Three giants dominate the global economic system: the EU, United States, and China. Of these three, the Americans are relatively far behind when it comes to centralized clean energy investments. Despite the country’s substantial progress and technological capabilities, it is far from exploiting its full potential. With President Biden, however, the U.S. seems to be making a serious effort to regain some of the ground that it has lost to the Chinese and Europeans.
The massive $1.2 trillion infrastructure bill has already been approved by the Senate and is moving towards the House of Representatives. If it becomes law, the renewables sector will receive a major boost in the form of public sector investments to scale up installments and additional resources for research and development. The bill includes investments in a nationwide EV recharging infrastructure, resources to electrify the industry, and stimulants for developing hydrogen-related technologies, to name but some of its features.
The energy transition is an incredibly complex process with multiple ‘moving parts’ that interact and are mutually dependent. Such is the case for (green) hydrogen, which is just one option among many for a clean energy future. The replacement of fossil-fuel-based electricity production with weather-dependent options such as solar and wind makes hydrogen increasingly attractive, however.
Hydrogen’s benefit to the energy system of the future is its capacity to add value to a product that would otherwise be wasted due to curtailment or low prices under favorable weather conditions. The ‘financial irony’ of a weather-dependent energy system is that prices plummet when wind and/or solar are abundant. Making a profit, therefore, becomes more difficult for commercial organizations that are motivated by the necessity to satisfy their investor’s needs.
This ‘cannibalization' effect, as it's called in the industry, can be somewhat offset by using the excess power to produce hydrogen which can be utilized in a different moment for a variety of purposes. Hence, timing and the coupling of several technologies can improve the rate of return of investments which in itself can speed up the energy transition and decarbonization efforts.
According to Marcia Hook, a partner with international law firm Kirkland & Ellis, “the bill would be a very promising step in fostering the hydrogen economy in the U.S. It offers exciting opportunities for companies and investors looking to invest in the hydrogen space.”
The bill includes financial support of $9 billion for the development of four hubs that should produce hydrogen via three routes: using natural gas and CCS (blue hydrogen), renewables such as solar and wind (green), and nuclear power (pink). These hubs will be located in areas where one of the three alternatives is dominant including two regions where there are major natural gas deposits.
Furthermore, besides production facilities, these hubs should include the entire value chain with transportation, storage, and consumers. Of the latter, a wide variety of end-users such as transport, built environment heating, and the industry should be included.
Although the current administration’s ambitions are praiseworthy, the U.S. risks falling behind even further vis-à-vis its major competitors in Europe and China. Chinese companies already have a very strong presence in the renewables sector and Beijing is set on maintaining its domination into the near future. The EU, furthermore, has recently adopted the highly ambitious Green Deal where hydrogen's role cannot be understated. The early movers, therefore, could create commercial and technological advantages that would be difficult for American companies to catch up with.
Nevertheless, two factors could mitigate the negative fall-out from the late start of the U.S. federal government: America's world-renowned scientific and commercial capabilities and the decentralized political system. Although the U.S. is relatively late to the game and federal ambitions are watered down to maintain bi-partisan support, on the state-level ambitions tend to differ.
In states where the Democratic Party has dominated for years, such as California, ambitions are high. The U.S. political system provides sufficient autonomy to its states that, to a certain level, they can implement policies independent from Washington. So don’t write the U.S. off just yet in the race for clean energy dominance.
By Vanand Meliksetian for Oilprice.com
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