DOE’s Hydrogen Hubs FOA: Well-Launched, But Beware Choppy Waters
The Energy Department’s (DOE’s) Office of Clean Energy Demonstrations (OCED) recently released the funding opportunity announcement (FOA) for the regional clean hydrogen hubs called for in the Infrastructure Investment and Jobs Act (IIJA). The program will provide $8 billion to establish 6 to 10 hubs around the country. The law defines a regional hub as “a network of clean hydrogen producers, potential clean hydrogen consumers, and connective infrastructure located in close proximity.” The hubs will vary, drawing on diverse feedstocks and serving a range of end users. But each will be a complex ecosystem that stretches along the entire supply chain from material inputs at the front to end users at the back via a core hydrogen production facility (which we refer to as the “core plant”) and related hydrogen transportation and transmission infrastructure.
The hydrogen hubs program is worthy of wide attention because it is OCED’s largest and, as such, may be something of a bellwether for U.S. progress on transformational energy and climate innovation. In general, ITIF has a positive view of the FOA. It reflects many of the points we and other NGOs have made since the IIJA passed and OCED was established. However, as we noted in two recent reports, there are a few points of concern that demand particular attention as the program is implemented. Our first report explains why DOE should focus its funding on the capital costs of hydrogen production and infrastructure. Our second report details how DOE should approach the selection process to ensure it chooses effective proposals in a fair, transparent, and timely manner.
The FOA in a Nutshell
The FOA requires that hubs:
▪ Demonstrably aid the achievement of the clean hydrogen production standard;
▪ Demonstrate the production, processing, delivery, storage, and end-use of clean hydrogen; and
▪ Can be developed into a national clean hydrogen network to facilitate a clean hydrogen economy.
Within this broad framework, the FOA seeks applications for the planning, construction, and operation of commercial-scale hydrogen hubs. The IIJA calls, where practicable, for a portfolio of hubs that reflect:
▪ Feedstock diversity—at least one hub should demonstrate the production of clean hydrogen using each of fossil fuels, renewable energy, and nuclear energy as inputs.
▪ End-use diversity—at least one hub should have as its major end-use clean hydrogen for power generation, the industrial sector, residential and commercial buildings, and transportation.
▪ Geographic diversity—each hub should be located in a different region of the United States, using regional energy resources, including at least two hubs in regions with abundant natural gas resources.
The IIJA also requires that DOE give preference to hubs that demonstrate the greatest regional impact on the provision of good jobs. In addition, the Biden administration has committed to ensuring that hubs engage effectively with their local communities, and that applications be considered in light of the Justice40 initiative, which seeks to ensure 40 percent of the overall benefits of this investment flow to disadvantaged communities that are marginalized, underserved, and overburdened by pollution.
Finally, hubs must also be considered in the light of DOE’s announced Hydrogen Shot, a call to develop the capabilities that delivery one kilogram (kg) of hydrogen at a cost of no more than $1.00 and with no more than one kg of associated CO2 emissions by 2031. The hubs program will have to make major strides if those targets are to be reached.
Because all of these objectives must be addressed in hub proposals, it is no surprise that the FOA is long and complex. It anticipates that hubs will develop through four phases, beginning with preliminary planning, moving through final planning, implementation, and then into full scale up and expansion beyond the initial hub. The FOA calls for proposals that cover all four phases; beginning with a preliminary concept paper and followed by a full proposal in April 2023. Funding decisions will be made in Fall 2023, and winners will then negotiate detailed contracts under the Cooperative Agreements framework with DOE.
The process and requirements put forward by DOE present major challenges to organizations that for the most part do not even exist. Even the most advanced hub entities, like the one in Houston, face challenges of governance and potential conflicts of interest, not to mention staffing, which must be addressed as the concept paper comes due on November 7 and the full—and formidable—application, on April 4.
Praise for the Pros
OCED has worked hard on the FOA, and it shows. It has many praiseworthy features. The following elements are particularly important and positive:
1. The scale is substantial. The FOA seeks hubs that seek a minimum of $400 million and a maximum of $1.25 billion from DOE, and preferences projects seeking between $500 million and $1 billion. It also requires that the core plant produce a minimum of 50 to 100 metric tonnes of hydrogen daily. Those are large plants in the hydrogen world.
