Highlights of DOE’s Historic Clean Hydrogen Funding Opportunity

The U.S. Department of Energy (DOE or the “Department”) recently opened the submission of Concept Papers for its $7 billion H2Hubs program, marking one of the largest investments in DOE history, with the goal of creating up to ten regional clean hydrogen hubs across the country (see previous alert here). The initial deadline for Concept Papers is November 7, 2022.

The following alert includes a more detailed summary of the Funding Opportunity Announcement (FOA) and related requirements and considerations for applicants.

Background

DOE first announced the opportunity on June 6, 2022, via a Notice of Intent (NOI). The H2Hubs program will focus on the production, processing, delivery, storage and end use of clean hydrogen, with the broader goal of developing a national clean hydrogen network to aid in decarbonizing multiple sectors of the economy and supporting President Biden’s goal of achieving a carbon-free electric grid by 2035 and a net zero emissions economy by 2050.

At a high level, DOE requires that each H2Hub:

• Focus on commercial-scale demonstrations of clean hydrogen, including production, delivery, storage and end uses in a given region.
• Demonstrate balanced hydrogen supply and demand and maintain financial and operational viability both throughout the award and beyond DOE funding.
• Quantitatively estimate and measure societal impacts.
• Include significant engagement of local and regional stakeholders.

The program is funded through Section 40314 of the Infrastructure Investment and Jobs Act (IIJA), a.k.a. the Bipartisan Infrastructure Law (see previous alert here), which provided $8 billion over the five-year period encompassing fiscal years 2022 through 2026. The law directs DOE to fund a minimum of four hubs, as outlined in the original NOI, and the Department has estimated they will select between six and ten hubs for a combined total of up to $7 billion. DOE has also noted that a second FOA could be issued to solicit additional hubs beyond those initially selected.

The IIJA provided statutory requirements for the program, namely that DOE prioritize feedstock diversity, end-use diversity, geographic diversity and skilled training and long-term employment opportunities:

• Feedstock Diversity: The law stipulates that, among the minimum four hubs, DOE must select one hub that would produce hydrogen from fossil fuels, one from renewable energy and one from nuclear energy.
• End-Use Diversity: Further, the law directs DOE to select at least one hub demonstrating the end use of clean hydrogen in each of the following sectors: (1) electric power generation; (2) industrial, residential and commercial heating; and (3) transportation.
• Geographic Diversity: The law provides that each H2Hub must be located in a different region of the country and use energy resources that are abundant in that region. At a minimum, two H2Hubs must be located in regions with abundant natural gas resources.
• Employment: DOE must also take into consideration the extent to which each hub will provide skilled training and long-term employment to residents in the region.

Further, to ensure equitable implementation of the IIJA, the Department has mandated that “Community Benefits Plans” accompany all proposals submitted in response to DOE FOAs, meaning that applicants must also prioritize community and labor engagement; the advancement of diversity, equity, inclusion and accessibility; and advancement of the President’s Justice40 Initiative.

Application Timeline

DOE set out the following timeline for the FOA:

• November 7, 2022: By this first deadline, applicants will submit Concept Papers outlining the proposed research project.
• December 2022: DOE will notify applicants of its determination to encourage or discourage the submission of a Full Application in an aim to save applicants the expense of preparing additional materials when DOE has no programmatic interest in funding the proposed concept.
• April 7, 2023: Full Applications will be due.
• May 31, 2023: Once DOE provides applicants with comments after evaluating Full Applications, applicants will have a brief opportunity to prepare a short Reply to Reviewer Comments. This is an optional step for applicants to respond to any feedback received or supplement their Full Application.
• Summer 2023: DOE may invite some applicants to participate in Pre-Selection Interviews. These interviews are a formal part of the process and will contribute to selection decisions, with the overarching goal of providing clarification on any items in the Full Application and allowing DOE to ask questions about the project. This step is distinct from Pre-Selection Clarifications, which are more informal and may occur before, during or after the merit review evaluation process. Pre-Selection Clarifications are typically conducted through either written response to DOE’s questions or conference calls with DOE staff.
• Fall 2023: Selection notifications are anticipated in Fall 2023. Selection notifications will typically occur within a couple of months after Replies to Reviewer Comments are submitted, with award negotiations beginning shortly thereafter and wrapping up within a matter of weeks, although this time frame has been extended in the past.

Award Information 

As noted, DOE anticipates selecting between six and ten H2Hubs. DOE envisions an award floor of $400 million and a ceiling of $1.25 billion, with an estimated performance period between eight and twelve years. However, the Department notes that projects may propose a shorter period of performance depending on their level of readiness to proceed into each phase.

