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Fortescue and Woodside hydrogen projects face uncertainty

In a surprising turn of events, Australian companies, Fortescue (ASX:FMG) and Woodside (ASX:WDS), find their ambitious hydrogen projects hanging in the balance following proposed rule changes by the United States. These changes could potentially exclude them from accessing cash incentives under the Inflation Reduction Act (IRA), worth billions of dollars.

Woodside’s H2OK project, which was unveiled last year, has been at the forefront of the hydrogen industry in Oklahoma. This initiative involves utilizing electricity from the state’s power grid to operate electrolysers for the production of liquid hydrogen. To offset emissions stemming from non-renewable power sources within the supply, Woodside aimed to source renewable energy certificates.

However, the Biden administration has introduced stringent restrictions that threaten the viability of such projects. Under these new regulations, projects seeking incentives of up to $US3 per kilogram for hydrogen production must utilize a source of clean electricity that is deemed “incremental” to existing generation. This essentially means the electricity source should originate from new renewable energy plants and must be located within the same power grid region as the hydrogen project while operating simultaneously.

In a statement issued late last month, the White House elaborated on the necessity of these requirements, stating that without them, hydrogen production could lead to increased grid emissions, surpassing the maximum emissions intensity permitted to qualify for the credit.

Woodside’s H2OK project had already faced delays in making a final investment decision last October. The uncertainty surrounding its eligibility for tax incentives under the IRA and sales agreements with customers played a significant role in the postponement.

For Woodside, this latest setback comes as the second blow within a few weeks for their clean energy endeavors. The company had earlier proposed a $1 billion hydrogen and ammonia project in Western Australia named H2Perth, which is now also facing uncertainty amidst these regulatory changes.

As Australian companies grapple with the evolving landscape of hydrogen production, the future of their projects remains uncertain, raising questions about the global hydrogen market and the potential impact of these US rule changes.