2. The scope is extensive. The FOA clearly indicates that DOE is expecting to see proposals that cover the entire supply chain all the way to end users, and that DOE is prepared to fund components of that chain outside the core plants: “hubs must include all connective infrastructure for hydrogen delivery and storage with sufficient capacity to reliably bridge any supply gaps between hydrogen production and consumption.” This is critically important.
3. The emphasis on end-users and markets runs throughout the FOA. DOE has clearly accepted that what must be demonstrated is the development of sustainable regional markets for hydrogen; while technological innovation may play a role in supporting the emerging ecosystems, innovative technology is not the primary point of these projects.
4. The timeline and phasing seem generally appropriate. These are huge projects and will require years to reach full operations. There are some ambiguities about timing in the FOA, but in general it calls for 12 to 18 months of planning, 2 to 3 years for development, permitting, and financing along with a preparation of a final operational plan, 2 to 4 years for construction, and 2 to 4 years for final ramp. Each element of this timetable seems reasonable, but DOE should be wary of projects that take the full allowed time for each stage, which would add up to 12 years in total for execution.
5. CO2 and GHG emissions remain a delicate issue. The hubs have drawn significant interest from fossil fuel companies interested in producing blue hydrogen (from fossil fuels using carbon capture to cut emissions). It is encouraging that DOE is treading a careful line between seeking ambitious targets and favoring projects which have larger GHG reduction effects on the one hand, but on the other not requiring that funded projects meet the hydrogen production standard, which DOE recently defined as 4kg CO2e/1kg H2, measured across the entire product life cycle. While this standard does not seem radically ambitious, it may still raise present a significant hurdle for some potential projects.
6. Technological neutrality. DOE appears willing to accept hubs organized around any set of technologies; this approach reflects long-standing views in the innovation community that government funding should demand what should be done, not how it should be accomplished.
7. Limited operational support. In previous ITIF reports, we recommended that DOE focus on capital expenditures for the core plant and infrastructure, and limit subsidies for ongoing operations. The FOA anticipates that DOE will support 2 to 4 years of operations only, which while it does not fully meet our proposed limitations, should nonetheless have a similar impact.
8. Go/no-go decisions. DOE anticipates that it will determine future funding at the end of each Phase, but leaves room for additional milestones/decision point as needed. Given that it is unlikely that Phase 1 will result in halted projects, the key transitions will be at the end of Phase 2 and Phase 3. DOE also left room for similar decisions at different points within each phase, and we support that flexibility.
9. The FOA provides clear and detailed guidance for proposers as they work through what will be a challenging process.
Overall, the broad framework for the hubs is well defined, and DOE can expect to receive proposals that meet many of the needs laid out in the FOA.
We’ve Got (a Few) Issues
That said, there are five main issues that DOE might want to address as the selection process moves forward. As we discussed in our previous report, the high visibility of the hubs program and the substantial political and corporate interest in it mean that DOE should treat the program somewhat differently from its standard grant programs: It will need to ensure that the selection process is, and is perceived to be, effective, fair, transparent, and timely.
▪ Selection criteria. As our previous paper recommended, DOE has publicly weighted the value of the criteria that will be applied to applications. Scoring is divided between into five broad sections (technical merit and impact (25 percent), financial and market viability (20 percent), H2Hub workplan (15 percent), management team and project partners (20 percent), and community benefits plan (20 percent). However, DOE continues to list more than 40 bulleted selection criteria across these categories. While all of these may bear on selection decisions, the sheer number means that transparency is at risk, especially as DOE provides no guidance at all about the weights for individual bulleted items. The public—including proposers—will therefore have no insight into how DOE intends to score them.
▪ Expert assistance. ITIF and other NGOs recommended that DOE set up an expert panel to provide input to the selection process—especially on commercialization and operational questions where internal expertise may be limited. The FOA provides no insight at all into this.
– The FOA does reference a federal merit review panel, but this may reflect no more than DOE’s normal internal selection process. The FOA says nothing about the specific acquisition of expert reviewers, how they will be organized, the roles they will play, or efforts to ensure that there are no conflicts of interest. All these details matter, and the perceived and actual fairness of selections will depend on them. DOE missed an opportunity in the FOA to publicize its thinking on these issues.
▪ Selection and management process. The FOA says almost nothing about the selection process per se. It does not explain who will be making decisions, or whose input will be used. It offers the weightings, but then lists dozens of criteria that may (or may not) turn out to be important. DOE seems to believe that it can be trusted to sort this out privately. That is naïve. DOE should clarify the selection process and the participants in it. By doing so the agency can achieve public buy-in before the process is used to make controversial decisions, when buy-in will become impossible.
