Font size:
Print
India’s Green Hydrogen Ambition
Context:
India aims to produce 5 million metric tonnes (MMT) of green hydrogen annually by 2030 to decarbonise industries and achieve net-zero emissions by 2070. However, financing challenges remain a major hurdle in realising this crucial pathway to industrial decarbonisation.
The Economics of Green Hydrogen:
- The economics of green hydrogen production hinge on two factors: the levelised cost of electricity (LCOE) and electrolyser costs, both driven by the cost of capital.
- In emerging markets like India, perceived higher risks push up borrowing costs, leading to a high weighted average cost of capital (WACC). As investment costs make up 50-80% of LCOE in renewable energy projects, WACC significantly impacts overall costs.
- Studies show that an increase in WACC from 10% to 20% can trigger up to a 73% surge in the levelised cost of hydrogen, even when all other production factors remain constant.
Hydrogen fuel is categorised into three types:
- Grey hydrogen is produced from natural gas through steam methane reforming (SMR), resulting in significant carbon emissions.
- Blue hydrogen also uses SMR but incorporates carbon capture and storage (CCS) to mitigate emissions.
- Green hydrogen, on the other hand, is generated via electrolysis using renewable energy sources like wind or solar power, producing no greenhouse gases during its production.
About:
- India has set an ambitious target to become a global leader in green hydrogen production, aiming to produce 5 million metric tonnes (MMT) of green hydrogen annually by 2030.
- This initiative is part of the National Green Hydrogen Mission (NGHM), launched in 2023, which seeks to drive innovation, build infrastructure, stimulate industry growth, and attract investment in the green hydrogen sector.
Key Objectives and Challenges:
- Production Target: The NGHM aims to develop green hydrogen production capacity of at least 5 MMT per annum, with an associated renewable energy capacity addition of about 125 GW.
- Economic Viability: The substantial disparity between green hydrogen production costs ($5.30-$6.70 per kg) and traditional grey/blue production costs ($1.9-$2.4 per kg) makes it challenging to drive domestic offtake and attract private investment.
- Investment Needs: The transition to green hydrogen requires significant investments, estimated at $8-10 trillion by 2030.
- This includes investments in electrolyser capacity, green molecule production facilities, and renewable energy infrastructure.
- Policy Support: The government has introduced various incentives and policy frameworks to support the green hydrogen sector, including the Strategic Interventions for Green Hydrogen Transition (SIGHT) Scheme.
- This scheme provides financial incentives to boost domestic green hydrogen production and electrolyser manufacturing.
Potential Impact and Benefit:
- Decarbonisation: Green hydrogen can play a crucial role in decarbonising hard-to-abate sectors like steel, fertilisers, and heavy-duty transportation.
- By replacing fossil fuels with green hydrogen, India can significantly reduce its greenhouse gas emissions.
- Economic Growth: The green hydrogen sector has the potential to create new jobs and stimulate economic growth. The government estimates that the NGHM could generate 6 lakh jobs and attract $100 billion in investments.
- Global Leadership: By leveraging its renewable energy potential and strong domestic demand, India aims to position itself as a global hub for green hydrogen production, utilisation, and export.
Policy Recommendations:
- Policy and Financing Innovations: India needs to adopt innovative financing mechanisms and policy frameworks to attract capital to scale its green hydrogen sector.
- Successful international models (e.g., the U.K.’s Low Carbon Hydrogen Standard Certification, hydrogen hubs in the U.S., Japan, and Australia) suggest that integrated ecosystems for hydrogen can create self-sustaining hydrogen corridors.
- India needs to de-risk investments through:
- Comprehensive policy frameworks: including long-term hydrogen purchase agreements and partial loan guarantees.
- Regulatory sandboxes for innovative business models.
- Innovative financing structures like modular project financing, anchor-plus financing (where a creditworthy industrial anchor customer underwrites the base capacity), and equipment-leasing structures for electrolyser investments.
- Financing and Financial Sector Role: India’s financial sector needs to develop products tailored to hydrogen’s challenges, such as long development timelines, uncertain demand, and complex value chains.
- Blended finance, green bonds, and other flexible financing models can help overcome capital constraints.
- International Collaboration: India’s international collaboration must move from aspirational agreements to addressing practical challenges, such as standardising carbon intensity and hydrogen origin certification to bolster exports and trust in India’s hydrogen supply chain.
- Cross-border partnerships, like the Hydrogen Energy Supply Chain Project between Australia and Japan, provide models for demand certainty.
Way Forward:
- The success of early green hydrogen projects in industrial hubs such as Odisha, Maharashtra, and Gujarat will shape India’s hydrogen sector.
- The focus must be on achieving competitive hydrogen prices to attract investment and meet industrial needs.
