Treasury's guidance on the 45v hydrogen production tax credit

At Crux, we are excited about the future that every clean energy technology and investment can play in decarbonizing the US economy, building a domestic clean energy manufacturing base, and supporting millions of jobs. Guidance from the Treasury Department relating to the clean hydrogen production tax credit was released today and gives an important industry additional clarity regarding qualification for the valuable $3/kg PTC. We’ve already heard from 45V projects looking to transfer in 2024. With this guidance released and projects underway, we expect to see many more soon. 

Anyone close to the space will, no doubt, see a great deal of commentary centering on the three “pillars”, that is, additionality (or incrementality), deliverability, and temporal matching. We’ll let other folks weigh in on those nuanced and complex issues. 

A few comments as it relates to transferability:

The hydrogen PTC is technology neutral. The IRS acknowledged the role that different hydrogen production pathways can play in building up the US hydrogen economy, recognizing the GREET model includes estimates of lifecycle emissions for many feedstocks and technologies. 

Buyers <3 PTCs. At Crux, we are laser focused on building an efficient market for clean energy tax credits. One thing we’ve observed throughout 2023 is that tax credit buyers are finding real value in the range of PTC credits available. Over the past few months, Advanced Manufacturing tax credits under Section 45X have been attractive to buyers. From this perspective, hydrogen PTCs are a welcome addition to the market. 

To transfer or not to transfer. Hydrogen PTCs may take advantage of so-called elective pay for a 5-year period. Producers can revert to transferability during that period, but aren’t permitted to restart the elective pay period after that. Like 45X and 45Q credits, we anticipate many producers will choose to transfer in near years and may look to transition to elective pay as production ramps. We are also hearing that some producers, manufacturers, and developers may continue to transfer credits because cash proceeds can be realized more rapidly in the transfer market. 

‍Hydrogen tax credits will be with us for decades. Projects can receive credits for 10 years after qualifying. And, projects can qualify as long as they begin construction by 2033. So, the credits are in current law until the 2040s without extension. 

Guidance makes way for a growing market. A recent report by JPMorgan estimated the value of the market for transferable credits in 2023 at $5 billion. Data from a recent survey we completed suggests it may be even larger than that. This is impressive for the first year of operation, and we expect the market could grow significantly in 2024. Regulatory certainty will help. 

We look forward to sharing more insights with you in the new year and seeing where this market goes. If you haven’t already, please sign up for our newsletter.