The U.S. Department of Energy is offering $8 billion in funding to create a network of six to 10 sites across the nation to develop and commercialize hydrogen made from renewable energy such as wind and solar. Hydrogen can be used as a fuel, to generate electricity, or for industrial applications — including making fertilizer and refining petroleum. Most hydrogen today is produced using natural gas, a fossil fuel which is accelerating climate change.
Lake Oswego-based Obsidian Renewables is one of the energy companies applying for funding from the Department of Energy’s regional clean hydrogen hubs program. It wants to build a pipeline connecting two facilities located in Hermiston and Moses Lake, Washington, to generate hydrogen primarily from wind and solar power.
The Pacific Northwest Hydrogen Association, a public-private partnership that includes the Washington Department of Commerce and the Oregon Department of Energy, is also competing for federal dollars to spur investment in clean hydrogen projects. The details of its proposal have not been made public, but the association claims it could create tens of thousands of jobs to supply the aviation, agriculture and other industries with green hydrogen.
Joining us are Ken Dragoon, the director of hydrogen development at Obsidian Renewables, and Rebecca Smith, a senior energy policy analyst at the Oregon Department of Energy.
The following transcript was created by a computer and edited by a volunteer.
Dave Miller: This is Think Out Loud on OPB. I’m Dave Miller. If the federal government and a growing group of entrepreneurs and a bunch of folks in state governments have their way, we could be about to enter a golden age of hydrogen production in this country. The Feds are offering $8 billion to consortiums around the country that will develop and commercialize hydrogen made from renewable energy. Some folks in the Northwest are eager to get some of that. Ken Dragoon is among them. He is the director of hydrogen development at Obsidian Renewables, which is seeking a $700 million grant. He joins us now along with Rebecca Smith, a senior energy policy analyst at the Oregon Department of Energy. Welcome to you both.
Ken Dragoon: Thank you for having us.
Rebecca Smith: Thanks.
Miller: Ken Dragoon, first. I thought we should start with some real basics. What are we talking about when we talk about hydrogen?
Dragoon: Hydrogen is the most abundant element in the universe and it’s mostly found on earth bound up with water. It’s also bound up in fossil fuels. We make and use about 10 million tons of hydrogen a year today for things like oil refining, it’s the biggest use, and the second biggest use is making ammonia for nitrogen fertilizers.
It is also a fuel. It has the advantage that when you combust or you use the energy from hydrogen, it can be turned into electricity or heat without creating carbon dioxide. So it’s seen as a way of addressing our needs to decarbonize the power system, but also a lot of other things like I said, ammonia production and transportation where hydrogen carries an awful lot of energy per kilogram. It doesn’t have the range limitations and slow recharging rates of battery vehicles so there’s hope for heavy duty vehicles, including trains and trucks, and there’s even aircraft now flying around in tests to demonstrate that hydrogen can be used for aircraft.
Miller: Rebecca Smith, you recently provided a report to the Legislature about the challenges and the opportunities for renewable hydrogen in Oregon. What’s your definition of renewable hydrogen?
Smith: (Laughter) That’s a tricky question, but traditionally when folks talk about renewable hydrogen, they mean hydrogen produced from renewable energy. You’ve got to use energy to produce hydrogen in some way. Like Ken said, it’s usually bound up in water or other molecules. The most common pathway for that “renewable hydrogen” is going to be electrolysis. You take some water, run some electricity through it and you crack that water molecule into its composite hydrogen gas and oxygen gas. There are other pathways that would count as renewable. There are some that are looking to develop direct solar use. There’s also some algae production that can be done with certain biomass, but predominantly renewable hydrogen should mean using renewable energy resources to produce it.
Miller: A bill in the legislature right now would define hydrogen as renewable only if it’s made solely with energy sources that don’t emit greenhouse gasses. Ken Dragoon mentioned about 10 million tons a year is used. How much of the hydrogen fits that definition?
