India needs a combination of technological advancements and regulatory support to make green hydrogen cost-competitive and widely adopted. Power only accounts for 40% of India’s carbon emissions, making green hydrogen essential for decarbonizing the hard-to-abate sectors such as transportation and steel. The industry has the potential to transform India from a net energy importer to a net exporter in the long run. However, the cost of production needs to be reduced from $3-6 per kg to less than $2 per kg to be competitive with other energy sources.
Grey hydrogen is already in use by oil refineries and fertiliser companies, and these industries could be early adopters of green hydrogen. However, for other uses, such as fuel for commercial vehicles or shipping or as feedstock for producing iron and steel, economics will play a crucial role. To reduce the cost differential, India needs to reduce the cost of renewable power generation and electrolyzers, which are the key steps in producing green hydrogen.
India’s renewable energy prices, which account for 50-65% of the total cost of green hydrogen, may have to decline to below Rs 2 per unit. Additionally, a waiver of energy banking, transmission and distribution charges, and inter-state transmission charges will be crucial to reduce the landed cost of power. The Green Hydrogen Mission has provided an initial financial incentive of Rs 19,744 crore, wherein Rs 17,490 crore is allocated towards funding domestic manufacturing of electrolyzers and green hydrogen production. Mandates for green hydrogen consumption for refineries and fertilisers are also expected.
Says Naveen Vaidyanathan, Director, CRISIL Ratings, “The ongoing Russia-Ukraine conflict spiked the prices of natural gas — used to produce grey hydrogen — to a record high level averaging $30/mmBtu for calendar year 2022, putting grey and green hydrogen almost on par in terms of cost. However, considering the historical long-term average price of natural gas, the cost of grey hydrogen could average $2-2.5 per kg, significantly below $3-6 per kg for green hydrogen. Thus, in the absence of demand mandates, prospective customers may think twice before signing long-term contracts for offtake of green hydrogen.”
To establish itself as an export hub and achieve the target of green hydrogen consumption of 5 million tonnes by 2030, India will face competition from other countries such as China, the Middle East, Australia, and Chile. Developed economies such as the US and Europe have announced massive subsidies to incentivise green hydrogen production and adoption. Hence, the pace of execution and regulatory and policy support will determine India’s export competitiveness.
Joanne Gonsalves, Team Leader, CRISIL Ratings, says “Along with a target of green hydrogen consumption of 5 million tonne by 2030, India aims to establish itself as an export hub. The country benefits from cheap renewable power, large land, a vast grid and human capital, but will face competition from countries such as China, the Middle East, Australia and Chile. Moreover, developed economies such as the US and Europe have announced massive subsidies to incentivise green hydrogen production and adoption. Hence, the pace of execution and relative regulatory and policy support will determine India’s export competitiveness.
Domestic companies plan to invest around Rs 16 lakh crore over the next decade or so across the green energy value chain, wherein investments in green hydrogen could be back-ended as economics become favorable. Large conglomerates and well-capitalized companies are entering this space, mitigating credit risk. Firm offtake contracts and policy support will be crucial for companies to achieve financial closure.
