Avi Salzman

The Treasury Department issued new rules on Friday for companies trying to get tax breaks for making clean hydrogen -- a fuel that could make some of the world's dirtiest industries "green." On the margin, the new rules could help some of the players in the nascent industry like Plug Power and Bloom Energy, but they're also vulnerable to potential rule changes under the incoming Trump administration. Plug stock was up 10% on Friday. Bloom was up 8%.

Clean hydrogen could theoretically become one of the most important energy sources in the world, if it can be made efficiently and cheaply. It can be used to power vehicles and replace natural gas in industrial businesses that would otherwise be difficult to decarbonize. But so far, it's been very slow-going for the industry.

Almost all hydrogen today is made with natural gas through a process that emits considerable amounts of carbon. The Biden administration's new rules would allow companies to qualify for tax breaks if they capture and store the carbon from the hydrogen production, or if they use clean electricity to make it. The clean electricity could come from wind, solar panels or even nuclear in some cases.

The fact that nuclear power was included in the new guidelines could help companies such as Constellation Energy, the country's largest owner of nuclear reactors. In a statement, Constellation said "the final rule is an important step in the right direction." Clean hydrogen tax credits are worth as much as $3 per kilogram. Today, the "dirty" form of hydrogen costs between $1.11 to $2.35 per kilogram to make, while the greener form costs $3.74 to $11.70, according to BloombergNEF.

The tax-credit rules appear to be flexible enough that they should benefit Plug Power, one of the few companies that make clean hydrogen in the U.S., one analyst wrote. J.P. Morgan analyst Bill Peterson wrote that the rules "will remove a longstanding overhang" for Plug. The regulations are similar to rules that the company had advocated for, he wrote.

Plug Power's customers include Walmart, among other firms. It's faced significant financial difficulties over the past two years, as it lost money trying to fulfill hydrogen supply contracts while attempting to get its production off the ground. The company opened a factory in Georgia last year, but continued to lose money. The stock fell 53% in 2024. It's now trying to close a conditional loan guarantee from the government, which could help stabilize its finances.

Bloom Energy could also benefit from the new rules because it makes fuel cells that can produce electricity using natural gas or hydrogen.

Big energy companies including Exxon Mobil are also considering entering the clean hydrogen market, but have said they're waiting to understand the financial implications of the rules before they make final investment decisions. Exxon said on Friday that it is reviewing the new rules. Companies will have to determine whether to make decisions now or wait to see if the Trump administration makes changes.

Write to Avi Salzman at avi.salzman@barrons.com

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January 03, 2025 15:34 ET (20:34 GMT)

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