India’s Green Hydrogen Transition Will Be A Bumpy Ride

With an initial budget of Rs 19,700 crore, green hydrogen is a key pillar in reducing emissions intensity of the economy and eventually achieving India’s announced aim to reach net zero emissions by 2070. The Mission expects to reduce dependence on imported fossil fuels to the tune of Rs 1 lakh crore and avert 50 million metric tonnes of CO2 emissions by 2030. It is also supposed to create around 600,000 jobs and bring in $100 billion of investment.

But experts point out that green hydrogen’s high cost (linked to the cost of electrolyser manufacturing) is a roadblock even today. India is at present not manufacturing electrolysers--which split water into hydrogen and oxygen--on a large scale. Besides, creating demand for green hydrogen domestically will be a challenge unless either the costs come down organically, the government provides a subsidy, or sets a mandate for purchase of the green fuel.

Even if subsidies or mandates are brought in, experts say, it will be many years before India can tap into all the potential sectors which can use green hydrogen because it doesn’t have the supporting infrastructure to absorb the green fuel on a large scale yet. While the transportation and steel sectors may be mentioned as part of the Mission, transition to green hydrogen will take many years and significant investment in technology, supply chain and manpower.

However, since the green fuel is new to the world and not every country has the kind of potential India has for renewables, India could have a first mover advantage. If it overcomes these problems and ramps up exports to begin with, India could position itself as a leading exporter in the South Asia region and then scale the green fuel domestically, experts say.

IndiaSpend reached out to the Ministry of New and Renewable Energy and Ministry of Petroleum and Natural Gas with questions on what measures the government is taking to reduce costs of green hydrogen, increase renewables’ capacity, for demand creation, infrastructure improvements and policy changes that will be needed to achieve the objectives of the Hydrogen Mission. This story will be updated when we receive a response.

The proposition

'Green' hydrogen is produced by using renewable energy to split water into hydrogen and oxygen. In contrast, the conventional process of making hydrogen uses fossil fuels. Both processes use a piece of equipment known as an electrolyser to perform the split.

India currently consumes around 5 MMT (Million Metric Tonne) of hydrogen for various industrial purposes like petroleum refining, manufacturing of ammonia for fertilisers, methanol production, and the treatment and production of metals, but 99% of its use is in the fertiliser and petroleum industries. Most of this hydrogen is currently sourced from fossil fuels through the process of steam reformation of natural gas, naptha etc. and is referred to as grey hydrogen.

The National Green Hydrogen Mission document from January 2023 says that in fertiliser production, hydrogen is a key input for production of ammonia, which in turn is used to produce urea and other fertilisers. In petroleum refining, hydrogen is mainly used for reducing sulphur content of fuels (desulphurisation). In both sectors, grey hydrogen can be substituted with green hydrogen, reducing carbon footprint and dependence on imported fossil fuels.

Apart from introducing green hydrogen in these two sectors, the Mission will include blending it in city gas distribution systems, using it in steel production, and using green hydrogen-derived synthetic fuels (including green ammonia, green methanol, etc.) to replace fossil fuels in various sectors including mobility, shipping, and aviation.

In the year 2020-21, the fertilisers India imported include about 10 MMT of Urea, 5 MMT Di-ammonium Phosphate (DAP) and 3 MMT of ammonia, the Mission document said, which translates into an annual import value of over $6 billion. If green hydrogen prices come down in the future, the government is hoping to also produce these fertilisers domestically, using green hydrogen/green ammonia to substitute imports. India already has projects underway for setting up around 3.5 MMT of green hydrogen manufacturing capacity, the Ministry of New and Renewable Energy said in July 2023.

“The oil and gas PSUs [public sector undertakings] are working towards achieving an annual production capacity of 230 kilo tonnes by the year 2024-25. In addition, these PSUs have set a production target of 7 lakh tonnes of green hydrogen per annum by the year 2030. Oil India Limited has started a pilot plant in Jorhat, Assam which produces 10 kg of green hydrogen per day,” Union Minister of State for Petroleum and Natural Gas Rameswar Teli said at the International Conference on Green Hydrogen in July.

Indian Oil Corporation Limited (IOCL) has entered into an agreement with Tata Motors for development of hydrogen fuel cell, and buses running on hydrogen fuel cell are being run on a trial basis in Gujarat. IOCL plans to launch 15 fuel cell-driven buses in Delhi this year, with routes connecting Faridabad-Delhi and Delhi-Agra, with future extensions to Baroda-Kevadia and Trivandrum-City Centre.

But the first changes of the green hydrogen ecosystem the government is planning will not reflect domestically. Of the 5 MMT green hydrogen capacity India is targeting, it plans to earmark 70% for export and 30% for domestic consumption.

Union Minister for Petroleum and Natural Gas Hardeep Singh Puri has said that green hydrogen, along with other green fuels, could turn India's current $200 billion energy import bill into a $300 billion export advantage in the future.

“Many countries are likely to rely on imports due to constraints on land and renewable resources required to produce green hydrogen domestically. Aiming at about 10% of the global market, India can potentially export about 10 MMT green hydrogen/green ammonia per annum,” the Mission Document states.

Hemant Mallya, who leads the Industrial Sustainability team at Delhi-based policy research institution Council on Energy, Environment and Water (CEEW), agrees that exports make sense right now.

