That is the primary in a three-part sequence Utility Dive is publishing this week trying on the rising enterprise and coverage panorama for hydrogen in america. The second half will study increasing electrical utility actions round hydrogen whereas the third focuses on potential collaboration between gasoline and electrical utilities.
Industrial gasoline producer Air Liquide is not any stranger to the hydrogen trade. However participation in utility ratemaking circumstances — that is a brand new expertise.
Utility curiosity in hydrogen presents a big alternative for the useful resource and has crammed the inbox of Dave Edwards, director and advocate for hydrogen vitality at Air Liquide, in recent times. However for hydrogen to achieve its full potential, Edwards mentioned, a number of limitations should nonetheless be overcome, together with the necessity for a regulatory framework that’s as adaptable because the commodity itself.
“One of many issues that will get misplaced when we’ve a dialog concerning the grid, is as soon as the hydrogen is out there, it has all this utility outdoors the facility grid,” Edwards mentioned. “A grid operator managing a hydrogen storage facility does not need to promote it as electrical energy to return into the grid. … That is among the locations hydrogen has this power of flexibility, but it surely means the regulatory framework must be versatile in that very same sense.”
Whereas trade pursuits look to hydrogen for every part from vitality storage to decarbonizing pure gasoline service, laws stay siloed, geared towards overseeing one kind of utility or one other. Progressive incentives and coverage are wanted to advance the adoption of hydrogen, however potential suppliers of the commodity say it isn’t even clear which regulatory physique they need to strategy with their requests.
“A regulatory framework that values this interconnectivity is absolutely going to be crucial,” Edwards mentioned, “and the way you do that may be a actual problem, as a result of there is not a construction we are able to construct off.”
For a lot of utilities, together with NW Pure, integrating hydrogen into their operations begins, by necessity, with regulatory approval — they merely aren’t permitted to buy the commodity with out it.
Fortuitously for NW Pure, Oregon’s Senate Invoice 98 granted that permission in 2019 alongside a sequence of provisions the utility says may function a mannequin for different utilities and areas pursuing the usage of hydrogen.
“There’s a broader concern with hydrogen that is not addressed. For me and our firm, the crucial factor for hydrogen is it is this unimaginable solution to marry the gasoline and energy system.”
Director of Renewable Sources, NW Pure.
SB 98 created voluntary carbon discount targets for Oregon gasoline utilities, much like targets already adopted in prior years for electrical utilities. It asks that gasoline suppliers scale back the quantity of carbon-based fuels used a complete of 5% by 2024, with an extra 5 proportion level discount each 5 years by means of 2050. It additionally created a framework wanted to make these reductions attainable, in line with Anna Chittum, director of renewable sources for NW Pure.
The invoice then approved utilities to acquire renewable pure gasoline for his or her clients, defining renewable pure gasoline broadly in order to incorporate hydrogen or a myriad of different renewable, low-carbon gasoline options. It additionally established a hypothetical value of carbon to be utilized in useful resource planning processes, enabling the decrease emitting sources to probably qualify as least-cost sources for the needs of ratemaking.
“That was a basic change,” Chittum mentioned. “We was restricted to primarily the least-cost gasoline.”
After their first yr of working with the brand new framework, Chittum mentioned the SB 98 strategy seems to work as supposed. With the price of carbon taken into consideration, NW Pure is about to acquire an quantity of renewable pure gasoline that won’t solely meet, however possible exceed the targets set by the legislature.
However whereas SB 98 is useful, it will not get Portland to the carbon-free future NW Pure envisions, Chittum mentioned. “There’s a broader concern with hydrogen that is not addressed. For me and our firm, the crucial factor for hydrogen is it is this unimaginable solution to marry the gasoline and energy system.”
Oregon’s regulation creates a supportive surroundings for quite a lot of renewable pure gasoline choices, Chittum mentioned, however she does not imagine will probably be sufficient for hydrogen. For hydrogen to thrive, she mentioned, would require coverage that captures its potential advantages to a number of techniques — electrical energy, gasoline and transportation.
Making hydrogen value aggressive, Chittum continued, requires sharing prices throughout a number of makes use of. For instance, electrolysis permits utilities to derive hydrogen from water, utilizing surplus renewable vitality to separate water molecules into oxygen and hydrogen. If electrical utilities paid to make use of the electrolyzer for its demand-management advantages, and gasoline utilities paid for the ensuing hydrogen, the price of the general course of would lower.
“With hydrogen manufacturing that’s using electrical energy as an enter, you’ve gotten a useful resource that may modulate the electrical energy system, and dump the hydrogen into the gasoline system,” Chittum mentioned.
There’s simply no regulatory framework to allow this integration, she added.
“What we’re nonetheless lacking is regulation and coverage that appears holistically at a area’s vitality system and says, ‘What’s the least-cost solution to decarbonize the whole system,'” Chittum mentioned. “There’s useful resource planning on the gasoline aspect, and useful resource planning that occurs on the facility aspect, however there is not any complete look, and that is actually what’s lacking. That may be my dream.”
Chittum, nevertheless, is stumped as to who may be the right physique with which to debate her dream: FERC? State utility commissions?
