Exclusive: India's long awaited green hydrogen policy revealed

The $2.5 billion package aims to create a world-leading hydrogen economy by boosting demand, production and R&D

Exclusive: India's long awaited green hydrogen policy revealed

Welcome to today’s edition of Lights On, a newsletter that brings you the key stories and exclusive intel on energy and climate change in South Asia.

This special issue takes a peek into India's as-yet-unpublished and much-awaited hydrogen strategy. Read on, subscribe and share to support my work:

With a $2.5 billion (INR ~199 billion) plan to boost hydrogen production and demand in the country, India is betting on the fuel to help achieve its 2070 net zero target.

Lights On can reveal details of the new plan, expected to be published towards the end of this month, which according to its designers will avert nearly 50 million metric tonnes (MMT) of greenhouse gas emissions per year by the end of the decade, and lead to the addition of 150GW of renewable capacity.

Back in February, the government had released a short summary of its policy goals under the National Green Hydrogen Mission. Now, this comprehensive 78-page strategy paper covers all aspects of India's future hydrogen economy.

The politics of hydrogen

As it gets ready to assume the G20 presidency this December, the world’s third largest emitter is moving beyond a transition strategy based squarely on solar development, instead branching out into emerging fields such as hydrogen and battery storage.

The most abundant yet elusive chemical element, hydrogen is not found in nature in its pure form: it needs to be extracted from compounds such as natural gas, biomass or water by using an electrical current, a process called electrolysis. When the power used to obtain hydrogen comes from renewable sources, the resulting fuel - which only emits water vapour when consumed for energy - is fully carbon neutral.

Countries’ growing need for green hydrogen and its derivatives may not match their capacity to produce it, the policy says, which will enhance international trade. And as the Covid pandemic and recent energy crisis have shown, green fuels and feedstock are a way to shield energy systems from supply chain disruptions and geopolitical risks. Lawmakers conclude that the current volatility of the global energy markets representsa unique opportunity for India to capitalise on its abundant renewable energy [...] and the growing global demand for Green Hydrogen”.

The policy seizes the moment by creating a comprehensive hydrogen ecosystem, boosting supply, demand and infrastructure. As part of a robust supply chain, it will encourage the creation of hydrogen hubs where the fuel is produced and consumed locally, avoiding transportation costs and physical risks. The goal is to boost India’s production capacity to 5 MMT per year by 2030, from today’s negligible levels, potentially doubling the target once exports pick up. If achieved, the goal would match the EU’s hydrogen ambitions.

Boosting demand and innovation

Seen by Lights On, the latest draft of the much-awaited new policy under the National Green Hydrogen Mission (NGHM) sets new compulsory consumption targets for specific sectors to incentivise demand. These Green Hydrogen Consumption Obligations (GHCO) lay out usage targets for the petroleum refining industry, fertiliser production and city gas distribution networks, with percentages progressively increasing from 2025 to 2035.

Oil refineries will be required to replace 30 percent of their fuel usage with green hydrogen by 2035, starting from 3 percent in 2025. By 2035, fertiliser production should run on 70 percent green hydrogen, starting from 15 percent in 2025, and by the same year urban gas distribution networks should replace 15 percent of their fuel volume, starting from 5 percent in 2025.

According to experts familiar with the matter, the feasibility of these ambitious figures is still being debated, but the GHCO framework will remain in place in the final version of the policy.

With the equivalent of $50.3 million to be unlocked as early as this year, the focus on research and development as well as on expanding the use of hydrogen to new hard-to-abate sectors such as steel, transport and shipping, shows an unprecedented drive towards innovation, says Balasubramanian Viswanathan, a policy adviser with the International Institute for Sustainable Development (IISD). However, he says, “when planning ahead, sectors where there are existing low carbon technologies or can be easily electrified, [such as road transportation] must not be prioritised.” Supporting hydrogen shouldn’t lead to unnecessary competition with other clean technologies, such as electric cars, which at the moment are cheaper and technologically more mature than their hydrogen-fuelled counterparts.

Finance for production

On the production side, three financial mechanisms will support the manufacturing of electrolysers as well as the production of green hydrogen itself, also compensating states and distribution companies choosing to supply renewable energy for hydrogen production. The framework, labelled Strategic Interventions for Green Hydrogen Transition (SIGHT), will receive the lion’s share of the planned budget, with the equivalent of $2.2 billion (INR ~175 billion).

The government recognises that green hydrogen will be initially too expensive to compete with fossil fuels, and intends to work to remove some of the financial risks associated with the early stage technology.

A main concern is that India needs sufficient electrolyser capacity to produce the hydrogen it wants. The policy will target the first 15 GW of capacity at a national level, paying the manufacturers who choose to enter the game early $60 per Kw, and gradually decreasing the amount as businesses become more robust.

It will also incentivise the production of green hydrogen, initially offering INR 50 per kg in 2025, and decreasing to INR 30 per kg in 2028, in an effort to convince producers who currently use fossil sources to make hydrogen to switch to renewables.

Financing hydrogen scale

One of the risks identified in the policy document is the availability of credit, namely how easily businesses can procure the capital needed to start an expensive project.

The draft suggests facilitating access to foreign direct investment (FDI) among other measures, but according to an expert who asked to remain anonymous, “the solutions they suggest are hardly solutions”. The issue of credit availability, the expert says, has been plaguing the entire renewable energy sector for a long time, and India is not getting the kind of foreign interest it needs due to policy uncertainty and low quality products, among other factors.

For example, the parliamentary committee on energy found that India currently receives investments for its renewable sector equivalent to $9.4 billion (INR 750 billion), but it would need three times as much to meet its goals.

In this version of the policy, the expert says, “there is no direct subsidy given for the financial aspect, the only direct support is for production targets”. It remains to be seen how the government will incentivise investors, but failing to address this, the expert believes, “is a big risk, especially later on when we have some pilots, we have a solid proof of concept but we are not able to scale”.

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