From the Robert Bryce Substack

Robert Bryce

Hydrogen producers can get up to $25B per EJ in federal tax credits! That’s 9x solar, 47x wind, & 1,800x hydrocarbons; I’ll be talking H2 & alt-energy in Eldorado, TX on Thursday

The hydrogen sector caught fire in 1937. Photo: Wikimedia

The late Charlie Munger was among the most successful investors of the modern era. Munger, who died late last year, was the vice chairman at Berkshire Hathaway, the conglomerate headed by his friend and colleague, Warren Buffett. Munger, a native of Omaha, had many pithy sayings, but among his most memorable was: “Show me the incentives, and I’ll show you the outcome.”

Whenever you wonder why the U.S. isn’t building more nuclear power plants and is instead lavishing hundreds of billions of dollars on politically popular forms of alt-energy, remember Munger’s line.

As I noted in May in “The H Stands For Hype,” few segments of the energy sector have gotten more media hype in recent years than hydrogen. That hype has gone into overdrive because of fat government subsidies. The German government has earmarked some $14.2 billion for investment in about two dozen hydrogen projects. I continued:

Here in the U.S., the 45V tax credit in the Inflation Reduction Act provides lucrative subsidies for hydrogen production. Big business is lining up to get those subsidies. In February, energy giant Exxon Mobil warned that it might cancel a proposed hydrogen project at its Baytown, Texas refinery depending on how the Treasury Department interpreted the “clean” hydrogen rules in the IRA. Regardless of tax credits and subsidies, making and using hydrogen is a high-entropy, high-cost process. As a friend in the oil refining business told me last year, “If you like $6-per-gallon gasoline, you’re gonna love $14-to-$20-per-gallon hydrogen.”…Hydrogen is insanely expensive, in energy terms, to manufacture. It takes about three units of energy, in the form of electricity, to produce two units of hydrogen energy. In other words, the hydrogen economy requires scads of electricity (a high quality form of energy) to make a tiny molecule that’s hard to handle, difficult to store, and expensive to use.

On Thursday, I’ll be speaking about hydrogen and alt-energy in Eldorado, Texas. I was invited to speak in Eldorado by a group of local ranchers who are concerned about a proposed hydrogen project in Schleicher and Tom Green Counties that is being pushed by ET Fuels, a Dublin-based firm. The event is free and open to the public. The caption for my talk: “Money, Physics, & The Backlash Against Alt-Energy.”

The ranchers are also concerned about other massive alt-energy projects being proposed for the Edwards Plateau. Two publicly traded companies — Apex Clean Energy, a subsidiary of Ares Management Corporation (market cap: $44 billion), and NextEra Energy (market cap: $159 billion) — are also developing hydrogen projects in the region. As I have previously reported, NextEra has become an expert at subsidy mining. The company’s latest 10-K filing shows it has nearly $3.7 billion in tax credit carryforwards that it will use to defray its future tax bills. Apex and NextEra are reportedly planning to lease and pave hundreds of thousands of acres on the Edwards Plateau with solar panels and wind turbines.

Now, back to hydrogen. It’s the most common element in the universe. It’s also one of the most difficult to produce and manage. About 98% of global hydrogen production now comes from hydrocarbons, with some 75% from natural gas via the steam methane reforming process. Oil refiners use a lot of hydrogen to remove sulfur from motor fuel. Water electrolysis, producing hydrogen by splitting water molecules, accounts for less than 2% of world hydrogen output. Why does electrolysis account for such a small percentage? The answer is simple: it requires vast amounts of electricity.

Under rules published earlier this year by the Treasury Department and Internal Revenue Service, hydrogen producers can collect $3 per kilogram of hydrogen under the production tax credit if they use electricity from low- or no-carbon sources. (The exact amount is less than 0.45 kilograms of greenhouse gas per kg of hydrogen.) According to the latest figures from the Treasury Department, the PTC is the single most expensive energy-related tax expenditure in the federal code.  Between 2024 and 2033, the PTC is expected to cost some $276.6 billion.  

In Schleicher County, ET Fuels plans to capitalize on the PTC. It aims to build 600 megawatts of alt-energy capacity, split evenly between wind and solar, to fuel electrolyzers that will produce hydrogen from local groundwater. (The company plans to convert the hydrogen into methanol for motor fuel for ocean-going ships.) That means ET Fuels will be eligible for the $3/kg subsidy. How does that stack up to other subsidies and the market price of natural gas? The numbers are simply astonishing.