Upon selection, DOE will generally use cooperative agreements to provide financial and other support to prime recipients for their projects. Under these agreements, the government will have substantial involvement in the project.

The Department may create multiple budget periods during performance, and may also choose to terminate prior to the end of the project. A project will continue to subsequent phases depending on a variety of factors, including whether performance has been satisfactory. Each selected project will be subject to a periodic “Go/No-Go” review, which will evaluate project compliance with program rules and overall contribution to program goals and objectives.

Eligibility 

DOE requires that each H2Hub be led by a single entity, or the prime applicant, and envisions that each H2Hub will include multiple partners utilizing hydrogen in different ways, in accordance with the IIJA’s language on feedstock diversity. To foster partnerships, DOE has created H2 Matchmaker, a voluntary online tool with a map of self-reported clean hydrogen producers and consumers, infrastructure providers and operators, and other key stakeholders such as environmental justice organizations.

Generally, prime award recipients and sub-recipient(s) must be domestic entities. To qualify as a domestic entity, the entity must be (1) organized, chartered or incorporated the laws of a particular U.S. state or territory; (2) have majority domestic ownership and control; and (3) have a physical place of business in the United States. Eligible domestic entities include (1) institutions of higher education; (2) for-profit entities; (3) non-profit entities, except for 501(c)(4) organizations; and (4) state and local governmental entities and Tribal nations.

Domestic incorporated consortia are also eligible to participate as a prime recipient or sub-recipient. Unincorporated consortia must designate one member to serve as the prime recipient/consortium representative. In limited instances, DOE may approve a waiver to allow a foreign entity to participate as a prime recipient or sub-recipient.

The FOA has a cost share requirement of 50 percent of total project costs. Applicants must calculate the total project costs to determine the proper cost share amounts and are required to provide written assurance of their proposed cost share contributions in their application.

The prime recipient is legally responsible for the entire cost share and must be prepared to contribute the cost share amount incrementally over the life of the project. At a minimum, the prime recipient is expected to meet cost share requirements at the end of each budget period. The cost share must come from non-federal sources unless otherwise authorized by law, although it may include funding or property received from state or local governments. If the funding agreement is terminated prior to the end of the project period, the prime recipient must contribute the cost share percentage of the total expenditures incurred.

Project Phases

H2Hubs will adhere to a four-phased structure for managing scope, schedule, deliverables and budget, with a 50 percent cost share requirement for each phase:

• Phase 1 (Detailed Project Planning): This initial phase, which is estimated to range between 12 and 18 months, will focus on overall project plan and analysis. Components developed in this stage include (1) finalized Project Management Plans (PMPs), Risk Management Plans (RMPs) and Intellectual Property Management Plans (IPMPs); (2) an initial financial model for the entire four-phase effort; and (3) final site selection for the various technologies. Up to $20 million will be available in this phase for each selected project.
• Phase 2 (Project Development, Permitting and Financing): This stage, which is estimated to range between two and three years, is comprised of advanced planning activities. Pieces finalized in this phase include project development plans, commercial agreements, financial structure and permitting and approval activities. At this point, DOE also expects that engineering designs be able to support the launch of major project execution tasks. Up to 15 percent of the total DOE funding for the H2Hub will be available for Phase 2 activities.
• Phase 3 (Installation, Integration and Construction): This third phase, which is estimated to range between two and four years, is expected to be the longest duration and will involve varying amounts of construction and retrofitting within each project. Because of this, DOE has not provided a funding estimation for Phase 3 activities but will require a contingency reserve.
• Phase 4 (Ramp-Up and Sustained Operations): The final phase is expected to take between two and four years. During Phase 4, H2Hubs would complete varying criteria specific to each project, followed by activities related to integrated system performance and ramp-up. As with Phase 3, DOE has not provided a funding range for Phase 4 activities, but, like Phase 3, a contingency reserve will be required.

While this funding opportunity has solicited plans for all four phases, the FOA notes that DOE will only initially commit to funding Phase 1 activities.

Application Requirements

With regard to specific application components, applicants will first submit a Concept Paper outlining the proposed research project. This step is necessary to proceed to the second deliverable—the Full Application. While the Concept Paper must be limited to a single H2Hub concept, an entity may submit more than one Concept Paper and Full Application to the FOA, provided that each application describes a unique project.

At a minimum, both deliverables must adhere to certain formatting requirements outlined in the FOA, in addition to certain content requirements. 

High-level summaries of each are linked here.

Conclusion

Additional detail on the specific application components is available here.

Akin Gump’s public law and policy and environmental and natural resources teams are tracking the H2Hubs funding opportunity closely and stand ready to advise clients in navigating the various requirements of the application process and with the strategic planning necessary to access the grant funding.