Dragoon: A vanishingly small sliver. At this point, over 95% of the hydrogen produced globally is produced using fossil fuels. Natural gas reforming, as it’s called, is the most common pathway. You can also use coal, but there is a lot of momentum and interest in transitioning to cleaner sources of hydrogen. And the U.S. Department of Energy launched its Hydrogen Shot Program in 2021 with just that goal of really pushing research and development projects and providing funding. The U.S. DOE, however, is really looking at what they’re calling clean hydrogen and so that can include the renewable hydrogen but then also hydrogen produced from fossil fuels, where you capture any carbon emissions and don’t allow those to escape to the atmosphere.
Miller: Or that’s the hope at least?
Smith: (Laughter) That is the hope.
Miller: Ken Dragoon, can you put the federal money that has been approved by Congress right now in perspective? How transformative could this be for technology that, if I understand correctly, has been actually around in some ways for more than 200 years? And in the early 1800s, folks figured out how to make hydrogen and even used it, if I understand correctly, the way we use gasoline now in early versions of cars. So on some level, this is not new at all.
How important is this infusion of federal money?
Dragoon: Well, it’s significant. A little known fact, I guess to most people, is that there are actually two infusions of money: The one that you’re talking about, the $8 billion dollars, came first out of the Infrastructure Investment and Jobs Act and the second one was the Inflation Reduction Act. So the $8 billion is from the IIJA, the first bill.
The second bill, the Inflation Reduction Act, that passed provides a production tax credit for–as Rebecca said–clean hydrogen, so low carbon hydrogen. And that subsidy, first of all, is easier to get. You have to convince the IRS that your hydrogen is clean and they don’t have the rules for that yet. They’re working on that. The application process for the $8 billion is extremely involved and will have the government deep in our business and will have a lot of overhead for auditing and reporting that we won’t have them for the production tax. So we’ve applied for $700 million for what looks to most people like a pretty ambitious project that has a capital expenditure around $10 billion. So the $700 million is actually a small fraction of the event. The production tax credit for making low carbon hydrogen dwarfs that. And that’s actually more critical or more important to our project than the $8 billion. Because of the IRA production tax credit, our project is basically going forward already now in parts well.
Miller: Why don’t you outline your vision for this? What do you hope to set up with some federal money and then a lot of private capital as well?
Dragoon: Well, let me sort of set the stage first. There really is no 100% decarbonization without using renewable electricity when it’s available to make clean fuels in order to keep the lights on when the renewables go away. We recently came off a period of over 11 days where there just was no wind. It was winter so there was very little sun. I think people believe the batteries can fill in for that. But the cost of the batteries will dwarf the investment in renewables just to cover a two-week period of low production. Really the only way to go is to make hydrogen. And so it’s really critical to decarbonization.
Miller: So if I understand correctly, one of the ideas that the stopgaps to fill in the the gaps in electricity that you’re talking about when there is not enough wind or solar or there’s not enough water, has been largely natural gas-powered electricity and that you could turn on when the wind isn’t blowing enough and provide electricity for for people’s homes. Right? That’s the status quo right now?
Dragoon: That’s exactly what’s happening now and that’s going to happen in the future. The only way to reduce that is energy efficiency, standing up more renewables so when they are available, you don’t have to run those gas turbines, and the third thing is storage. And we’re saying that the only way to do the storage in an economically feasible way with existing technologies is through potentially hydrogen derivatives. For example, ammonia could be used, but we’re kind of focused on hydrogen.
