The Arizona Corporation Commission on Tuesday approved an application by the Arizona Public Service (APS) to create a unique rate schedule for power sold to Nikola to generate hydrogen at a future zero-emissions truck fueling station.
The details of the new rate schedule are not publicly available, but according to a statement by the company the tariff "provides Nikola with a competitive electric rate specifically designed for the production, processing, and dispensing of hydrogen."
Hydrogen advocates say the the rate structure could serve as a model for additional hydrogen production facilities in the future. "It's a brilliant development, and so needed," said Janice Lin, founder and CEO of the Green Hydrogen Coalition.
With plans to enable a heavy-duty, zero-emission freight corridor between Los Angeles and Phoenix, Arizona-based Nikola Corporation, a manufacturer of electric and hydrogen-powered vehicles and vehicle components, says the approval of a new low-cost tariff to provide electricity to the company's planned hydrogen fueling station "paves the way for the curtailment of greenhouse gases in the transportation sector."
"APS's competitive electric rate will help lead the creation of the hydrogen economy in Arizona," Nikola said in a press statement. The company "estimates that under the rate structure it will be able to deliver hydrogen at market-leading prices and withing ranges required to offer competitive lease rates for its trucks customers."
Matt McDonnell, managing director of U.S. consulting firm Strategen, said the tariff agreement could serve as a model for other states looking to accelerate hydrogen production — with one caveat.
"Ideally, for this concept and framework to scale, there'd likely need to be more standarization and greater transparency such that commissions, consumer advocates, and stakeholders can have confidence that the net value is appropriately captured and shared," he said. "By developing a standard green hydrogen production tariff, future hydrogen production companies would not have to engage in one-off negotiations."
But there is ample room for using rate design to spur innovation in the hydrogen sector, McDonnell said, describing the Arizona arrangement as a "rare win-win-win situation."
For APS, he said, green hydrogen and the renewable energy capacity needed to support it allows the utility to spur economic development. But the deal could also help APS reduce upward pressure on electric rates for other customers by introducing a potential large consumer of electricity to share base costs, and by serving as a demand management tool.
"A key here is with respect to the electrolytic production, and that being a really flexible use of load," McDonnell said. "APS has strong decarbonization goals, and Arizona is set to finalize clean energy rules, so ... we expect a lot more solar-plus-storage to come on the system, and to meet those goals we need a lot of tools in the toolkit, including flexible load."
A reduced rate tariff is also key for would-be hydrogen producers like Nikola, Lin said, not only because it cuts the cost of a electricity — a critical raw ingredient for electrolysis to split water into oxygen and hydrogen — but also because it reduces the cost associated with transporting hydrogen.
There are basically two schools of thought for how hydrogen could be moved from the site of production, to the end user — pipelines, as with natural gas, or via transmission lines which could power smaller on-site electrolyzers. Nikola's plans appear to fall into the latter category, but Lin, who is also the founder and CEO of Strategen, said the consulting firm plans to encourage utility commissioners to consider rate designs applicable to both scenarios.
While the Green Hydrogen Coalition was not involved in the Arizona proceedings, Lin said the nonprofit has plans to recommend ratemaking action in California, where there is growing political interest in hydrogen.
Nikola, for its part, has indicated the company's next steps including working with APS to finalize site selection and interconnection requirements for the hydrogen production facility.