific regions of the United States, including the Gulf Coast and California.

The expansion of the hydrogen infrastructure and network that is needed for nationwide transportation and distribution of hydrogen across the United States is underway through efforts such as the US Department of Energy’s Regional Clean Hydrogen Hubs Program.

Hydrogen can also be transported in compressed form by truck, ship, or barge in high-pressure gaseous tube trailers or by liquid tanker trucks, which remain costly options.

Hydrogen Storage

Once produced or delivered onsite, hydrogen can be stored as a gas or a liquid. Storing hydrogen as a gas requires high-pressure tanks, while storing it as a liquid requires well-insulated cryogenic storage vessels. The Department of Energy has made available funding to support the research, development, and demonstration of hydrogen storage vessels, hydrogen fueling and transfer components, and other technologies to improve the performance of hydrogen fuel cells and the development of hydrogen storage vessels and storage and delivery methodology that address the challenges associated with hydrogen fuel cell technologies.

Whether hydrogen can be stored onsite depends on several factors, including whether the site can accommodate the equipment needed to store hydrogen. For example, warehouses that utilize forklifts and equipment powered by hydrogen fuel cells will need to account for the equipment needed for hydrogen refueling. Fueling stations will need to do the same, and if they are developed at existing stations, the equipment may need to be configured to accommodate the existing layout.

Importance of Affordable and Reliable Hydrogen Supply

Maintaining an affordable and reliable supply of hydrogen remains one of the most significant issues faced in the use of hydrogen and adoption of fuel cell technologies. The availability, accessibility, and development of hydrogen production, transportation, and storage infrastructure impact the ability to maintain the necessary hydrogen supply at points of end use, including refueling stations, as well as the end user’s confidence in fuel availability and willingness to transition to using hydrogen fuel cell powered vehicles or equipment. Hydrogen supply issues have been one of the main causes for downtime at hydrogen refueling stations, and the recent spikes in the price of hydrogen have also created challenges.

In addition to focusing on advancing the development of the technology itself and expanding the existing hydrogen infrastructure, promoting and ensuring an affordable and reliable hydrogen supply has been another key area of focus. The regional hydrogen hubs are expected to increase the sources and the amount of hydrogen available, and new hydrogen production plants and upgrades to existing projects are underway.

The advancements in hydrogen fuel cell technologies, hydrogen infrastructure, and the market as a whole are expected to drive more widespread adoption of hydrogen fuel cell powered vehicles and equipment and an increase in the demand for hydrogen. As companies continue to focus on their decarbonization efforts and make progress toward achieving their emissions reduction commitments, transitioning to less emission-intensive options that are viable from an economic and practical perspective is expected to remain a key focus.

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