US guidance clouds Woodside, Fortescue hydrogen plans

Woodside Energy says it is evaluating guidance offered by the US government that could affect the clean energy tax cut eligibility of its proposed H2OK hydrogen project in Oklahoma.

H2OK in Oklahoma is Woodside’s most advanced hydrogen project, but the company deferred a final investment decision on the project in the second half of last year pending clarity over tax incentives.

The incentives, which would be offered under the US government’s trillion-dollar Inflation Reduction Act, will offer a tax credit of up to $3 per kilogram on hydrogen produced in the US over 10 years.

The eligibility criteria is not finalised, but a US Treasury release designed to offer investment certainty in the days leading up to Christmas cast doubt over Woodside’s Oklahoma project.

The release proposed a set of rules for tax break eligibility including a requirement that energy used to make clean hydrogen comes from new clean power projects, rather than existing sources.

According to a November 2023 fact sheet, Woodside intends to source around 200 megawatts of power from the existing Oklahoma gas and electricity grid for use in its hydrogen production.

The current source of energy outlined at H2OK would likely jeopardise Woodside’s tax credit eligibility should the proposed rules become policy as outlined.

In a statement, a Woodside spokesperson said the company was currently evaluating the production tax credit guidance in relation to H2OK.

Woodside has been vocally supportive of the IRA over the past year.

Chief executive Meg O'Neill last year praised the scheme for its use of incentives, rather than deterrents, to attract clean energy investment, with particular reference to H2OK.

“Put simply, it has catapulted the US to the forefront of the global energy transition,” she said at an American Chamber of Commerce in Australia meeting in Perth.

“Why? Because it uses carrots, not sticks, to encourage decarbonisation.

“It delivers tax credits once a project is up and running rather than up front subsidies, which is good for taxpayers. And it focuses on reducing carbon, rather than picking winners, or discounting any particular energy source.”

Another prominent Western Australian business with US clean hydrogen interests is Fortescue, which late last year pressed the button on $US550 million worth of funding on a hydrogen hub project in Phoenix, Arizona.

That project would comprise an 80MW electrolyser and liquefaction facility with production capacity of up to 11,000 tonnes per annum of liquid hydrogen.

It is scheduled to be in production in 2026.

“The Phoenix hydrogen hub established Fortescue in one of the most attractive energy markets in the world, facilitated by the Inflation Reduction Act,” Fortescue Energy chief executive Mark Hutchinson said at the time the investment decision was announced.

The eligibility of the Fortescue project under the proposed rules is less clear, with energy for the hub to be sourced from new renewables.

The project site is to be serviced by privately owned energy grid operator Arizona Public Service “with power to be supplied from new sources of wind and solar generation”.

A Fortescue spokesperson told Business News the company appreciated the US government’s efforts to offer clarity around hydrogen tax credits.

“The IRA creates momentum for the green energy revolution that must take place in order to save our planet,” they said.

“It is critical that the tax system does not slow that momentum by imposing additional barriers to green hydrogen production.

“We look forward to reviewing the proposal released and engaging with all the key stakeholders.”

The comment period on the proposed rules governing US hydrogen tax credits is open until February 26.