What utilities need to know about a clean hydrogen tax credit, per new IRS guidance

The Internal Revenue Service recently released proposed guidance for utilities seeking to take advantage of a tax credit for producing clean energy hydrogen, introduced as part of the Inflation Reduction Act (IRA) in 2022. The so-called the 45V Clean Hydrogen Production Tax Credit is meant to offset the cost for businesses to produce low-emission hydrogen, lowering the entity’s overall emissions while simultaneously contributing to the the assimilation of clean hydrogen into the marketplace.

Within the IRA, Section 45V lays out the general requirements utilities must meet to qualify for and claim the credit. Those requirements include:

• Production and subsequent sale and use must be verified by an independent third party; and
• Construction of the production facility must begin before Jan. 1, 2033.

Additionally, utilities must meet wage and apprenticeship requirements, or risk losing up to 80 percent of the total available credit.

What the IRS proposes

The IRS proposed guidelines addresses how utilities calculate the life-cycle emissions of hydrogen production, with the life-cycle pertaining to emissions only connected through the production of hydrogen. Stages included within the production life-cycle include feedstock growth, gathering, extraction, processing and delivery to a hydrogen production facility.

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The entity will use the Greenhouse Gas, Regulated Emissions and Energy Use in Transportation model (GREET), which analyzes the data to determine the carbon intensity of production.

The guidelines also propose three pillars that define the restrictions of energy production; incrementality; temporal matching; and deliverability.

• Incrementality: Requires electricity used at hydrogen production facilities to be from a facility developed a max of 36 months before the hydrogen facility itself;
• Temporal matching: This pillar mandates the annual matching of the electricity used towards hydrogen production to generated clean energy through Jan. 1, 2028, and from then on the matching has to be done hourly;
• Deliverability: Electricity has to be in the same region as the grid it will eventually be transported to.

The IRS guidelines are still proposed, so there is room for change in the future.