Our project actually has two kinds of centers of large scale production and consumption: One in Northeast Oregon targeted for the Umatilla Depot which is being transferred into civilian hands and another likely located at the Port of Moses Lake in Central Washington. The plan is to use wind and solar behind the meter because one of the impediments to building wind and solar today is access to transmission. If we take the wind and solar and put it directly to the electrolyzer, sidestepping the transmission system, we can get there a lot quicker and a lot cheaper. So this is key to low cost hydrogen production with electrolysis. That means we have to locate our electrolyzers, the devices that make the hydrogen from electricity and water, in the parts of the region where wind and solar are available. So that dictates kind of the east side. So we’ll have these two large centers of large scale production consumption. We had targeted in our proposal to the Department of Energy that we would be making ammonia for nitrogen fertilizers. It tells a great story of local lands being used to make fertilizer that comes back to agricultural uses.
Miller: How is fertilizer normally used? How is the vast majority of fertilizer created right now?
Dragoon: The second biggest use of hydrogen today is in making ammonia for nitrogen fertilizer. So nitrogen fertilizers are dependent on ammonia. There are various kinds of nitrogen fertilizers, but they all sort of start out as ammonia. Ammonia is a nitrogen atom with three hydrogen atoms connected to it. So in order to make the ammonia, you need hydrogen. Today, as Rebecca said, almost all of that comes from natural gas, certainly in the US, it’s almost all from natural gas. We need to decarbonize that because once you make the ammonia from the hydrogen and then the ammonia from the natural gas, you’re left with a big carbon footprint. So our first objective is to get to the scale we need to reduce costs. Even a modestly-sized ammonia production facility would be a big hydrogen production facility.
Miller: So to try to button this up a little bit, my understanding is that the basic idea is to have new hydrogen production facilities using renewable energy where it is. So whether that’s solar or wind and at those facilities, you’ll make the hydrogen and then you’ll use that in a fossil fuel-free way to make fertilizer, which is not the way it’s normally done now, and at the same time, you can also keep some of that excess hydrogen and use that as backup electricity production for the future.
Dragoon: Yes, what we’d like to do is have a pipeline system from those hubs production that reaches out to industrial parks in the region where there are a lot of data centers. These data centers all have diesel backup generators, they’re very dirty. They’re kind of limited due to air quality permits. They can get around that if we substitute hydrogen as the fuel instead of diesel. So that will help us finance the pipeline system.
What my boss calls, the killer app for hydrogen is really transportation. But the problem with transportation to get off the ground is there just isn’t a lot of demand and we don’t have a lot of hydrogen vehicles in the region. Transit agencies are beginning to seriously look at it. TriMet and Spokane Transit are talking about hydrogen buses, but the quantities would be so low that you just can’t get the economies of scale that you need to provide low cost hydrogen. So that’s kind of the crux of why our project looks so ambitious in order to get really low cost, renewable hydrogen.
Miller: Rebecca Smith, as I mentioned, you recently provided a report, as required, to the Oregon legislature looking into the opportunities and the challenges of renewable hydrogen in the state. In your mind, what are the best use cases for hydrogen? As we’ve been talking, there are a lot of ways to use this energy-packed gas. What are the best uses of it in your mind?
Smith: That’s a great question, Dave. There are folks who will suggest that hydrogen is truly a Swiss army knife, that you can plug it in wherever you need it. And then there are those who are much more circumspect, who think that it should have a very limited role in any sort of decarbonization pathway. And,
Oregon doesn’t have a state energy strategy right now. And so having a strategy like that would help us determine where we want renewable hydrogen to play a role because we would hopefully have better information on what trade offs associated with hydrogen and other decarbonization opportunities we’re going to value more. Do we care about the cost more? Or do we care about time to scale more? Do we care about immediate emissions more? Do we care about fish and land use? And these are all trade offs that have to be balanced in some way.
So it’s hard to say, but there is an expectation that renewable hydrogen, at least in the near term years, is going to be in limited quantities to some degree, just because of the availability of getting enough renewable electricity and getting enough electrolyzers. We’ve certainly seen some supply chain issues hitting the electric industry upwards of, I think it’s now 15 months to get a new transformer to do upgrades for a grid. So if you’re looking at it as a scarce resource, then I would suggest using greenhouse-gas reduction bang for buck as one of the guiding lights and making that decision.
