India squandered a wonderful opportunity to use economies of scale in solar module manufacturing and electric car manufacturing as a latecomer.
However, by deploying green hydrogen, India is laying the groundwork for a hydrogen economy that would cover domestic demands while also providing export potential.
The Ministry of Power unveiled India’s long-awaited first green hydrogen policy on 17 February. The rules are a positive start toward ensuring that green hydrogen is utilized to decarbonize and cut emissions in hard-to-abate industries such as fertiliser manufacture and oil refining. This will also enable the government to achieve its other objectives of energy security, energy self-sufficiency, and lowering imports of costly fossil fuels and hence the import bill. Additionally, it is a tremendous opportunity to establish a new billion-dollar sector that will generate jobs.
The green hydrogen policy establishes a single-window clearance process, allots land in renewable energy parks, prioritizes access to the interstate transmission network, requires open access procurement within 15 days, waives interstate transmission charges, and establishes a 30-day energy banking policy, among other provisions. The government is pushing renewable energy transmission and the establishment of green hydrogen generation close to where it will be consumed through these measures. Additionally, bunkers near ports are included for the storage and simple export of green ammonia.
Distribution firms (Discoms) are rewarded for meeting their renewable procurement obligation by including the sale of renewable energy to makers of green hydrogen/green ammonia (RPO). Additionally, any consuming organization may assert RPO compliance, and any energy consumed in excess of the producer’s duty will be considered part of the local Discoms’ RPO compliance.
Assisting Discoms in meeting RPO obligations, in addition to charging for energy costs, wheeling charges, and a small margin, will encourage them to act as enablers of green hydrogen, promoting the establishment of manufacturing facilities in their areas – a win-win situation for Discoms and manufacturers. States, on the other hand, should foster a favorable climate by waiving or reducing the cross subsidy charge in order to increase the commercial feasibility of green hydrogen.
While the legislation addresses some supply-side issues, green hydrogen demand is mostly determined by its cost. At the moment, green hydrogen costs US$5.5 per kilogram, compared to less than US$2 per kilogram for hydrogen produced from natural gas.
For widespread adoption, it is vital that renewable energy and electrolyser costs — the two key factors affecting the cost of green hydrogen – continue to decline in the coming years. BloombergNEF forecasts that solar PV’s levelized cost of energy (LCOE) will reduce from US$60/MWh now to US$30/MWh in 2030 and to US$20/MWh in 2050. Green hydrogen is expected to cost US$0.9-3 per kilogram by 2030 and US$0.7-1.8 per kilogram by 2050.
Domestically made, less expensive electrolysers combined with ultra-low-cost renewables backed by explicit legislative assistance will contribute to India realizing its green hydrogen potential.
The government’s renewable energy deployment must be accelerated. However, the application of different tariff and non-tariff barriers, including as the basic customs levy on solar equipment and the Approved List of Models and Manufacturers, is putting the renewable energy sector under pressure and driving prices up. To develop a domestic solar manufacturing base, the government must provide incentives through Production Linked Incentive (PLI) programs while avoiding tariff and non-tariff barriers until manufacturing reaches a size capable of supporting 30-35GW of annual renewable energy installation.
To increase the commercial viability of green hydrogen, renewable energy prices must be equivalent to or less than Rs2/kWh. NTPC, Indian Oil Corporation, Reliance, Adani, and JSW all have ambitious plans to develop India’s green hydrogen economy. NTPC intends to achieve a benchmark cost of US$2 per kilogram of green hydrogen by FY2025/26. Reliance has set a target of US$1 per kilogram of carbon dioxide emissions by 2030, investing US$75 billion in renewable infrastructure such as power plants, solar panels, and electrolyzers. Indeed, Reliance has teamed with Henrik Stiesdal, a pioneer in the field of renewable energy, to develop and produce hydrogen electrolysers.
The government should continue to promote these excellent advances by creating a green hydrogen consumption obligation (GHCO) mechanism similar to the RPO for fertiliser production and petroleum refining. This would offer developers with significant offtake visibility and would incentivize investment in production facilities.
Both the public and commercial sectors are optimistic, and the green hydrogen policy offers the necessary incentives for them to build up green hydrogen. The government must now ensure long-term certainty by not terminating these benefits in the coming years. Uncertainty in policy will be critical for developer and investor confidence.
