New Delhi: India’s nascent green hydrogen market is expected to see bumps in its journey due to incentives offered by the United States and Europe, according to experts while several domestic companies underlining this issue as well.
“In the present scenario, we envisage that up to 15% of the green hydrogen manufacturing might shift out of India as a result of global incentives offered in the US and Europe,” Amit Kumar, partner and leader – Energy and climate, Grant Thornton Bharat, told ETEnergyWorld.
According to Prashant Vasisht, senior vice-president and co-head, corporate ratings at ICRA, domestic companies will stand at risk of losing out to competition from both the US and Europe as these schemes bring costs to low levels.
“The US Inflation Reduction Act (IRA) and the European Hydrogen Banks’ (EHB) measures are aimed to reduce green hydrogen production costs and set up the entire ecosystems in their regions which will have an impact on India’s green hydrogen production plans,” he told ETEnergyWorld.
Kumar said that almost all Indian companies have flagged this issue.
“Few companies with deep pockets have started to look beyond India for setting up plants. One Indian company is planning to make a USD 10-billion investment for a green hydrogen plant in the Gulf and serve the European market,” he said.
He further added that the technology suppliers based in Japan, US, Europe and Australia are also preferring to set up these plants in Europe and the US rather than in India.
The US-Europe v/s India
The US IRA has established the Clean Hydrogen Production Credit which aims to make production of clean hydrogen with minimal climate pollution more economically competitive and accelerate development of the US clean hydrogen industry.
“In the US IRA, the incentive for production is framed on the basis of carbon intensity, which is in terms of kg of CO2 per kg of hydrogen produced. The maximum hydrogen production tax credit which they are offering is USD 3 per kg of hydrogen for 10 years duration,” said Grant Thornton Bharat’s Kumar.
The IRA’s offers hydrogen tax credit ranging from USD 0.60 per kg of hydrogen produced to USD 3 per kg of hydrogen to hydrogen production facilities, depending on the lifecycle emissions of the hydrogen production.
When compared to India, it averages to about USD 0.32 per kg of hydrogen, offered for 0.4 MMTPA of green hydrogen production capacities.
“If we look at the incentive offered by India under SIGHT scheme (Tranche I), it is about USD 0.32 per kg of hydrogen, offered for 0.4 MMTPA green hydrogen production capacities,” said Kumar.
He added that India has set a green hydrogen emission cap of 2 kg CO2e per kg of hydrogen and for this emission level, the incentives being offered in the US is USD 0.75 per kg of hydrogen, which is double of what India has offered.
In the case of EHB, the green hydrogen production based support level is 3-euro per kg for a duration of 15 years, which is even better than the US.
“However, the total benefit offered is just 27,000 crore which is not sufficient to cater to the EU market. In fact, it is not even enough for 2% of the total green hydrogen demand in the Euro zone,” said Kumar.
The EHB is a financing instrument which aims to accelerate the setting up of a full hydrogen value chain in Europe. In 2022, the Commission launched the Bank to create investment security and business opportunities for European and global renewable hydrogen production.
Its primary objective is to unlock private investments in hydrogen value chains, both within the EU and globally.
ICRA’s Vasisht added that foreign companies would prefer to set up projects in the US and Europe rather than India as the cost of setting up projects and producing green hydrogen over there would be cheaper.
“The US IRA will result in USD 0.5-USD 1 per kg of green hydrogen which would be the lowest produced green hydrogen in the world,” he said.
Regarding incentive duration, the disbursement of green hydrogen production-based incentive in India is limited to a period of three years whereas US IRA offers support for a 10-year period, said Kumar.
While in the case of production-linked incentive for electrolyser manufacturing in India, the incentive is tapering off in five years.
“In the first year, this is INR 4,400 which is about 10% to 11% of the total electrolyser production cost and gets reduced to less than 5% of total cost in fifth year,” said Kumar.
He added that in the US, the incentives are offered in the form of tax credit of up to 30% and financial support offered is to the tune of about INR 6,200 crore under Bipartisan Infrastructure Law, which makes the US a favourable market for the industry.
However, Kumar added that the global big technology players are keeping an eye on India as the domestic market is significant.
“Since the incentive offered as of now is much less as compared to the US or Europe, they would like to wait before making any commitment. While the domestic market is quite significant, if India imposes import duty on green ammonia imports then the domestic market ecosystem will expand rapidly,” he said.
Reducing the impact
According to Kumar, providing incentives for long tenure from the current three year support for green hydrogen production and five years support for electrolyzer manufacturing could be one way.
Other ways include, increasing the production and manufacturing incentives from the present 10-11% to about 20% which are given in the US, making renewable energy power needs more competitive, cheaper, and accessible to become cost competitive, and providing tax incentives, tax credits.
“On the positive side for the Indian market, the supply of renewable energy which is required for generation of green hydrogen is already in abundance in India. Very soon, the country will be operating the electrolyzers with very high capacity utilization due to supply of RTC RE,” said Kumar.
He added that this would make India more attractive as compared to Europe, US and any market where the RE penetration may not be available to that extent.
Apart from this rolling out the domestic carbon credit programme soon, boosting domestic demand for green hydrogen for manufacturers to set up plants with economies of scale, and reducing the cost of finance for the sector are also key to reduce the impact, added Kumar.