– Further, DOE should ensure that all applications—or at least executive summaries of them—are published, as are the scores and (anonymous) reviewer comments, along with a detailed rationale for DOE decisions.
– Similarly, DOE should not only publish all milestones agreed for every project, but it should also commit—and commit the winning applicants—to publish all data related to those milestones. For example, DOE has stated that it will calculate GHG emissions across the entire production lifecycle (including feedstock production). The data used to make these calculations as well as the calculations themselves should be open, so that outside experts have the data on which to judge whether milestone commitments have been met. Winning applicants should be required to agree to this kind of data release before DOE funding is committed.
▪ Scope. The FOA is littered with references that require proposers to demonstrate how their hubs will integrate into a national hydrogen network. However, even if the regional hubs are successful, no national network will come into existence for decades: Transporting hydrogen is simply too expensive, as the FOA itself recognizes when it states that DOE expects hubs to serve highly regionalized markets. Constantly demanding genuflection toward a national network that will not exist during the timeframe covered by the hubs awards seems at best a waste of effort and at worst a deflection away from more important concerns.
▪ Operational data transparency. Demonstration programs should provide information—positive and negative—that is absolutely central for future progress towards the hydrogen economy. The demonstration hubs should show not just that it’s possible to build a sustainable hydrogen ecosystem with an injection of government funding, they need to show how that was done explicitly, so that other regions and entities can replicate the successes. Making that detailed information proprietary undermines the purpose of the demonstration program itself.
The public need for information from the hubs thus vastly outweighs the proprietary interests of the hub coalitions. But DOE simply does not seem to understand that this program requires more transparency than usual. The FOA states on page 25 that:
Phase 4 will also include substantial financial, socio-economic, environmental, and operational data collection and reporting to DOE. To the extent practicable while protecting sensitive and proprietary information, DOE will synthesize, anonymize, or otherwise incorporate site and operations data for the hubs into quantitative and qualitative analyses that can be promulgated to external stakeholders for the purpose of informing future private sector investment decisions.
“To the extent practicable”—without further discussion—is a red flag. Further, the idea of anonymizing information from 10 or fewer data points is somewhat ridiculous, especially as each hub will offer—by design—a unique combination of feedstock, technology, region, and markets. It is the experience from each unique combination that’s important, not some notional “anonymized” data.
Reframing the issue, these hubs exist because of a substantial public investment. Data should therefore be shared fully with the public—not just on a selective basis with “external stakeholders” who might be planning additional investment.
Worse still, as the FOA notes on page 136, DOE is already negotiating with itself to provide less transparency:
For this FOA, selectees and recipients may request an extended period of protection (more than five years and not to exceed thirty years) if reasonably required for commercialization for specific categories of data first produced under the resulting awards in accordance with 15 U.S.C. § 3710a(c)(7)(B)(ii) and the Energy Policy Acts of 1992 and 2005. Further direction will be provided during the negotiation process upon request.
This is exactly the wrong way to approach transparency. Currently, DOE has all the leverage! It should therefore be fighting hard to insist that the maximum amount of detailed data be released as widely as possible. It holds a veto over every single proposal and is the prime funder: It can demand more transparency than usual, rather than handing out exceptions before even being asked.
In the end, the program’s overall success—and its success in maintaining public and political support for demonstration programs more generally—will depend at least in part on the extent to which objectives and milestones are clear, and DOE fully publishes results. Unfortunately, previous DOE demonstrations—e.g., the Port Arthur Carbon Capture project—have not met this simple requirement (The final report for the Port Arthur projects asserts that the project did indeed successfully capture 1 million tons of CO2 annually. However, it does not publish the single most important metric, the percentage of carbon captured. That has to our knowledge never been published by either DOE or the Port Arthur operators), so DOE must work hard to ensure not only that all relevant results will be published in detail, but that it is committed to maximum openness from the start. That should be a driving principle across the FOA, and it is instead largely absent.
None of the criticisms listed above are fatal; DOE could address them within the process laid out in the FOA through relatively modest adjustments. It should do so as soon as possible. The hubs are a large and important program that won bipartisan support for climate and clean energy innovation policy. They are among the biggest commercially oriented programs that DOE has ever run, and they are a test of both the notion of a demonstration program at this scale and of the new Office of Clean Energy Demonstrations. Running these programs well is a formidable challenge; DOE has made a good start, but there is plenty still to do.