Miller: If that is one of your guiding lights–as a lay person it seems to make sense to me—given that we’re talking about an existential threat of climate change, then what direction does that point you in?
Smith: Well, the absolute easiest, no regrets option is to just swap in renewable hydrogen where fossil-produced hydrogen is already being used. No muss.
No fuss. You don’t have to change any infrastructure. The only issue with that right now is cost, so doing that first absolutely makes sense.
Miller: So for example, producing fertilizer would be a perfect example of that?
Smith: Fertilizer. Oregon also has a lot of semiconductor manufacturing here and hydrogen is an input for that. So that’s an area as well.
Miller: One of the issues that we just heard from Ken Dragoon is about localizing this and having things be close. How difficult is it to transport this relatively diffuse gas compared to natural gas. If I understand correctly, it’s something like three times less dense as a gas than natural gas. What does that mean in terms of pipelines or storage or having it used in places that might be far away from where it’s being produced?
Smith: It’s a big challenge and a fair slice of the cost of hydrogen comes from storing it and transporting it. You’ve got to either compress it quite a bit or use cryogenic temperatures to get it to a liquid. There’s a lot of energy with that compression or cryogenesis, but then also storing it and moving it can get quite expensive. And so that’s why the U.S. DOE with the regional clean hydrogen hubs really encouraged applicants to look at pairing production and consumption as closely as possible because if you’re going to try to build a brand new industry, you want to keep the cost as low as possible for the hydrogen. The only way you can do that right now without dedicated pipelines and without a real lot of other ways to transport it is to make it close to where you’re going to use it.
Miller: The Oregon Department of Energy is partnering with the Washington Commerce Department on its own proposal to set up a regional clean hydrogen hub. Can you give us a sense for what that could look like?
Smith: The Commerce put together the Pacific Northwest Hydrogen Association and they have heard from over 140 organizations during their requests for information about putting together a Northwest hub. Right now they are in the process of looking at anywhere between 40 to 50 projects to determine what that final hub is going to look like. The proposed end uses have included everything from powering heavy duty vehicles, like trucks and transit buses, combusting hydrogen and turbines to produce electricity, possibly at peaker plants blended with natural gas, certainly swapping that fossil hydrogen out for clean hydrogen-producing fertilizer. A really interesting one is port operations where you can use hydrogen to provide shore power for berth vessels and also use it to power big heavy ports equipment. It also can be an input into sustainable aviation fuels so there’s some proposed use of that as well. So we don’t know yet kind of as the final decisions come together, how many projects will be in the hub or what kind they’ll be yet.
Miller: Ken Dragoon, you and Rebecca Smith are putting forward, in some ways grand visions, of potential futures at the state, regional and nationwide levels for hydrogen. What do you see as the biggest obstacles over the coming decades that could get in the way of that vision?
Smith: Well, probably the biggest impediment today, right now, in this minute is the time it takes to cite and permit renewable resources; and, it’s not just an impediment to hydrogen and it’s an impediment to reaching decarbonization. Something absolutely needs to be done about that. We have a large solar project in the county that we’re in late stages of development on and it took over four years to get certified and permitted in an arid part of the state that isn’t arable and doesn’t have water on it. We just don’t have that long. The bills that were passed in the current administration have been fantastic, especially the IRA–we hope that doesn’t get tripped up. Those are huge. I tend to say that the largest impediment is probably a lack of imagination and the understanding that we absolutely need to do this. There just is no path to decarbonization that doesn’t run through hydrogen production.
Miller: Ken Dragoon and Rebecca Smith. Thanks very much.
Dragoon: Thank you.
Smith: Thank you, Dave.
Miller: Ken Dragoon is the director of hydrogen development at Obsidian Renewables. Rebecca Smith is a senior energy policy analyst with the Oregon Department of Energy.
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