Green Hydrogen Policy announced
On 17 February 2022, the government announced a comprehensive green hydrogen and green ammonia policy aimed at boosting the domestic production of green hydrogen to 5 million tonnes through electrolysis of water by 2030. Under the new policy 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 in the country. 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. This means that a green hydrogen producer will be able to set up a solar power plant in Rajasthan to supply renewable energy to a green hydrogen plant in Assam and would not be required to pay any inter-state transmission charges. The move is likely going to make it more economical for key users of hydrogen and ammonia such as the oil refining, fertiliser and steel sectors to produce green hydrogen for their own use. These sectors currently use grey hydrogen or grey ammonia produced using natural gas or naphtha.
At present, the headline cost of Rs 2 per kwh (unit) of solar power is actually the price of generating it at the generation site. When it reaches the end-user it becomes Rs 4 to 7 per unit after adding different levies during its transit through transmission lines in different states. Following the ‘open access’ as a result of waiver of central surcharge and inter-state transmission charges the cost of green hydrogen will come down significantly by 40-50 percent. If would go down further if the electrolyser used to split water into hydrogen and oxygen atoms is indigenously manufactured rather than imported.
The green hydrogen / ammonia manufacturer can bank his unconsumed renewable power, up to 30 days, with distribution company and take it back when required. 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. The implementation of this policy will provide clean fuel to the common people of the country. This will reduce dependence on fossil fuel and also reduce crude oil imports. The objective also is for our country to emerge as an export hub for green hydrogen and green ammonia.
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).
The incentives announced by the government are the first part of India’s national hydrogen policy. The government has not said when the rest will be released. India also plans to provide federal financial support to set up electrolysers, as it wants to make the use of green hydrogen mandatory for refineries and fertiliser plants.
The Indian government also announced plans for new developments in gas grid infrastructure, connecting major demand centres with ports to help the latter become major import/export hubs. The industry sector has also become involved, with some major companies like Adani, Arcelor Mittal, the Indian Oil Corporation, NTPC, Reliance Industries and the Solar Energy Corporation of India announcing ambitious plans to develop projects for low-carbon hydrogen production.
The first policy actions are under way, with the government having announced the adoption of auctions (in 2021) for producing hydrogen from renewables and mandatory quotas for using renewable hydrogen in refining and ammonia production. According to the proposal, starting in 2023/24 refineries will have to meet 10 percent of their hydrogen demand with renewable hydrogen, increasing to 25 percent in the following five years. Fertiliser producers will need to meet 5 percent of demand with renewable hydrogen in 2023/24, increasing to 20 percent. This proposal is expected to be extended to the steel industry in the near future.
Unlike renewable power, which is the cheapest source of electricity in most countries and region today, electrolysis for green hydrogen production needs to significantly scale-up and reduce its cost by at least three times over the next decade or two. However, unlike CCS and methane pyrolysis, electrolysis is commercially available today and can be procured from multiple international suppliers right now.
For green hydrogen, however, we might witness a similar story to that of solar PV. It is capital intensive, therefore we need to reduce investment cost as well as the cost of investment, through scaling up manufacturing of renewable technologies and electrolysers, while creating a low-risk offtake to reduce the cost of capital for green hydrogen investments. This will lead to a stable, decreasing cost of green hydrogen, as opposed to a volatile and potentially increasing cost of blue hydrogen.
Renewable energy technologies reached a level of maturity already today that allows competitive renewable electricity generation all around the world, a prerequisite for competitive green hydrogen production. Electrolysers though are still deployed at very small scale, needing a scale up of three orders of magnitude in the next three decades to reduce their cost threefold. Today the pipeline for green hydrogen projects is on track for a halving of electrolyser cost before 2030. This, combined with large projects located where the best renewable resources are, can lead to competitive green hydrogen to be available at scale in the next 5-10 years. This does not leave much time for blue hydrogen – still at pilot stage today – to scale up from pilot to commercial scale, deploy complex projects like the long-term geological CO2 storage) at commercial scale and competitive cost, and recover the investments made in the next 10 to15 years.
