AES at the forefront of investing in Green Hydrogen with the largest facility in the US

The world is at a critical point in the green transition. Greening the electric grid and electrifying much more of our economy are absolutely crucial. Green hydrogen has a key role to play in accelerating the future of energy, by eliminating emissions from sectors that are difficult to decarbonise. Hydrogen and hydrogen-derived fuels can contribute to both climate ambitions and energy security. If they are produced from low and zero carbon energy sources and deployed wisely in sectors and applications such as industrial processes that require high temperatures - like iron and steel production, long duration energy storage, and long-distance transport - they can cut emissions and replace fossil fuels.

AES is at the forefront of green hydrogen. On 8 December 2022, we announced an agreement with Air Products to invest approximately $4 billion to build the first mega-scale green hydrogen production facility in Wilbarger County, Texas. It will use approximately 1.4 gigawatts (GW) of solar and wind power generation to manufacture hydrogen, substantially more energy than a city of around 1 million inhabitants consumes. The plant will also have an electrolyzer with a capacity capable of producing over 200 metric tons per day (MT/D) of green hydrogen, making it the largest green hydrogen facility in the United States.

It will yield a totally clean source of energy on a massive scale, and, if all the green hydrogen were used in the heavy-duty truck market, it would eliminate more than 1.6 million metric tons of carbon dioxide (CO2) emissions annually when compared to diesel use in heavy-duty trucks.

The facility will start commercial operations in 2027 and will serve growing demand for zero-carbon intensity fuels for the mobility market as well as other industrial markets. Air Products will be the exclusive off-taker and marketer of the green hydrogen for a 30-year contract.

The investment capitalizes on AES’ position as one of the United States’ largest renewable energy developers and reflects the increasing interest in green hydrogen as part of the solutions needed to accelerate the energy transition. Demand for green hydrogen for mobility and industrial applications is expected to grow exponentially across the United States over the next decade. The growth in demand is supported by green hydrogen's role in net-zero ambitions announced by several states and major corporations.

Several countries have taken steps to develop a large scale hydrogen market. For example, the US enacted the IRA last year which provides tax credit for hydrogen to help reduce the cost of bringing green hydrogen to market.

The EU with RePowerEU set a target of 10 million tonnes of domestic renewable hydrogen production and 10 million tonnes of imports by 2030 and provides financial support.

The key driver to ensure accelerating green hydrogen adoption is to reduce its production cost. This is achieved by creating demand to ensure fast increase in installed capacity of electrolysers. It will require the development of electrolyser production capacity, and the coordination of policymakers, partners and consortiums to ensure wide-scale adoption.

The International Energy Agency (IEA) already registers a lot of positive news on hydrogen adoption and deployment at global level:

·         Announcements of new steel projects are growing fast just one year after the first pilot plant for using              pure hydrogen in direct reduction of iron started production;

·         The first fleet of trains running on hydrogen fuel cells started operating in Germany, and there are also              more than 100 pilot projects for using hydrogen and derivatives in shipping;

·         In the power sector, announced projects using hydrogen and ammonia stack up to almost 3.5 gigawatts            of potential capacity by 2030.

The overall demand picture is also developing fast. In September 2022, IEA published its Global Hydrogen Review 2022. In 2021, global hydrogen demand reached 94 million tonnes (Mt), recovering to above pre-pandemic levels (91 Mt in 2019) and equalling about 2.5% of global final energy consumption. The pipeline of hydrogen projects continues to grow with 680 large-scale projects valued at USD $240 billion proposed.

AES is proud to take a leading role in the development of green hydrogen. In addition to our US investment, AES Chile is working with an international hydrogen producer on a novel large green hydrogen-based ammonia project, which will produce 800 MW of new renewable energy. AES Brasil is currently investigating the viability of manufacturing and selling green hydrogen and green ammonia.

Green hydrogen is a critical technology to reaching economy-wide net-zero by helping to decarbonize difficult to electrify sectors. The development of green hydrogen projects will also benefit local economies. The project in Wilbarger County is expected to create more than 1,300 construction jobs, 115 permanent operations jobs, as well as 200 transportation and distribution jobs. It is also expected to generate approximately $500 million in tax benefits to the state over the course of the project's lifetime, while extending Texas' energy leadership. As a relatively young industry, green hydrogen will continue to require innovative new approaches to production, distribution and commercialization to achieve scale