Spurring demand for green hydrogen, crucial step forward but a long way to go


By Ashish Suman, Partner at JSA and Co-Authored by Ayan Sinha, Associate at JSA

Following the Prime Minister’s announcement launching the National Hydrogen Mission on the occasion of Independence Day in 2021, and the Ministry of Power’s recently announced Green Hydrogen Policy, India has taken a significant step forward in furthering the aim of the National Hydrogen Mission which is to make India a green hydrogen hub and target production of 5 million tonnes of green hydrogen by 2030.

Present Scenario

Presently, it is estimated that India’s annual hydrogen consumption is 6.7 million tonne majority of which is used for petroleum refining, while the rest is used for fertiliser manufacturing. It is estimated that by 2030, the hydrogen costs will be down by 50 per cent. The demand for hydrogen is expected to see a 5-fold jump to 28 MT by 2050 where 80 per cent of the demand for energy is expected to be green in nature.

Most of the hydrogen which is used by the industrial sector today is grey hydrogen i.e., hydrogen derived from natural gas and fossil fuel sources. India aims to transition towards usage of green hydrogen which is hydrogen produced from renewable energy sources.Hence,for the production of green hydrogen, ready availability of renewable energy is critical.

It is expected that adoption of green hydrogen at large scale will enable India to also meet its commitments at COP 26 where India pledged to take its non-fossil energy capacity to 500 GW and meet 50 percent of its energy requirements from renewable energy by 2030.

Green Hydrogen Policy

The Green Hydrogen Policy’s thrust is mainly towards reduction of costs involved in production of green hydrogen as it is widely acknowledged that the cost of producing green hydrogen is almost 4 times that of grey hydrogen.The cost of green hydrogen predominantly has two components- one being the cost of equipment including the electrolysers and the other being the cost of readily available renewable energy.  The present Green Hydrogen Policy’s main thrust is towards reduction of cost of renewable energy and in this regard, some of the salient features of the policy include:

  • Waiver of inter-state transmission charges: The policy prescribes waiver of inter-state transmission charges for a period of 25 years to all producers of green hydrogen for all projects which are commissioned prior to June 30, 2025.
  • Open Access: The policy recommends that all producers of green hydrogen shall be granted open access for sourcing of renewable energy and that open access charges shall be levied as per the existing rules.
  • Banking of renewable energy: Banking of renewable energy used for producing green hydrogen shall be permitted for a period of 30 days and the charges for banking shall be fixed by the respective state governments and shall be capped.
  • Flexible Sourcing of renewable energy:The producers of green hydrogen have been provided the flexibility to source renewable energy from a co-located renewable energy plant, a remotely located renewable energy plant, whether set up by the producer or a third party. The producers have also been given the right to source the renewable energy from power exchanges.
  • Renewable Purchase Obligations (RPO): The policy also incentivises green hydrogen producers by stating that the renewable energy consumed for producing green hydrogen would be counted towards the producer’s RPO compliance. The consumption of renewable energy beyond the RPO obligation of the procurer will count towards the RPO compliance of the distribution companies where the green hydrogen producing plant is located.

In addition to the above, the policy also states that the Government of India will look towards setting up manufacturing zones where green hydrogen plants can be established while also allotting lands in renewable energy parks for green hydrogen producers. The policy prescribes permitting producers of green hydrogen to set up bunkers near ports for the purpose of export and look to establish a single portal for all statutory clearances/ permissions required for manufacture, transportation and distribution of green hydrogen.

While the policy is a step in the right direction, it focuses largely on the supply side incentives while not providing too many measures to spur demand for green hydrogen. Further, while the steps towards making renewable energy more abundantly available and at cheaper prices is a commendable step, the government would do well to not ignore incentivising and encouraging the development of cost-effective electrolysers for the production of green hydrogen.

Demand Side Incentives

As the next step, the government may consider certain demand side incentives and this may include providing certain amount of financial support or tax breaks to industries which transition from fossil fuels to green hydrogen. In this regard, the industries where there is potential to adopt green hydrogen as an energy source ought to be identified by the government on priority. These sectors may include industries such as steel, shipping, locomotives, refining, fertilisers, petrochemicals, etc.

Towards initiating demand for green hydrogen, the government may consider mandating public sector entities involved in the refinery, fertiliser and steel and iron ore sectors to start utilising green hydrogen as part of their energy mix. The government’s recent announcement that it plans to support pilot projects where green hydrogen would be used for production of direct reduced iron (DRI) is a good example of using pilot projects to explore the feasibility of use of green hydrogen in various sectors. Similarly, once the technology matures and cost of green hydrogen is reduced, the government may consider evolving policies for adoption and mandatory introduction of hydrogen fuelled vehicles in public transportation fleet.

In addition, as and when the supply side constraints subside, the government may consider introducing policy related changes where industries in certain sectors would be required to mandatorily satisfy their energy requirements from green hydrogen thereby spurring overall demand. This system may be similar to the renewable purchase obligations (RPO) that are presently in place.

Boost for Electrolysers

While availability of cheap renewable energy is one part of the equation, India must not lose sight of the fact that availability of cheap electrolysers is also a must for growth of green hydrogen production capacities at affordable prices. The Minister of Power, Mr. R.K. Singh has recently admitted that India would require at least 10 GW of electrolyser capacity if it is to fulfil its target of producing 5 million tonnes of green hydrogen by 2030.

One of the surest ways in which cost of electrolysers can be brought down is to increase the scale of production. Therefore, India must ensure that it encourages domestic manufacturing of electrolysers and reduce import dependency giving a boost to the Make in India initiative.While initiatives from private parties in setting up of electrolyser manufacturing units in India is encouraging, institutional and fiscal support from the Government of India will be necessary.

As a preliminary step, the government may consider introducing a PLI Scheme for electrolysers in similar vein to the PLI Scheme which is already in place for manufacture of solar PV cells. If these steps are taken quickly, India may even get the first mover advantage and could potentially become a hub for manufacturing of electrolysers.

Certain encouraging measures in the Green Hydrogen Policy such as setting up manufacturing zones where green hydrogen plants can be established and allotment of land in renewable energy parks for green hydrogen producers will also prove beneficial for boosting production of electrolysers. Further details on how these measures will be implemented are awaited.

Research & Development

Further, increasing research and development capacitiesso as to ensure cheaper, effective indigenous technologies for production of green hydrogen are developed is of paramount importance.In this regard, the government would do well to consider providing grants to/ making investments in existing centres and institutions engaged in R&D activities related to green hydrogen production. In the near future, budgetary allocations may even be made towards establishing greenfield research centres for ensuring that new technologies can be developed within India. For this purpose, India may even consider setting up a separate, dedicated fund to be utilized for R&D activities in the hydrogen sector.

Path Ahead

The Green Hydrogen Policy, without a doubt is an encouraging first step in realising the goals of the National Hydrogen Mission and it is a positive sign that the government has acknowledged that there shall be further phases in the Green Hydrogen Policy and that the finalisation of the draft mission document of National Hydrogen Mission is also in progress. The Government of India would do well to focus on demand side incentives as well as boosting domestic production of electrolysers in the National Hydrogen Mission document and upcoming phases of the Green Hydrogen Policy. In doing so, India will be well on its way towards becoming a major player in the green hydrogen space.


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