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Green hydrogen: Fuelling India’s ambition for energy independence

May 11, 2022
Kashish Shah

Key Findings

Renewable energy developers join the Indian government's push for green hydrogen.

Green hydrogen has become the new darling of the global energy industry. Hydrogen’s potential for use as a fuel and a chemical feedstock has been known for decades, but it lacked economically viable means to scale its use. The recent resurgence in interest in green hydrogen is due to deflation in critical input costs for production – electrolysers and renewable energy sources of solar and wind.  

The cost of producing zero-emissions hydrogen is now closing in on that of hydrogen produced using fossil fuels such as coal and gas. Renewable energy prices have also fallen drastically, with solar and wind now cheaper than coal and gas, bringing down costs in the electrolysis process. 

For the overall production cost of green hydrogen, currently at US$5.5/kgH2, to reach parity with the cost of producing grey hydrogen (produced from gas) at US$2/kgH2 input costs must reduce further.

In countries with greater renewable energy resources (more solar irradiance), the cost of production for green hydrogen is below US$3/kgH2. In Qatar and Australia, it is US$2.62 and US$2.61 respectively, materially lower than that of blue hydrogen, i.e., grey hydrogen with a carbon capture utilisation and storage (CCUS) component, at US$4.61-4.80.

India joins the global green hydrogen race

The Government of India has laid the foundation for a promising green hydrogen economy by announcing its green hydrogen policy that provides a range of production incentives.

Measures include a single-window clearance system, allocation of land in renewable energy parks, priority access to the interstate transmission network, Open Access procurement within 15 days, waiver of interstate transmission charges for 25 years and a 30-day energy banking policy.

India is having tremendous success in the development of ultra-mega solar parks, with numerous solar parks of 2GW-plus capacity already operational. Allowing green hydrogen production in solar parks would build on this success. Access to land, transport and co-location of solar would be advantageous for green hydrogen development.

Waiving interstate transmission charges is a potential work-around for the problem of over-concentration of renewable energy capacity in handful of states.

States with greater renewable energy potential, such as Tamil Nadu, Karnataka, Gujarat and Rajasthan, are the top choices for renewables developers to commission projects, to the disadvantage of other states.

Such a waiver would incentivise investment in green hydrogen production facilities even in states with relatively lower renewables potential or capacity. These facilities could contract long-term power purchase agreements (PPAs) to buy cheaper renewable power from other states, allowing the former to decarbonise local industries.

Through these measures, the government is promoting renewable energy transmission and the setting up of green hydrogen production near the point of consumption, including building bunkers near ports for storage and easy export of green hydrogen.

Options for banking renewable energy for 30 days and sourcing renewable power through open access provide flexibility to the project owners.

Indian corporates show intent and capability

The green hydrogen policy came as a fillip for Indian corporate developments, which have been coming thick and fast.

Reliance Industries Limited (RIL) is among the most notable industrial houses to announce a mega plan for green hydrogen. RIL aims to bring down the production cost of green hydrogen below US$1/kg by the end of the decade. RIL has announced a capital outlay of Rs75,000 crore in the next three years to develop manufacturing capacity for clean energy, including electrolysers to produce green hydrogen.

NTPC, India’s largest power company, aims to bring the production cost below US$2/kg by 2025-2026, much faster than global projections. The bullish targets of NTPC, a government-owned entity, reflect the government's plans for the sector.

NTPC is already walking the talk on green hydrogen. The company is developing India’s first hydrogen to electricity project using Bloom Energy’s (headquartered in the U.S.) solid-oxide electrolysers and fuel cell technology. The electrolysers will be powered through NTPC’s floating solar plant to produce green hydrogen. The hydrogen will then be converted into carbon-neutral electricity without combustion through Bloom Energy’s hydrogen fuel cell technology to power NTPC’s Guest House in Simhadri, Visakhapatnam.

Many developers plan to take advantage of the synergy between renewable energy and green hydrogen to expand their business portfolios. ACME, a renewables developer, has already commissioned a semi-commercial green hydrogen to green ammonia production capacity in Bikaner, Rajasthan.

ReNew Power, another prominent renewables developer, is betting big on green hydrogen. ReNew Power has joined India’s leading engineering conglomerate, Larson & Toubro (L&T), and state-owned oil giant Indian Oil Corporation (IOC) to develop green hydrogen projects. Each entity will employ its niche expertise to vertically integrate the entire value chain – starting from manufacture of electrolysers, production of green hydrogen using RE, and using the hydrogen in petroleum refineries.

India’s current policy mainly incentivises production. The evolution of the hydrogen economy will depend on how the links in the value chain are integrated to deliver hydrogen at a minimum price.

As the next step, projects could be made more bankable by policy interventions that create a strong demand for green hydrogen.

Green hydrogen to green ammonia

Among many applications, the most commercially viable use for green hydrogen is green ammonia (NH3) for fertilisers. The Indian government identifies green ammonia as the prime use for green hydrogen. Stated incentives in the policy are for green hydrogen and green ammonia projects alike.

Fertiliser demand in India has been huge over the past decade. The government heavily subsidises the fertiliser industry via favourable natural gas pricing for fertiliser production and explicit price discounts.  Budget 2022/23 pegged the fertiliser sector subsidy at Rs1.05 trillion (US$14.2 billion), exceeding a trillion rupees for the third consecutive year.

Green ammonia can help the government decarbonise the fertiliser sector while also reducing the subsidy burden. In the short to medium term, a mechanism of green hydrogen consumption obligation (GHCO), mandating green hydrogen for a certain quantity of the feedstock in the fertiliser industry, would help in creating demand.

The steel and petroleum refining industries also can benefit from infusion of green hydrogen.

For India, green hydrogen is a huge opportunity to reverse its import dependence and become “atmanirbhar” (self-reliant) in the energy sector. A deep localisation of the value chain will be key to a thriving green hydrogen economy. Locally manufactured electrolysers and solar modules will eliminate import dependence, create jobs and investment opportunities and accelerate India’s energy transition.

This article was first published by Emerging Technology News (ETN).

Kashish Shah

Kashish Shah is an energy finance analyst with the Institute for Energy Economics & Financial Analysis (IEEFA). He specialises in financing, policy and technology matters of the Indian electricity market.

Kashish has a master’s degree in Economics from the University of Sydney and an Electronics Engineering degree from NMIMS University in Mumbai.

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