The US Department of Energy recently either encouraged or discouraged certain applicants to submit full funding proposals through the Regional Clean Hydrogen Hubs program. In this blog post, RFF scholars examine some hypotheses for why certain pre-proposals may have been discouraged by the US Department of Energy and assess how the agency could improve the selection process.
In December, the US Department of Energy (DOE) encouraged 33 of 79 applicants to submit a full proposal in the next phase of the Regional Clean Hydrogen Hubs (H2Hubs) program. At stake is a share of the $7-billion pot allocated to the H2Hubs program by the Bipartisan Infrastructure Law. The deadline for full applications is April 2023. DOE will review the submissions over the course of several months and select between 6 and 10 winners. Each winner will receive up to $1.25 billion in funding to be spent (along with matching private financing) in four phases of H2Hub development—planning, financing, construction, and operation—over the course of 8 to 12 years. Alongside selecting these winners, DOE will reject most of the full H2Hub proposals. Already, based on the information in applicants’ pre-proposals (called “Concept Papers” by DOE), the agency has discouraged 46 applicants from pursuing a full application. (Note that receiving a “discourage” notification from DOE does not preclude submitting a full application.) The decisionmaking process for these choices, however, remains opaque.
Nevertheless, we can piece together some hypotheses for why DOE discouraged those 46 H2Hubs in particular by examining the key characteristics we’ve summarized for identified encouraged hubs and tracked in our Hydrogen Hub Explorer data tool, details from the only pre-proposal whose owner (the Alaska Hydrogen Hub) has announced that they received a “discourage” notification, and limited information provided by DOE.
Hypotheses on How the Department of Energy Chose Hydrogen Hub Applicants
Discouraged H2Hubs may have failed to outline the development of a clean hydrogen market with a full ecosystem of hydrogen producers and end users (often known in the industry as “offtakers”) in their region and instead focused on production facilities. For example, the Alaska Hydrogen Hub pre-proposal focused on exporting ammonia to markets in the continental United States and the Asia-Pacific region. In its funding opportunity announcement for the H2Hubs program, however, DOE noted that “utilization of all hydrogen within the H2Hub region is strongly preferred,” while exports of hydrogen to end users outside the region should be considered only to ensure a balance in supply and demand. Most identified encouraged hubs included local end users of hydrogen as partners in their pre-proposals.
Another hypothesis is that DOE values larger projects. Including federal and private-sector cost shares, the proposed investments from discouraged H2Hub applicants were, on average, much smaller than the investments proposed by identified encouraged hubs. This pattern especially is true for the proposed private-sector cost shares: the proposed investments by discouraged applicants were, on average, half the size of the investments proposed by identified encouraged hubs. This observation might indicate that discouraged applicants proposed smaller-scale projects, either in terms of their geographic coverage or the number of participants involved. DOE might consider this smaller scale detrimental; a goal of the H2Hubs program is to “facilitate a clean hydrogen network,” which likely requires larger-scale endeavors.
Finally, we hypothesize that several discouraged applicants lack the project-management experience that was necessary to apply for and receive funding. The H2Hubs funding opportunity announcement outlines the requirement of substantive experience on the part of the primary funding recipient and project partners; for example, at least two prior projects that are similar in scope and nature to an H2Hub, that have been operationally managed by the applicant or partners, and that have collaborated with disadvantaged communities. In the question-and-answer log for the H2Hubs funding opportunity announcement, a potential applicant mentions that their “inexperience in seeking funding will not allow [them] to fully participate.”
What Do We Know About the Upcoming Selection Process for the Hydrogen Hub Proposals?
In a webinar held in January 2023, DOE officials highlighted that detailed costs for each phase of the project should be included in full applications. DOE is looking to avoid exceeded budgets and project delays, especially in the planning and financing phases of development, before construction begins. DOE specifically is looking for a high degree of detail, particularly regarding the private-sector cost shares that are outlined by proposals.
Overall, DOE has emphasized to applicants that they should be as detailed as possible when describing each H2Hub component. Documents for the application should include cost, schedule, risks, and a community benefits plan. These characteristics were essential inputs in the selection process—especially community benefits plans, which, in general, were summarized only briefly by H2Hub applicants in their initial pre-proposals. DOE notes that a community benefits plan should include details about potential benefits and negative impacts of the project, along with specific and measurable metrics and methods that can describe impacts on the associated communities.
Although DOE has shared information through question-and-answer logs on the content of the funding opportunity announcement and through high-level summaries of H2Hub pre-proposals, much more disclosure regarding the agency’s selection process and H2Hubs operations could be provided.
DOE also is looking for more details on other fronts. The agency has asked applicants to include clear geographical delineations for the boundaries of proposed H2Hubs. The agency is amenable to components of proposed H2Hubs with different timelines for various processes, such as reviews under the National Environmental Policy Act and financing milestones, as long as these timelines are described clearly in the full applications that are due in April.
So Far, How Has the US Department of Energy Handled the Regional Clean Hydrogen Hubs Program?
Since the passage of the Bipartisan Infrastructure Law, DOE has been on schedule in releasing the request for information, funding opportunity announcement, and encourage/discourage notifications for the H2Hubs program. DOE also has been adamant that it will not extend the April 7 deadline for the full application. This punctuality, along with the agency’s reminder that detailed schedules should be included in H2Hub proposals, shows that the agency is trying to prevent any delays in program implementation.
Although DOE has shared information through question-and-answer logs on the content of the funding opportunity announcement and through high-level summaries of H2Hub pre-proposals, much more disclosure regarding the agency’s selection process and H2Hubs operations could be provided. For instance, transparency about all 79 applicants—including the 46 discouraged applicants—would enable a comparative evaluation of “winners” and “losers” and, potentially, the approach that DOE is taking to distinguish between them. If DOE releases such information in the next round of proposal selections, which likely will conclude in the summer this year, then interested parties could evaluate the full proposals, and DOE could build trust in the rigor and impartiality of the decision process.