New Delhi: If India achieves the target of 5 MTPA green hydrogen production, then it would save about Rs 40,000 crore on annual energy import bills, said Hemant Mallya, senior programme lead, and Deepak Yadav, programme associate, Council on Energy, Environment, and Water (CEEW) in an exclusive interview with ETEnergyworld. Edited excerpts:
How much capital is required for growing the green hydrogen infrastructure in India?
According to our own study, the target of producing 5 MTPA green hydrogen by 2030 will need a renewable energy capacity of at least 100 GW, electrolyser deployment of 40 GW, and an investment of about $100 billion. If India achieves the target of 5 MTPA green hydrogen production, then it would potentially reduce carbon emissions by 1.6 per cent, natural gas imports by 68 per cent, and save about Rs 40,000 crore on annual energy import bills.
India can also target green hydrogen use across other sectors of the economy. The country can blend green hydrogen in existing steel plants, use it across the mobility sector and also blend in existing natural gas pipelines. We expect that these sectors can create an additional green hydrogen demand of 3.5 MTPA, which will need the deployment of another 70 GW of renewable energy, 28 GW of electrolyser capacity and an investment of $78 billion.
What is your take on the existing investment gap in the sector?
The current green hydrogen market in India is dominated by large industrial players and conglomerates. These industries are unlikely to face challenges in raising capital for setting up gigafactories. However, for a cost-effective green hydrogen ecosystem, it is important that the market remains competitive. Given that the green hydrogen ecosystem is relatively new and financial institutions lack experience in lending for these projects, start-ups, and small firms might face challenges in raising capital.
The second challenge relates to the rate at which capital is available. Financial institutions have enough experience with renewable energy projects and the cost of finance has reached parity with other energy projects in India. However, green hydrogen projects have new components like electrolysers that have significant uncertainties.
Today, electrolysers constitute 30-50 per cent of the cost of green hydrogen projects, the rest being the cost of the renewable energy plants. There are significant uncertainties regarding the life and performance of electrolysers. This is expected to increase the risk perception and as a consequence, the cost of finance might be higher than that of renewable energy projects.
The viability of using green hydrogen in non-industrials sectors will depend on the competitiveness with battery-driven electric vehicles. This might affect the cost of finance for early-stage hydrogen projects in mobility applications over aspects like cost competitiveness and viability over other cleaner routes. The cost of finance will also depend on the guaranteed demand in the mobility sector especially from bulk procurement by the government.
What is your perspective on the increasing project announcements by domestic and global players in India? How do you see this sudden spike in announcements in the past one-two year?
Today, green hydrogen is at an inflection point and is expected to follow a trajectory similar to that of renewable energy, especially solar power.
Similar to renewable energy projects, green hydrogen plants typically have a life of 20-25 years and the cost of hydrogen is determined by the initial capital investment. Once the initial cost is locked-in, the price of green hydrogen will not change substantially due to exogenous factors. This is expected to provide stability to the world economy as far as energy prices are concerned.
Today, the world already consumes 70 million tonnes of hydrogen in refineries, fertiliser, and petrochemical industries. This hydrogen is produced by using fossil fuels like natural gas, coal and oil. Countries are targeting offsetting industrial hydrogen consumption with green hydrogen. According to our own study, at least 32 countries plus the European Union have announced or are developing national-level policies and strategies for hydrogen.
What are your expectations from the second phase of the National Green Hydrogen policy?
The upcoming National Green Hydrogen Mission is expected to have targets related to incremental blending of green hydrogen in refineries and fertiliser plants… It is expected that the mission will have a production-linked incentive scheme for the manufacturing of electrolysers. It might also have targets on pilots across sectors like mobility and steel. It is also expected that there would be targets and plans for green hydrogen blending in natural gas pipelines.
We all talk about what all India has to be a global hub for green hydrogen, but what possible hurdles can India face in its path?
The challenges are two-fold – competitiveness with other countries and building the requisite infrastructure. India is expected to face stiff competition from countries such as Australia, Chile, Oman, and Saudi Arabia that are trying to position themselves as exporters of green hydrogen and derivatives.
Three factors will determine whether India would become a global hub: The cost of renewable power, renewable energy capacity factor, and cost of finance. India can also leverage innovative financing mechanisms, like capital inflow and outflows in foreign currency, to reduce the cost of capital and also bypass hedging costs due to currency fluctuations.
Within India, there are two major constraints for becoming a green hydrogen hub: Land and water availability.
The European Commission has guidelines on the co-location of renewable energy plants with the electrolyser with a firm mandate on no-grid congestion between them. This implies that green hydrogen production through the open-access mechanism, which was envisaged to boost our competitiveness, cannot be used for producing green hydrogen that is export oriented. The EU has also emphasised the physical storage of electricity in batteries in the green hydrogen production centres. This implies that renewable energy grid banking, which is a key enabler to reduce the cost of green hydrogen in India, might not be valid for exports to certain destinations.
What are your views on the ongoing developments in green hydrogen technology?
The efficiency of the electrolyser is the most significant aspect that will drive the decrease in green hydrogen costs. Electrolysers constitute about 50-70 per cent of the green hydrogen costs. Today, electrolysers have an efficiency of 65 per cent. This is expected to increase to 80 per cent in the future. A few upcoming technologies claim a path-breaking efficiency of 95 per cent.
Similarly, the life of an electrolyser stack, which constitutes 50 per cent of electrolyser cost, today is about eight years. With technological innovation, this life could increase to 17 years and help reduce the cost of green hydrogen.
One of the most important components of the domestic manufacturing story would be measuring the economic value addition in India due to indigenous manufacturing capacities. We should also identify avenues to increase the uptake of indigenous technologies and components developed by research laboratories and academic institutions to reduce the dependence on imported technologies.