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February 26, 2022updated 25 Feb 2022 5:02pm

Green Hydrogen Policy – another positive step towards India’s energy security

By GlobalData Energy

Government of India notified first phase of its Green Hydrogen Policy last week as a step forward towards National Hydrogen Mission. The mission aims to make India a green hydrogen hub and help to meet its climate targets. It targets production of five million metric tonnes per annum (MMTPA) of green hydrogen by 2030 and the related development of renewable energy capacity.

Hydrogen and ammonia are anticipated to be the future fuels, and production of these fuels using renewable energy is one of the major requirements towards sustainable energy security and reduction in fossil fuel import bills for the nation. Green hydrogen is generated by splitting water into hydrogen and oxygen in an electrolyser using renewable energy. The hydrogen produced can be combined with nitrogen to make ammonia, avoiding hydrocarbons in the production process. Green ammonia is used to store energy and in fertiliser manufacturing.

India’s Green Hydrogen Policy announcement comes promptly, as the country pledged to be carbon-neutral by 2070 at the COP-26 summit in Glasgow last year. The quest towards energy security gains more significance at a time when the ongoing Russia-Ukraine crisis has raised energy costs across the world, pinching India in particular, which imports 85% of its oil and 53% of natural gas requirements.

Policy Attributes

The policy offers a range of incentives to lure investors to bet on the development of green hydrogen and green ammonia:

  • Green hydrogen / ammonia manufacturers may purchase renewable power from the power exchange or set up renewable energy capacity themselves or through any other developer, anywhere.
  • Open access will be granted within 15 days of receipt of application.
  • The green hydrogen / ammonia manufacturer can bank his unconsumed renewable power, up to 30 days, with distribution company and take it back when required.
  • Distribution licensees can also procure and supply renewable energy to the manufacturers of green hydrogen / green ammonia in their states at concessional prices, which will only include the cost of procurement, wheeling charges and a small margin as determined by the State Commission.
  • Waiver of inter-state transmission charges for a period of 25 years will be allowed to the manufacturers of green hydrogen and green ammonia for the projects commissioned before 30 June 2025.
  • The manufacturers of green hydrogen / ammonia and the renewable energy plant shall be given connectivity to the grid on priority basis to avoid any procedural delays.
  • The benefit of Renewable Purchase Obligation (RPO) will be granted incentive to the hydrogen / ammonia manufacturer and the distribution licensee for consumption of renewable power.
  • To ensure ease of doing business, a single portal for carrying out all the activities, including statutory clearances in a time bound manner, will be set up by the Ministry of New and Renewable Energy (MNRE).
  • Connectivity, at the generation end and the green hydrogen / green ammonia manufacturing end, to the ISTS for renewable energy capacity set up for the purpose of manufacturing green hydrogen / green ammonia shall be granted on priority.
  • Manufacturers of green hydrogen / green ammonia shall be allowed to set up bunkers near ports for storage of green ammonia for export / use by shipping. The land for the storage for this purpose shall be provided by the respective Port Authorities at applicable charges.

Key Challenges  

India’s current hydrogen demand is around 6.7 million tonnes (MT) which is expected to approximately double by 2030. Oil refineries, fertiliser plants and steel units consume most of it as process fuel to produce finished products. Presently, it is grey hydrogen, which is produced from fossil fuels, such as natural gas or naphtha.

With the increased deployment of renewable power capacity, the price of renewable electricity has fallen sharply to make green hydrogen more feasible, but it is still expensive to compete with grey hydrogen. Incentives announced in the policy will help in lowering the cost of green hydrogen production, but it will remain the key challenge to make it as affordable as grey hydrogen which is four to six times cheaper currently.

The waiving of central open access charges will enable lower cost of production, however there are state level open access charges which can forfeit the intended incentives, therefore collaborative efforts are required to remove this disparity in charges and create beneficial impact of policy incentives.

Way Forward

Further to this first phase of policy announcement, the government plans to introduce Green Hydrogen Consumption Obligation in petroleum refining and fertiliser production on similar lines of renewable purchase obligation. It will mandate the use of green hydrogen and ammonia as a certain proportion of requirements in a phased manner. Initially, the refineries and fertiliser plants would be required to use 10% green hydrogen, which would be increased to 20%-25% in three to four years. The mandate will support the deployment of green hydrogen manufacturing until its cost comes down in parity with grey hydrogen.

The production cost can go down further if electrolysers are indigenously manufactured; India is targeting 15 gigawatts of electrolyser-making capacity and is considering production-linked incentives to boost local manufacturing.

Currently, alkaline water electrolysis technique is being used, which consumes more electricity to produce hydrogen, while use of polymer electrolyte membrane (PEM) electrolysis would bring down the electricity requirement resulting in further cost reduction for hydrogen production.

A Positive Step Forward

The policy is an important first step to enable a hydrogen ecosystem. It has tried to address some of the key demands of the industry in terms of open access, grid banking and single window approval mechanism.

The policy aims to leverage the country’s landmass, increasing solar installations and decreasing renewable power generation costs to produce low-cost green hydrogen / ammonia for exports. Germany and Japan could be key markets for green hydrogen produced in India.

To support this transition from grey hydrogen to green hydrogen and to cater to growing hydrogen demand, India will have to invest continuously for innovation, R&D projects and demonstration projects to support commercialisation of upcoming technologies and accelerate cost reduction of green hydrogen production.

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