Earlier this month, the Department of Energy announced plans to retain or modify funding for the Appalachian hydrogen hub, also known as ARCH2. Using carbon capture and storage to mitigate emissions in hydrogen derived from natural gas, ARCH2 was intended to jumpstart a regional decarbonization effort spanning Ohio, Pennsylvania, and West Virginia. The Appalachian hydrogen hub was one of seven federally-designated projects allocated funding to support a network of hydrogen producers, end-users, and associated infrastructure and this decision was met with widespread praise from our region’s public officials. Now, a full three years after first being announced, what is there to show for all this pomp and circumstance?
Setting the record straight
Consisting originally of sixteen projects, ARCH2 underwent significant changes in the nine months between being designated a federal hydrogen hub and receiving its first tranche of funds. These changes included the loss of two prospective customers (Chemours and First Mode), one midstream partner (MPLX), and one hydrogen producer (TC Energy). Another developer included in the initial announcement (Clearway Energy Group, likely a hydrogen producer) had already left the hub by the time the Department of Energy approved the project. When the final slate of projects was announced in 2024, ARCH2 consisted of twelve distinct projects: eight hydrogen producers, three potential customers, and one processing/storage facility.
While this may seem like a robust set of projects, in reality, production appears to be mostly concentrated in just three projects, making the hub’s viability contingent on the success of a handful of companies. Now, based on the available information, it appears that the hydrogen hub has all but collapsed. Despite this, however, our region’s leaders continue to champion the project, claiming that the project will bring thousands of jobs to our region.
Core challenges
According to ARCH2’s website, the hydrogen hub intends to produce more than 2,100 metric tons of hydrogen per day, an amount equivalent to roughly eight percent of all the hydrogen produced in the US today. Unlike conventional methods of hydrogen production, ARCH2 plans to capture CO2 emissions during the production process and store the carbon in deep geologic formations for hundreds or possibly thousands of years. The resulting low-carbon hydrogen would then be used to power industrial processes that currently rely on natural gas or other fossil fuels. However, the economics of the project raise serious concerns about the viability of the hydrogen hub.
Tax credits offered by the federal government do not appear to be sufficient to cover the cost of decarbonizing hydrogen and ARCH2 has failed to demonstrate why current and future offtakers would pay more for lower-carbon hydrogen than they would for conventional hydrogen. Unless the federal government enacts a tax on carbon or a similar mandate that raises the price of conventional hydrogen — something that is extremely unlikely — low carbon hydrogen derived from natural gas will not be cost competitive. A proposal from the Biden administration requiring most fossil fuel power plants to switch to hydrogen fuel or employ carbon capture technology might have led to increased adoption of low carbon hydrogen in the power sector but this rule is expected to be repealed.
The hub’s costly hydrogen would also be competing against decarbonization solutions that are not only proven but cheaper. Hydrogen is incredibly uneconomic for most applications when compared to increased energy efficiency, scaling up renewables, and widespread electrification. Technologies like carbon capture and hydrogen could be useful in niche, hard-to-electrify sectors like steelmaking and cement production. However, ARCH2 has floated the use of hydrogen in sectors such as residential heating and power generation where hydrogen is simply unable to compete with alternatives. Any success at building a customer base in these sectors will likely come at the expense of taxpayers, ratepayers, or both and even then these subsidies might not be enough to make these projects viable.
Production
Considering the challenges facing the hydrogen hub, it’s no surprise that its development has been rocky. In the absence of more detailed and updated information from the hub itself, we have been able to piece together a rough approximation of the hydrogen hub’s status using a combination of industry statements, public testimony, and agency records. While the hub’s leadership has sought to dismiss concerns regarding the changes to its slate of projects, it appears that the bulk of the hub’s production is at risk.
As noted earlier, ARCH2’s slate of projects includes eight hydrogen producers. However, only a few of these projects intend to produce meaningful amounts of hydrogen. Neither Enbridge nor Independence Hydrogen have released production goals for their hydrogen facilities but a statement from a hub representative indicates that these two projects will produce a combined one ton of hydrogen per day, or less than a tenth of a percent of ARCH2’s production goal. West Virginia-based Empire Diversified Energy, which has been experiencing financial issues, plans to produce about five tons of hydrogen per day, totaling less than half a percent of the hub’s goal. A fourth producer, KeyState Energy, plans to produce 53 tons per day, or about two and a half percent of the hub’s goal. Few details are available regarding Plug Power’s proposed hydrogen facility in West Virginia but this project’s contributions are also likely to be small. Based on this information, the vast majority of ARCH2’s planned production would have to come from the remaining three producers.
