An effective green hydrogen policy must lower the costs of electrolysers, through subsidies and R&D funding. India’s policy is yet to do this
The government came out with the first phase of the policy on promotion of domestic production of green hydrogen and green ammonia in Feburary, seven months after the National Hydrogen Mission (NHM) was announced. Less than 1% of the hydrogen produced in the world today is green (i.e., from renewable sources), the rest being primarily grey (produced from coal or gas) and blue (produced using fossil fuels and carbon capture technologies).
The policy includes incentives such as waiver of inter-state transmission (ISTS) tariff for 25 years for projects commissioned before June 2025 and permitting open access for sourcing renewable energy within 15 days of receiving applications. In addition, banking of renewable energy used for producing green hydrogen and green ammonia for 30 days has been allowed. Further, special manufacturing zones are to be set up by the government for stimulating production of green hydrogen and green ammonia.
These steps are in the right direction since production of green hydrogen is energy-intensive, requiring 50 kWh for every kg produced through electrolysis. The International Renewable Energy Agency (IRENA) has estimated that if we are to meet the Paris target of 1.5ºC, 30% of the world’s electricity will need to be dedicated to green hydrogen and its derivatives by 2050. Waiving ISTS charges will make power cheaper for such producers, though this cost will be loaded on to others, mainly coal generators—in effect, it is a zero-sum game for the economy. ISTS charge waivers are already being provided for renewable generators till June 2025, thus creating a few murmurs within the power sector. Critics opine that renewable power has become so economical today that such measures are not required and are discriminatory towards coal-based generators. It would be pertinent to point out intra-state transmission charges would still be levied and would be determined by the state commissions. The provisioning of banking facilities is a welcome move and will result in better utilisation of electrolysers which will, in turn, help in lowering the per unit cost of green hydrogen. Bunker facilities to be provided near ports will facilitate ease of exporting hydrogen. This will obviate the need to build pipelines which is a capital-intensive process, along with adopting safety measures since hydrogen is highly inflammable.
The moot point is whether we are doing enough through all these measures and will these guarantee India becoming a hub for green hydrogen production and export. The answer is no. The IEA report (2019) highlights that capex as a proportion of the levelied cost of hydrogen is considered to be as high as 50% in the case of hydrogen produced through coal. As for hydrogen produced through renewable sources, a recent study by the Rocky Mountain Institute (2021) states that the capex is responsible for 20-35% of the levelised cost of hydrogen production. It comprises of primarily the electrolyser cost, which the latest policy does not touch upon. Two things need to be done to bring down the cost of electrolysers—first, incentivising installation of electrolysers so that manufacturers can avail the benefits of economies of scale, for which large subsidies will have to be extended to the private sector to break the logjam of the ‘chicken and egg’ story. Second, investing in R&D, the policy is completely silent.
One can draw a parallel by observing what Australia and the EU are doing, both of whom aim to become export hubs for hydrogen too. In fact, Australia has already started exporting green hydrogen to Japan. Between 2015-2019, the Australian government invested $146 million in hydrogen projects, spanning across R&D, feasibility studies, and demonstration and pilot projects. According to the Australian State of Hydrogen Report (2021), as of June 2021, the total government investment exceeded $1 billion. In addition, sub national governments have also earmarked an additional $325 million specifically for hydrogen. Similarly, the hydrogen strategy submission (2020) by the European Commission envisages a cumulative investment requirement in the range of €180-470 billion till 2050, specifically for green hydrogen. Estimates by the India Hydrogen Alliance (2021) reveal that the country needs to mobilize $25 billion for building a domestic hydrogen supply chain with a 25 GW electrolyser capacity by 2030, which is expected to generate 5 million tons of green hydrogen annually. While Budget FY22 allocated `15 billion (about $0.2 billion) to renewable energy development and the NHM put together, this year’s budget has no such targeted funding.
To conclude, a two-pronged strategy is required for making India an export hub for green hydrogen. The first step is to ensure cheap renewable power (at 2/kWh or less) and the second is to bring down the cost of electrolysers through large scale subsidies and investments in R&D. Unless we do this, we will lose the race, as we have in the production of solar cells and modules. Let us not forget that there are several countries that are richly endowed with renewable sources and have the capacity of producing cheap electricity. The key lies in the reducing the cost of electrolysers.
https://www.financialexpress.com/opinion/green-hydrogen-policy-some-hits-one-crucial-miss/2471061/
