April 27, 2023
From Oversupply to Green Hydrogen Power
Green hydrogen unlocks new revenue streams for utilities. In 2022, California curtailed 2.4 million MWh of solar and wind energy, enough to power approximately 230,000 homes. What would happen if we used all of this curtailed energy to create green hydrogen? California could have generated up to $460 million of net revenue in 2022.*
Due to its potential to decarbonize the industrial and transportation sectors, green hydrogen has become the talk of the town. While the initial capital expense to build green hydrogen infrastructure may be costly, IRA incentives and additional revenue streams from new markets, including trucking and aviation, can turn resources that are wasted today into significant revenue.
(Graph: Data Analysis by Actual. Source: CAISO “2022 Curtailment Rates”)
Data from CAISO shows that 2022 curtailments could have produced enough green hydrogen to fuel over 11,000 transcontinental flights.
What can you do to be best prepared for the green hydrogen transition?
Utilities operations teams need to evaluate the opportunity to use energy from assets in their network to generate green hydrogen and leverage assets across internal groups.
CFOs and capital planning teams need to analyze the potential for significant returns that come from investments in long-term green hydrogen infrastructure.
Business and corporate development teams need to firm up demand in the new revenue streams that green hydrogen enables to justify capital investment plans.
Regulators will likely further incentivize green hydrogen tax credits and more strictly penalize emissions from grey and blue hydrogen in order to push a greater impact.
While most hydrogen produced today is grey or blue, emissions mandates and incentives mean that green hydrogen will dominate the market moving forward. What are the likely trends?
Grey hydrogen won’t be the most profitable for long. Grey hydrogen benefits from a mature infrastructure and relatively cheap input costs. However, green hydrogen will be the cheapest by 2030 as the technology scales and improves.
Increased curtailment improves margins. As more renewable infrastructure is built, an increased amount of renewable energy will be curtailed annually. While a green hydrogen project can’t rely on curtailed power alone, the growth in renewables can make even marginal projects viable.
The Inflation Reduction Act is complex and layered, and other policies are being implemented globally including in Canada and the EU. Actual’s Knowledge Base can bring clarity and help you best take advantage of incentives and avoid penalties to profit from the transition to net zero.
Until next time,
* This is an extreme example to show the scale of curtailed renewables - a number only set to increase as renewable deployments grow. Data from the IEA was used to project revenue per kg of hydrogen and calculate market value of hydrogen produced from California’s curtailed power based on CAISO’s 2022 published curtailment rates.
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