- The Indian government, in its annual budget, allocated Rs. 197 billion for the Green Hydrogen Mission. Green hydrogen could become an alternative to fossil fuels in long-haul transport like shipping and trucking.
- Green hydrogen has the potential to reduce or eliminate carbon dioxide emissions from the environment, especially in core sectors like refineries, fertiliser plants, and steel plants among others.
- Experts claim that there is still a lack of clarity on the sector-wise allocations under green hydrogen production, obligations on domestic production, and related issues.
While presenting the union budget on February 1 this year, the finance minister, in her speech, opened doors for rolling out the much-awaited National Green Hydrogen Mission. Under this mission, the government plans to achieve five million metric tonnes (MMT) of green hydrogen production by 2030. Green hydrogen is one among the multiple announcements in the budget, focussed on moving the country towards a decarbonisation pathway.
The minister announced a total outlay of Rs. 19,700 crore ($2.3 billion) for the mission. For 2023-24, the first year of the seven-year mission, the government allocated Rs. 297 crore – the first-ever such allocation for boosting the production of green hydrogen in the country. The budget allocation comes after Prime Minister Narendra Modi announced the mission on August 15, 2021, a policy for the same in February 2022 and a framework to implement it, in January 2023.
Green hydrogen has the potential to decarbonise the country – which is to reduce or eliminate carbon dioxide emissions from the environment – especially core sectors such as refineries, fertiliser plants and steel plants, among others. It is produced by breaking down water in an electrolyser using only renewable energy, resulting in low or no carbon emissions. Green hydrogen could become an alternative to coal in steel mills and fossil fuels in long-haul transport like shipping and trucking.
Read more: India’s initiatives on green hydrogen could help global decarbonisation
India currently consumes around 5 MMT of hydrogen every year, according to the mission document. Most of this hydrogen is currently sourced from fossil fuels and is primarily used in petroleum refineries and in the production of ammonia for fertilisers.
As per its roadmap, the government plans to offer incentives to investors such as production-linked incentives, an exemption in inter-state transmission charges and support to pilot projects, among others.
The mission has also laid out a year-wise roadmap from 2022-23 to 2029-30, during which work will progress in two phases. In Phase I (2022-23 to 2025-26) there are plans to create the set-out standards, create initial demand, undertake pilot projects and issue a set of incentives to boost local production. Next, in Phase II (2026-27 to 2029-30), the plans are to scale up commercialisation of green hydrogen and take it to other sectors like shipping, transport, and more. This plan is based on the assumption that by 2025-26, the prices of production of green hydrogen would become cost-effective.
Global race for green hydrogen
Several countries are currently competing with each other, framing roadmaps and offering incentives to be the leader in the global race on green hydrogen technology.
Experts working in the sector said that it is to be seen how the Indian industry will utilise the funding and how fast it will be deployed on the ground. The budget implementation and its pace will be essential factors influencing India’s global leadership on this new technology.
“Till now there is not much clarity from the budget besides its total allocation and the overall target of the mission. It is crucial to see how the budget is utilised. This will also decide how quickly we can deploy the technology in the country. Right now, it is at the level playing field for all countries as this is a new technology. But it is a fast-moving industry and we have witnessed a lot of developments in the last six months. So, if we can capture the domestic supply chain market early, this can give us an added advantage,” Hemant Mallya, Fellow at the Council on Energy, Environment and Water (CEEW), a public policy think tank, told Mongabay-India.
Mallya also said that when it comes to green hydrogen and its derivatives like green ammonia and green methanol, countries such as Oman, Australia, and some others have made significant progress in capturing the market for these technologies. He said that India with its large landmass, and low renewable energy costs has a good potential to capture the green hydrogen market.
India currently imports 40 percent of its energy requirements, shelling out around $90 billion per year. The green hydrogen mission is expected to reduce the dependence on the import of urea, fertilisers, and ammonia by producing them domestically using green hydrogen. Green ammonia is produced by combining green hydrogen with nitrogen and then used to store energy and make fertilisers.
According to a 2022 report of NITI Aayog, there are 43 countries globally that have strategies, and roadmaps on hydrogen technologies. Most of the research and development funding for green hydrogen are centered in Europe, the United States, Japan and China.
