A Colorado startup is playing a part in providing a key piece of the puzzle when it comes to fueling economic sectors that are hard to “decarbonize,” such as shipping, steel-making and other heavy industrial uses.

NovoHydrogen in Golden has secured a $20 million equity commitment from Modern Energy, which invests in and partners with businesses working to transition from fossil fuels.

The U.S. Department of Energy also selected the company to participate in one of seven regional hubs for the development of hydrogen as an energy source. NovoHydrogen will participate in the hub to be established in the Pacific Northwest.

Colorado joined Utah, New Mexico and Wyoming in a bid for one of the regional hubs and a share of the roughly $8 billion included in the federal infrastructure bill, but wasn’t chosen.

After working for years with renewable energy and battery storage, Matt McMonagle founded NovoHydrogen in October 2021. The company works only on so-called “green hydrogen,” which uses renewable energy to power electrolysis. The process splits water into hydrogen and oxygen, emitting no greenhouse gas.

The Inflation Reduction Act contains tax credits for green hydrogen projects.

NovoHydrogen has at least 15 projects in the works in nine states, including Colorado. The company has 11 employees and expects to add two more people in the next month or two.

“From a climate perspective, current hydrogen production is a major problem. It accounts for 2 to 3% of global greenhouse gas emissions,” McMonagle said.

Approximately 95% of the hydrogen produced today comes from fossil fuels, according to RMI, a Colorado-based research and consulting organization. Hydrogen is used in petroleum refining, to make fertilizer, in rocket fuel and to power vehicles.

The various ways of producing hydrogen as a fuel are referred to by colors to distinguish the processes. High-temperature steam is used to produce hydrogen from natural gas to make what’s called “gray” hydrogen, the majority of what’s generated in the U.S.

What’s called “blue” hydrogen also uses methane with the added step of capturing and storing the carbon dioxide emissions. TJ Kirk, a manager in RMI’s climate-aligned industries program, said methane emissions from producing the natural gas have to be factored in when considering the impacts. And most large-scale projects typically don’t manage to capture more than 60% of the carbon dioxide emissions, he said.

Operators are looking at using hydrogen to supplement or replace natural gas in power plants, the U.S. Energy Information Administration said. As part of its clean energy plan, Xcel Energy-Colorado is proposing to blend hydrogen with natural gas in new plants it wants to build.

Blending hydrogen with natural gas can lower carbon emissions. “But it’s not a linear relationship. A 10% blend would result in somewhere near a 5 to 7% reduction,” Kirk said.

RMI believes hydrogen can be used to decarbonize many sectors, but should be prioritized for areas where direct electrification isn’t feasible or is difficult. Those include heavy industry, shipping fuels and long-distance transportation.

Those banking on hydrogen to help stem the impact of climate change believe hydrogen produced by renewable energy could cut greenhouse gas emissions from steel production, which is highly dependent on coal and accounted for about 7% of global emissions in 2020.

Hydrogen can be stored as a gas or liquid to be used later in electricity generation, supplementing renewable energy sources. But the development of hydrogen as an energy source is still a work in progress.

“There are  a lot of projects being planned, but there are very few projects in existence,” Kirk said.

However, the economic incentives in the Inflation Reduction Act and the infrastructure bill will help  grow the industry, McMonagle of NovoHydrogen said. The incentives mean hydrogen produced by wind, solar and other renewable sources will become cost competitive with hydrogen made from fossil fuels, he added.

“There’s a clear pathway for green hydrogen to be cheaper than fossil-fuel-based hydrogen and not subject to the volatility of commodity prices,” McMonagle said.