Philippe Gerretsen, a senior supervisor of vitality venture growth at zero-emission automobile producer Nikola, has an thought: unbiased system operators.
Gerretsen’s foray into utility regulation started when he was tasked with securing a low-cost electrical price for hydrogen manufacturing to help heavy-duty, hydrogen-powered vehicles working within the southwestern U.S. The endeavor ended within the creation of a specialty hydrogen manufacturing tariff in Arizona with fluctuating charges that enable Nikola’s electrolyzers to operate as a requirement administration useful resource, facilitating the manufacturing of cost-competitive inexperienced hydrogen.
“This Arizona price case was actually advantageous in that it allowed us to provide hydrogen with a excessive capability issue,” Gerretsen mentioned, “which means we are able to amortize our capital prices over extra hours, and that helps us to cut back the price of capital.”
Tacoma Energy in Washington state has adopted an analogous strategy, providing as of final yr, a particular tariff for purchasers who need to use electrolysis to provide hydrogen. Nevertheless, as a substitute of a variable price construction, Tacoma Energy affords a low mounted price to assist preserve clients’ bills predictable, in line with Clay Norris, the utility’s energy supervisor. In change for the decrease price, the shopper should comply with curtail their electrolysis use throughout instances of excessive demand from different clients.
Thus far, Tacoma Energy has no takers on the brand new price construction, although discussions are within the works, Norris mentioned, together with with clients who requested about elevating the 65 MW cap positioned on the speed at the moment. [You can find the 65 MW cap on page 46 of title 12 the city code https://cms.cityoftacoma.org/cityclerk/Files/MunicipalCode/Title12-Utilities.PDF]
“We’d contemplate it, however the bigger the load, the extra it is smart that they are only a wholesale buyer as a substitute of a retail buyer,” Norris mentioned.
“I believe it is too early to have a complete dialog, and I do not know that it could be that productive to place sources into figuring it out for all functions. I believe the market goes to determine somewhat little bit of this out.”
Senior Principal, Bracewell
However wholesale tariffs, Gerretsen mentioned, are actually a stepping stone towards Nikola’s remaining aim. Lengthy-term, he believes the last word regulatory answer for hydrogen is to permit electrolytic hydrogen producers to take part instantly inside wholesale ISO markets. There they might not solely purchase electrical energy at wholesale charges — probably making the most of the bottom costs when vitality is in extra — however may also be capable to market ancillary companies to additional offset prices and produce reasonably priced hydrogen for transportation and gasoline firms.
“What this does is … enable us to make use of hydrogen as a grid balancing useful resource,” Gerretsen mentioned. “The place no matter whether or not hydrogen is used to generate electrical energy, in transportation or in trade, we’re nonetheless serving to mitigate the variability of renewable sources. From our standpoint, that is the path every part needs to be going.”
Nikola, Gerretsen mentioned, is at the moment in talks with CAISO and intends to strategy the California legislature with a proposal within the subsequent session.
“If California desires any hydrogen manufacturing to happen within the state that’s aggressive in opposition to diesel and different current gas sources,” he mentioned, “this can be a requirement to be able to get the fee low sufficient.”
Incentive for change
At Air Liquide, Edwards mentioned, discussions about quick coverage priorities are at the moment centered on transportation and potential incentives that might drive larger deployment of hydrogen in that sector — zero emission automobile mandates, manufacturing incentives, tax credit for low carbon fuels. However vitality manufacturing, Edwards mentioned, is a gigantic alternative for the longer term.
A basic query utilities and regulators should ask, Edwards mentioned, is what hydrogen has to supply to the electrical grid. And an apparent reply, he mentioned, is vitality storage — suggesting this may be the place for hydrogen-oriented regulation to start.
“You’ll be able to take that hydrogen, and put it again onto the grid, both by placing it by means of a pure gasoline turbine, or do issues like put it into gas cell techniques that are very efficient for issues like backup energy and distributed energy,” he mentioned. “There must be a mechanism for that storage.”
Christine Wyman, a senior principal with Bracewell specializing in creating and implementing coverage methods for shoppers, believes that the market will in the end decide the place and the way hydrogen needs to be regulated.
“I believe it is too early to have a complete dialog, and I do not know that it could be that productive to place sources into figuring it out for all functions,” Wyman mentioned. “I believe the market goes to determine somewhat little bit of this out.”
However Edwards believes this strategy may additionally current a number of the identical challenges hydrogen already faces within the regulatory panorama. Every time a brand new know-how enters the market, he mentioned, current laws have a tendency to limit the adoption of that know-how for a time as a result of the foundations in play cater to the options obtainable on the time they have been written. Basing guidelines across the storage options obtainable on at this time’s market, may create a barrier to the adoption of hydrogen sooner or later.
The important thing transferring ahead, he mentioned, may be championing coverage that’s tech-neutral and avoids prescriptive options as a lot as attainable. If regulators can arrive at a framework for vitality storage that’s as versatile as hydrogen is flexible, Edwards mentioned, hydrogen may characterize a “enormous alternative for our vitality system to grow to be extra versatile and extra sturdy.”