Incentives Can Help India Become A Green Hydrogen Export Hub

Hydrogen Energy Hub in India
Hydrogen Energy in India

Green hydrogen, produced from water and clean electricity, is crucial for the world’s emissions reduction goals. India should make an earnest effort and be a first mover in the future of energy. It lost out to other countries in manufacturing, especially to China. No such mistake should be repeated as too many jobs will be at stake when the world moves to a clean-fuel era.

Unlike developed countries, India has the advantage of an abundance of low-cost manpower and access to its vast market. But, access to affordable finance, raw materials and technology needed for setting up the electrolyser manufacturing unit are the major challenges for India to become a global leader in this domain.

Globally, industries have set the ‘1-1-1’ target for green hydrogen. This implies achieving a green hydrogen cost of USD 1 per 1 kilogram in 1 decade. The price of green hydrogen now is USD 3.5 to 4.5 per kg. Reaching a USD 1 price point may require a massive drop in the cost of electrolyzers, the equipment needed to make green hydrogen.

Analysts estimate that cost of an electrolyser has to reduce from USD 500 to 700 per kW now to about USD 200 per kW to bring down the cost of green hydrogen and make it affordable to consumers and industries such as steel.

While the government has to give necessary incentives, the private sector needs to grab the opportunity.

On February 17th, the central government announced the National Hydrogen Policy which offered to waive off inter-state transmission charges for 25 years for projects commissioned until June 2025 and grid transmission connectivity on a priority basis.

The policy is aimed at lowering the cost of producing carbon-free green hydrogen and making India the export hub for green hydrogen and green ammonia.

Reliance Industries, which has prospered on fossil fuels, has recently announced plans to invest USD 75 billion in renewables infrastructure including generation plants, solar panels and electrolyzers. So are many other enterprises including NTPC, Indian Oil Corporation and Adani Enterprises have also announced their green hydrogen forays.

Many other companies will follow suit sooner than later. The government should come out with a production linked incentive (PLI) scheme for setting up electrolyser-manufacturing capacities to expedite the uptake of green hydrogen. This is a must if India has to achieve the target of five million tonnes of green hydrogen production, which is half of what the European Union targets by 2030.

Green hydrogen is an important component of India’s intent to achieve net-zero emissions by 2070, an ambition that may require cumulative investments of USD 10.1 trillion, according to a study by the CEEW Centre for Energy Finance (CEEW-CEF). Of this, USD 1.5 trillion would have to be invested in the industrial sector for setting up green hydrogen production capacity to advance the sector’s decarbonisation.

So, in the second phase, the central government should set up a viability gap funding mechanism for the sector to make low-cost financing available. The government should mandate green hydrogen consumption obligations on fertilizer producers and petroleum refiners to create hydrogen value chain in the country and bring down the costs of hydrogen production.

India currently consumes about around 6 million tonnes of hydrogen annually and the government is looking for ways to increase the penetration of domestic green hydrogen in industries that otherwise import natural gas and ammonia to produce hydrogen.

According to CEEW, 50-70 per cent of the cost of green hydrogen comes from the renewable power input costs, a substantial share being from open access charges. The waiving-off of central open access charges is a good first step in lowering the cost of green hydrogen. However, states have their open access charges, which varies depending on whether it is solar or wind. So, the central and state governments should remove the disparity in these charges to avoid a distorted green hydrogen market.

According to Rethink Energy, in just two years’ time, green hydrogen will undercut the cost of existing and polluting grey hydrogen supplies. It estimates that a total investment of USD 10 trillion by 2050 will have seen the cost of hydrogen fall by over 95 per cent from levels seen in 2020, spurring a 10-fold increase in global demand. In total, 771 million tons of hydrogen will be required per year as the world heads towards net zero emissions on this timeline.

Some analysts say as much as 8,800 megawatts (MW) of electrolyser capacity is required to meet the demand of the obligated industries in India if they are mandated to source even 10 per cent of their requirements through domestic green hydrogen. The purchase obligation can be later increased to 20-25 per cent. As per the first part of the green hydrogen policy, companies can set up capacity to generate electricity from renewable sources such as solar or wind anywhere in the country. This electricity will be allowed to be wheeled free of cost through open access of the transmission grid, to the plant where hydrogen is to be produced. The government will also allow storage of excess green hydrogen produced by any company for up to 30 days, in case of capacities that are set up before 2025.

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