Easwaran Narassimhan, Associate Professor at the Centre for Policy Research (CPR) told Mongabay-India that globally, those countries which can provide green hydrogen at the lowest rates, will dominate the market.
He said that the current budget and the National Green Hydrogen Mission haven’t mentioned the quantum of subsidy that a developer will get, unlike the U.S. which has already announced a subsidy of up to $3 per kilogram of green hydrogen produced in the country.
“The budget announcements are likely to send a positive message to the investors. The country also has the added advantage of the existing infrastructure of refineries, natural gas and other industries which procure hydrogen which could be replaced by green hydrogen. But there are challenges too. India’s current electrolyser manufacturing capacity is negligible. Investments towards building this capacity are crucial to long-term competitiveness in this space,” Narassimhan added.
Higher production costs, projections
Currently, the main concerns around scaling green hydrogen is the high cost of production and dependency on advanced, efficient electrolysers. However, the government seems confident that these are likely to become cost-effective soon. “Recent trends and analysis indicate that, driven by technology advancements, reduction in costs of renewable energy and electrolysers, and aggressive national strategies by some of the major economies, green hydrogen is likely to become cost-competitive in applications across industry, mobility, and other sectors within a short span,” the mission document claimed.
Currently, the cost of production of green hydrogen from electrolysis is anywhere between $4.10 to $7 per kg of the clean gas, based on the technology used. However, as per projections, the cost in India is likely to come down to as low as $1.7/kg to $2.4/kg by 2030 with the expected reduction in electrolyser cost and cost of production of renewable energy.
Experts claim that with mass-scale expansion of green hydrogen production and increased technology, the cost of production of green hydrogen is likely to come down. In addition, other reductions/waivers of government taxations like duties on the import of electrolysers, Goods and Service taxes (GST), and transmission and distribution costs will also help the industry. However, the current budget didn’t talk about duties and GST or give any details of the Production Linked Subsidy (PLI) for the green hydrogen sector.
One of the ways to generate initial demand for green hydrogen in India is to have obligations on the government entities to take up the clean fuel. Shantanu Srivastava, Energy Finance Expert from the Institute for Energy Economics and Financial Analysis (IEEFA) told Mongabay-India that the budget could have provided more for the green hydrogen sector from the sovereign green fund. “The budget documents currently do not talk about the obligations of Public Sector Units (PSUs) or Oil Marketing Companies. Now, only Rs. 297 crore has been allocated for the Green Hydrogen Mission. The mission roadmap talked about supporting research and development and also boosting the green fertiliser sector in 2023-24. There is a separate allocation of Rs. 35,000 crore for energy transition for the Ministry of Petroleum and Natural Gas. We expect that there would be more clarity on the allocation and use these funds from the ministry,” he said.
Domestic distribution and state roles
According to a February 2023 report by clean energy think-tank OMI Foundation, there are four Indian states, Uttar Pradesh, Rajasthan, Odisha, Tamil Nadu, and Kerala, which have a policy/incentive for green hydrogen. Gujarat is set to launch something similar soon. States such as Maharashtra and Madhya Pradesh have included incentives for green hydrogen under their renewable energy policies.
Jaideep Saraswat, Senior Manager at New Delhi-based think tank Vasudha Foundation told Mongabay-India that those states with a high number of fertiliser plants, refineries and policy support are more likely to tap the domestic market for green hydrogen in the short to medium term.
“Those states which have required infrastructure, policy support and demand are likely to thrive in the domestic green hydrogen market. Several states which have refineries already have established natural gas pipelines. There are also city gas distribution pipelines. Such existing infrastructure needs to be captured and modified if needed to ensure early offtake of the technology. Many such states like Gujarat, Uttar Pradesh and Odisha are likely to benefit due to the presence of refineries, fertiliser plants and some even with ports which could be utilised for easy transport and mass storage,” Saraswat told Mongabay-India.
Read more: [Commentary] Greenspeak in the budget needs to be backed by sustained action, independent of optics
Banner image: An aerial view of a cargo ship. In Phase II (2026-27 to 2029-30) of the Green Hydrogen Mission, India plans to scale up commercialisation of green hydrogen and take it to sectors such as shipping and transport. Photo by Tom Frisk/Pexels.