“Right now the focus is on the export market because in the domestic market, other fuels are cheaper,” Mallya said. “Prices will have to be competitive before we start adopting green hydrogen en masse either for replacing grey hydrogen or in new industries like steel and mobility.”

Mallya believes that once exports are scaled, costs will come down and domestic markets will start absorbing green hydrogen.

India plans to develop certain regions of the country as hydrogen hubs. It wants to identify and develop regions capable of supporting large scale production and/or utilisation of hydrogen, develop the infrastructure for such hubs, and plan projects there to allow pooling of resources and reach scale, says the Mission document.

At least two such hubs will be set up in the initial phase with potential locations in regions having clusters of refineries or fertiliser production plants. “Pilot projects in emerging applications such as steel production, mobility, ports development etc. will also be promoted within these hubs to take advantage of the existing ecosystem,” the Mission document says.

The ifs and buts

In order to produce 5 MMT of green hydrogen per annum by 2030, India will require 60-100 GW electrolyser capacity and 125 GW renewable energy capacity.

Currently, around 30%--around 130 GW--of India’s installed capacity is renewable energy (excluding large hydro and nuclear). If India is to achieve its green hydrogen target, that alone will need 125 GW of this 130 GW installed capacity.

Even when it comes to electrolysers, the picture is bleak right now.

Currently, the global commercial electrolyser manufacturing capacity is estimated to be only about 2-4 GW/annum. During the past three years, various national governments and industrial organisations have announced deployment goals totalling over 200 GW electrolyser capacity by 2030, the Mission document says. This means India will need nearly half of the world’s total electrolyser capacity to meet its goals.

The government has already launched an incentive scheme for electrolyser manufacturing and production of green hydrogen. The Strategic Interventions for Green Hydrogen Transition (SIGHT) Programme consists of financial incentive mechanisms to support domestic manufacturing of electrolysers and production of green hydrogen and has an outlay of Rs 17,490 crore but experts underline bigger challenges.

Pointing out that India’s current electrolyser manufacturing capacity is negligible, Swetha Ravi Kumar and Parul Bakshi, researchers from FSR Global, a division of the research organisation Florence School of Regulation, said in an article in April 2023 that access to critical minerals such as Nickel, Platinum Group Metals and rare earth metals such as Lanthanum, Yttrium and Zirconium could hinder scaling up electrolyser manufacturing capability in India.

“These resources are concentrated in countries such as China, Democratic Republic of Congo (DRC), Australia, Indonesia, South Africa, Chile and Peru,” the researchers wrote. “India also has limited processing capabilities in these minerals. This challenge would entail India setting up large scale manufacturing, building expertise, and securing geo-political partnerships for procurement of critical minerals, and improving overall technical and economic viability of electrolysers year over year while competing with other global players.”

A 2020 CEEW report flagged a related concern, namely the cost of electrolysers.

“While the cost of renewables has dropped significantly as compared to some decades ago, only an aggressive price reduction of electrolyser and storage technologies would pull down the hydrogen production cost to $3/kg by 2030 and $2/kg of hydrogen by 2040 across all locations,” the report points out.

Experts believe that right now, the pace of adoption of green hydrogen is slow because electrolyser manufacturing is slow. “Someone has to commit to buying them, that’s when manufacturing will increase. There is a demand and supply mismatch and that’s why cost is not coming down,” said an energy expert who did not wish to be named.

While speaking at the recently concluded conference on green hydrogen, G20 Sherpa Amitabh Kant also emphasised the need to drive down the cost of green hydrogen from $4.5/kg to $1/kg by 2030.

“Besides, in terms of application in industries, even though fertilisers and refineries might be the obvious first choices for implementing green hydrogen, the move will be operationally challenging for refineries given their excess grey hydrogen capacity and for fertilisers to increase the government’s own subsidy bill,” said Mallya.

Green hydrogen is new not just to India but also to the world, owing to which there are not enough global standards and certification schemes for it at the moment.

“There needs to be consensus on how we define hydrogen gas, what are our emission thresholds,” said Pawan Mulukutla, Director of Integrated Transport, Electric Mobility and Hydrogen at World Resources Institute India. “For any trade to happen, standards, methodologies, and certification processes need to be in place. Domestically also, India needs codes and standards. A lot of work is already happening globally. This is not a transition of two to three years but of two to three decades.”

Taking this into account, the G20 group of nations in a meeting held in India recently adopted the Voluntary Principles on Hydrogen to develop mutually-agreed harmonising standards as well as mutually-recognised and interoperable certification schemes.

Finally, creating demand for green hydrogen domestically may not be as easy as the government expects.

“There are two challenges: how do you bring down costs and how do you build the supporting infrastructure,” explained Charith Konda, Energy Finance Analyst at the Institute for Energy Economics and Financial Analysis (IEEFA). “Green hydrogen will need high pressure cylinders, pressurised pipes, all this infrastructure has to be built. The industry is saying this is a good mission, but they need demand certainty. Unless guaranteed offtake is there, why should they invest in such a capital-intensive sector?”

Konda believes that demand creation can be done either through an incentive for industries to buy green hydrogen or through a mandate, such as the mandates on purchase of renewable energy.

“Green hydrogen is new everywhere, and every country is trying to set up policies, mandates for it,” Konda said. “In this case, for once India is not missing the bus. There is an export market for us to tap, like South East Asian countries, if we manage to do this right.”