India Aims to Become a Green Hydrogen Leader
The National Green Hydrogen Mission could prove instrumental for green hydrogen transition in India.
Scaling up the production and use of green hydrogen is crucial to transform global energy systems. Announcements of large-scale projects and major policy push to support the green hydrogen transition are becoming mainstream. India is emerging as a key leader in this transition with the official launch of the National Green Hydrogen Mission under the stewardship of the Ministry of New and Renewable Energy (MNRE). With a total financial outlay of INR 19,744 crore ($US2.4 billion) to stimulate green hydrogen supply and demand, the mission aims to put India on the world map as a leader in the green hydrogen transition.
The National Green Hydrogen Mission aims to put India on the world map as a leader in the green hydrogen transition.Tweet
Increasing the Share of Green Hydrogen Demand
India is well positioned to be a major green hydrogen production center on account of its ample and low-cost renewable resources that allow for some of the lowest green hydrogen prices in the world. The mission is further leveraging this by setting a target of at least 5 million tons of green hydrogen production capacity by 2030, which could increase to 10 million tons with export aspirations. As per NITI Aayog and RMI’s report Harnessing Green Hydrogen: Opportunities for Deep Decarbonisation in India, India’s domestic hydrogen demand is projected to reach 11 million tons by 2030. The national hydrogen mission could potentially increase green hydrogen’s share in this total hydrogen demand to 46 percent by 2030, compared to 16 percent without any policy push. This signifies the importance of the mission in setting the right stage for scale and investment in the green hydrogen ecosystem in India.
Unlocking Scale through Supply-Side Incentives
The mission allocates close to INR 17,490 crore (US$2.1 billion) for supply-side incentives for electrolyzer manufacturing and green hydrogen production. Such a massive financial outlay puts India as one of the world’s leading nations to allocate public funding for green hydrogen, following similar commitments by the United States and the European Union.
The incentives for electrolyzer manufacturing would encourage manufacturers to set up dedicated production facilities in India, increasing economies of scale and further reducing electrolyzer costs.
Similarly, the green hydrogen production incentives will enable project developers to invest in green hydrogen projects at an accelerated pace. This will foster large-scale investments and lower green hydrogen production costs. The mechanism of incentive design is yet to be disclosed, however, there are a few avenues that could be explored based on learnings from the recently launched production and investment tax credits offered under the United States’ recently passed climate bill, the Inflation Reduction Act.
The Inflation Reduction Act structures the production tax credit as an incentive offered per unit of hydrogen produced, with the amount increasing with decreasing emissions intensity of the production process, thereby promoting greener modes of hydrogen production. The investment tax credit offers direct credits as a percentage of total project expenditure. Another potential pathway could be offering subsidies on the purchase of electrolyzer units.
Interesting market dynamics could emerge from the proposed incentives. For example, hydrogen end-users such as steel producers who would have otherwise relied on procuring green hydrogen from developers could now strategize to vertically integrate hydrogen production to fully capture the benefits of these incentives and lower costs for their operations.
Reducing Costs through Renewable Energy Policy
One of the biggest cost components of green hydrogen production is the power cost, hence it is critical to develop avenues to reduce those costs. The mission suggests policy frameworks need to be in place for the power sector as it relates to hydrogen production. Building upon the Green Hydrogen policy launched in Feb 2022, the mission advocates for a waiver of interstate transmission charges and facilitating open access contracts for green hydrogen developers. This will allow project developers to set up projects in favorable locations according to their priorities and demand from end-users, while at the same time procuring cheaper power to produce green hydrogen. Further opportunities exist around the design of favorable and optimal round-the-clock renewable contracts and banking mechanisms that increase the asset utilization of electrolyzer units to lower the per-unit costs.
Mitigating Investment Risks with Green Hydrogen Hubs
Considering the additional costs and infrastructure challenges with transporting hydrogen over longer distances, the mission puts a deep emphasis on green hydrogen hubs. These hubs can connect centers of hydrogen production with centers of consumption in closed-loop spaces, helping reduce the need for the transport of hydrogen and enabling shared use of infrastructure. The mission aims to identify locations and develop key green hydrogen hubs throughout the country, with potential locations covering regions with a high presence of fertilizers and refinery units in close vicinity of major ports. Several attractive locations of the hubs are emerging, such as Kerala, Tamil Nadu, Maharashtra, and Odisha. The Kerala government is already making headways with the allocation of INR 200 crore (US$2.4 million) for the development of green hydrogen hubs in Trivandrum and Kochi.
An All-Encompassing Approach
Overall, the mission takes an all-encompassing approach toward building a green hydrogen ecosystem. The other major elements include mechanisms to create domestic and export market demand; pilot projects for green steel, heavy-duty trucks, and shipping; research and development investment; finalizing regulations and standards; and much more.
The National Green Hydrogen Mission is a critical step for India to build a robust green hydrogen economy, achieve its climate targets, strive towards energy independence, and strengthen its industrial competitiveness.
For the successful implementation of the mission, stakeholders from the public and private sectors will need to collaborate across the entire green hydrogen value chain to unlock the potential of the incentives. The mission also sets the stage for states to follow suit and develop policies to attract investments and help achieve the objectives of the mission. Finally, actions on enhancing the pace of adoption of green hydrogen in key end-use sectors like steel, heavy-duty long-haul trucking, and shipping will be critical. Lessons could be learned from early adopters like the ammonia and refinery sectors, along with learnings from the pilots proposed under the mission to make the shift for rapid deployment.