Proposed tax credit rule may hamper US green hydrogen market: Fitch Ratings

The program provides up to a $3/kg hydrogen production tax credit.

The proposed US federal tax credit program on hydrogen production may pose a challenge to the potential market growth of green hydrogen projects, Fitch Ratings reported. 

“The federal tax credit program aims to reduce the gap between the current high cost of hydrogen to the end users and project costs,” Fitch Ratings explained. 

Under the Inflation Reduction Act (IRA), the US government will provide up to a $3/kg hydrogen production tax credit. In effect, this will reduce the expected cost of hydrogen production by 50-75%. 

Fitch Ratings noted this will encourage a truly green hydrogen production, but will likely increase project scope and capital costs. 

“For green hydrogen projects the revenue/expense gap is likely to persist and remain a key credit driver, absent offtakers willing to pay a much higher price, developers willing to put in a lot more equity, or final policy rules that ease restrictions on energy supply.”