Fidelis New Energy, one of these likely anchor producers, plans to produce 640 tons per day, or thirty percent of the hub’s target production. This leaves potentially two thirds of ARCH2’s hydrogen in the hands of EQT and CNX. While neither company ever disclosed a target production goal, a large-scale hydrogen facility makes sense considering the profile of these companies. Plus, the size of CNX’s original hub project — a partnership with TransGas Development Systems — is consistent with a project of this magnitude.
That so much capacity could be concentrated in just a handful of producers poses a real risk to the hub. The salience of this became apparent after CNX announced that it had suspended its ARCH2 project and is no longer participating in the hub. The impact of this departure was seen a little more than a month later when a hub representative told the Ohio legislature that the hub’s slate at that time would produce “more than 1,000 tons of hydrogen a day,” less than half of the more than 2,100 tons per day initially targeted by the hub. CNX’s footprint was likely to be significant but this sharp drop in production likely also reflects the status of a second anchor producer: EQT never confirmed its hydrogen project and recently disclosed to journalists that it was still evaluating its project.
In short, one key producer dropped out of the hub and the status of a second is still in question, which leaves the bulk of ARCH2’s production capacity in the hands of Fidelis New Energy. Unfortunately for ARCH2, Fidelis New Energy recently asked state regulators to suspend review of the company’s proposed hydrogen production facility in Mason County, West Virginia. Based on the available evidence, it now appears that very little — perhaps three percent — of ARCH2’s planned hydrogen production is in active development.
Offtake
The hub has also experienced issues attracting and retaining prospective customers to the project. A central feature of the hub concept is that it is supposed to be a network of both hydrogen producers and hydrogen consumers. Unfortunately for the hub, two of the five end-users announced as part of the initial slate — Chemours and First Mode — have since left the network. A representative from Chemours noted that the departure was due to “a number of factors” but the company also referenced problems related to the federal hydrogen tax credit, likely referring to the high cost of hydrogen under the existing regulatory scheme.
Of the three remaining customers, Hog Lick Aggregates intends to only use one ton of hydrogen per day, a marginal amount. The second remaining customer, Hope Gas, has not disclosed the amount of hydrogen it plans to purchase but it’s worth noting that Hope Gas intends to blend hydrogen into its residential gas distribution system at levels up to 15%, an application that is widely understood to be cost-ineffective. Plug Power, one of ARCH2’s eight producers, is also listed as having an on-road mobility project associated with two distribution centers in Ohio. Finally, SARTA, the transit authority in Stark County, Ohio, is expected to purchase at least some of the hydrogen produced by Enbridge but for unspecified reasons ARCH2 does not list it as a development partner.
No customers for the hydrogen produced by CNX or EQT were ever announced. Fidelis’s original announcement included plans to develop a data center powered by hydrogen but this project has since been sold and the available permitting information indicates that this facility plans to rely on natural gas.
Conclusion
The hub’s leaders appear to be treating the reinstatement of their funding allocation as a second chance. However, the impacts on ARCH2’s production capacity and the lack of prospective customers means that the Appalachian hydrogen hub has a serious rebuilding effort ahead of it, an endeavor that will take place within a hostile and uncertain market. At the same time, the nearly $1 billion that the federal government has earmarked for ARCH2 represents only about a tenth of the capital required for a project of the scale originally announced.
If our region’s public officials were serious about cleaning up the heavy industry in our region, they would look to cheaper, proven, and more effective methods to reduce carbon emissions, such as energy efficiency, ramping up renewables, and expanding electrification. Investing in these strategies will allow us to apply costly hydrogen and carbon capture to the niche applications where they’re actually needed. Considering the project’s troubled history, it’s difficult to see the case for pursuing the Appalachian hydrogen hub, let alone spending nearly a billion dollars of public funds on its execution. Thankfully, only a small amount of the federal funding — about half a percent — has actually been paid out to the hub, meaning that we can still avoid the worst outcome with little lost other than time.
This is the second article in a series about the past, present, and future of ARCH2.