Before we jump into the subsidies, a quick refresher on SI units and exajoules (EJ) should be helpful. As seen above, 1 EJ is roughly equal to 1 quadrillion Btu. It’s also approximately equal to the energy contained in 1 trillion cubic feet of natural gas.

As you may recall, I’ve been tracking federal alt-energy subsidies for a while. I wrote two pieces on the subject last year, including this piece (denominated in EJ) and this one (denominated in quads). One kilo of hydrogen contains about 120 megajoules (MJ) of energy. That means hydrogen producers can collect tax credits of $0.025 per MJ of energy produced. As seen above, that works out to $25 billion per EJ, which is more than 9 times what’s given to solar and a whopping 1,900 times the amount given to nuclear.

The numbers are similarly gobsmacking when comparing hydrogen subsidies with the market price of natural gas. Natural gas prices have increased over the past week or two and now stand at about $2.17 per million Btu. Thus, the tax credit for “green” hydrogen is worth 11 times the current market price of natural gas.

I will close with another Munger quote: “If you have a dumb incentive system, you get dumb outcomes.” It’s hard to conjure a dumber incentive system than one that gives hydrogen producers tax credits 1,900 times larger than those given to nuclear energy producers.

I will be writing more about the hydrogen push in Texas and the rural backlash against alt-energy over the coming weeks. If you happen to be in Eldorado on Thursday afternoon, stop by the Schleicher County Civic Center. It will be fun.

By Jo Nova

Hiding the costs of renewables until after the next election

The largest coal plant in Australia was supposed to close in August next year, but the NSW government decided to buy a two year extension until a few months after the next state election.  Now the modeling comes out showing that they decided to keep the Eraring coal plant running to prevent the shocking price spikes from disturbing the voters. Keeping the coal plant will reduce wholesale electricity bills by a few billion dollars. (Why don’t we keep it open for ten years?)

Presumably his reelection chances would be worse if “saved the planet”, and shut the coal plant a few months before the election instead.

They know the voters don’t want the transition. They know it will cost more. And yet they do it anyway…

Bizarrely, this news comes from the renewable industry site Reneweconomy, where Giles Parkinson doesn’t seem to notice this shows coal power is cheap and renewables are hideous. Apparently  he doesn’t mind inflicting costs on hapless homeowners, he is just bummed that they couldn’t force more unreliable energy and battery packs on the grid even sooner:

The NSW state Labor government has confirmed that its controversial decision to delay the closure of the country’s biggest coal fired power generator at Eraring was primarily driven by concerns over a possible jump in wholesale electricity prices.

The 2.88 gigawatt (GW) Eraring facility on the central coast was due to close on August, 2025, but under an underwriting deal with the state government which could be worth up to $450 million, Origin Energy will now keep at least two units open until August, 2027, a few months after the next state election.

Delaying the closure of Eraring even longer until 2028 could save $4.4 billion:

Modelling that the Minns government relied upon – produced by Endgame Economics and ICA Partners – has now been released (or at least bits of it) – and confirms that the greatest benefit of the delayed closure would come from lower prices.

A summary of the Endgame analysis tabled in parliament on Tuesday suggests that the savings on wholesale market prices would total $4.4 billion, with a relatively small benefit of $300 million allocated to increased energy security and $200 million for avoided system strength measures.

The report says this would outweigh the $1.1 billion negative benefits from higher emissions resulting from the burning of more coal, and other costs of $600 million, including $400 million in payments to Origin. Overall, it puts the net benefits at $3.2 billion to $3.5 billion.

More bizarrely, Giles Parkinson argues that the futures market is predicting even higher prices than the modelers are:

NSW Futures prices Electricity: NEM Review

He views this train-wreck as a bad situation caused by Big Market Players exploiting the market, and they absolutely are. But he doesn’t admit that if we weren’t trying to ram a fake transition down everyone’s circuits with unreliable generators, the Predators wouldn’t have nice juicy price spikes to prey on (and subsidized cushions to land on).

With the true genius of all communists-at-heart Giles Parkinson tells us this has nothing to do with prices:

Again, this had nothing to do with the actual cost of generation or the prospect of a supply shortfall, it was simply lack of competition.

But Giles has no idea what competition even is. If more coal power was competing we’d still have cheap electricity. The market he wants is not a free market, it’s just a different kind of Soviet.

So warn the voters of New South Wales. The Chris Minns Labor government is trying to hide the cost of the unreliables until after the election.

Nick Pitsas, CSIRO