Fueling India’s energy Independence through green H2
Renewable energy developers join the government's push to exploit synergies and decarbonize local industries through green hydrogen. Kashish Shah, Energy Finance Analyst - IEEFA India, writes about what it will take to develop a promising green hydrogen economy
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 an economically viable means to scale its use. The recent resurgence of interest in green hydrogen is due to deflation in critical input costs for production – electrolyzers and renewable energy sources of solar and wind.
The cost of producing zero-emission hydrogen is now closing in on that of hydrogen produced using fossil fuels such as coal and gas. Renewable energy (RE) 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 $5.5/kgH2, to reach parity with the cost of producing grey hydrogen (produced from gas) at $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 $3/kgH2. In Qatar and Australia, it is $2.62 and $2.61 respectively, materially lower than that of blue hydrogen, i.e., grey hydrogen with carbon capture utilization and storage (CCUS) component, at $4.61-4.80.
India joining 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+ 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 workaround for the problem of over-concentration of renewable energy capacity in a 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 incentivize investment in green hydrogen production facilities even in States with relatively lower renewable potential or capacity. These facilities could contract long-term power purchase agreements (PPAs) to buy cheaper REpower from other States, allowing the former to decarbonize 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.
Corporates showing intent & 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 $1/kg by the end of the decade. The company has announced a capital outlay of ₹75,000 crore in the next three years to develop manufacturing capacity for clean energy, including electrolyzers to produce green hydrogen.
NTPC, India's largest power company, aims to bring the production cost below $2/kg by 2025-2026, much faster than global projections. The bullish targets of NTPC, a government-owned entity, reflect GoI'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 electrolyzers and fuel cell technology. The electrolyzers 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 RE and green hydrogen to expand their business portfolios. ACME, an RE developer, has already commissioned semi-commercial green hydrogen to green ammonia production capacity in Bikaner, Rajasthan.
ReNew Power, another prominent RE 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 the manufacture of electrolyzers, production of green hydrogen using RE, and using the hydrogen in petroleum refineries.
India's current policy incentivizes 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 fertilizers. 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.
Fertilizer demand in India has been huge over the past decade. The government heavily subsidizes the fertilizer industry via favorable natural gas pricing for fertilizer production and explicit price discounts. The recently announced Budget 2022/23 pegged the fertilizer sector subsidy at ₹1.05 trillion ($14.2 billion), exceeding a trillion rupees for the third consecutive year.
Green ammonia can help the government decarbonize the fertilizer 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 fertilizer industry, would help in creating demand.
The steel and petroleum refining industries also can benefit from an 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 localization of the value chain will be key to a thriving green hydrogen economy. Locally manufactured electrolyzers and solar modules will eliminate import dependence, create jobs and investment opportunities and accelerate India's energy transition.
[The Institute for Energy Economics and Financial Analysis (IEEFA) is a U.S. non-profit corporation that examines issues related to energy markets, trends, and policies; with a mission to accelerate the transition to a diverse, sustainable and profitable energy economy.]