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Sempra (SRE) Seeks CPUC Permission for Hydrogen Pilot Project

Sempra Energy SRE recently revealed that its subsidiary, San Diego Gas & Electric Company (SDG&E), has filed a proposal with the California Public Utilities Commission (“CPUC”) seeking permission for a Hydrogen Pilot Project. This will be a demonstration project situated on the University of California San Diego campus.

The project aims at studying the blending of hydrogen with natural gas in the existing gas system to promote a successful energy transition in California.

With the proposal, SDG&E takes a step ahead in its aim to assist California reach its carbon neutrality goal by 2045.

Highlights of the Project

The project involves examining the blending of as much as 20% hydrogen into a plastic natural gas pipe, which will come into use by the UC San Diego apartment complex for common building equipment, such as boilers and water heaters. The hydrogen involved in the project will be generated onsite through a dedicated, grid-connected electrolyzer.

As part of the project, SDG&E will install a new pipe for the demonstration along with a hydrogen storage tank, a hydrogen blender and an electrolyzer that will produce hydrogen by splitting water into hydrogen and oxygen.

The construction of the pilot project is expected to begin in the second quarter of 2024, while the process of blending can be anticipated to commence by late 2024 through early 2026.

This initiative by the company will further strengthen Sempra Energy’s position in the global clean energy market.

Looking Ahead

Hydrogen has evolved as a means to promote clean energy and reduce greenhouse gas emissions. Gas utilities are increasingly focusing on the strategy of blending hydrogen with natural gas in the existing pipeline to continue the smooth flow of their operations while meeting the green energy standard.

To further accelerate the pace of the adoption of hydrogen technology to achieve clean energy goals, the Inflation Reduction Act, announced by the U.S. Senate in August 2022, has highlighted the provision of a clean hydrogen production tax credit of up to $3 per kilogram. This may further fuel the adoption of the technology and encourage utilities to implement innovative methods like hydrogen blending to ensure a reliable operation.

In this context, SRE apart, gas utilities that are promoting hydrogen as a sustainable tool for meeting decarbonization challenges are as follows:

In February 2022, Chesapeake Utilities Corporation CPK announced that it blended hydrogen with natural gas to power its Eight Flags Energy Combined Heat and Power (“CHP”) plant in Nassau County, FL. The Eight Flags CHP hydrogen test program was intended to refine operational practices and requirements for the safe transportation and injection of hydrogen into a distribution system.

The Zacks Consensus Estimate for Chesapeake’s 2022 earnings suggests growth of 6.6% from the prior-year reported figure. CPK shares have returned 1.8% in the past year.

In March 2022, National Fuel Gas Company’s NFG utility segment, National Fuel Gas Distribution Corporation, announced that it joined a newly formed consortium, Building the Clean Hydrogen Economy.

The consortium’s working groups are preparing to execute at least three hydrogen pilot projects. These include heavy-duty transport in the Southwest U.S., green ammonia production in New York and integrated blue and green hydrogen for industrial, peaking power and heavy transport applications in the Gulf.

The Zacks Consensus Estimate for National Fuel’s 2022 earnings implies a growth rate of 37.5% from the prior-year reported figure. Shares of NFG have appreciated 38.3% in the past year.

In March 2022, Centrica CPYYY announced that it is set to support National Grid to establish methods for injecting green hydrogen into the National Transmission System. The project, if successful, will enable excess renewable electricity to be used to create hydrogen, which can then be injected into the gas network.

The Zacks Consensus Estimate for Centrica’s 2022 sales indicates an improvement of 61.3% over the prior-year reported figure. Shares of CPYYY have delivered 43.5% in the past year.

Price Movement

In the past year, shares of Sempra have rallied 31.1% compared with the industry’s growth of 21.3%.

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Zacks Investment Research


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Zacks Rank

Sempra currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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