High production cost likely to act as a dampener

The rising popularity of green hydrogen in the country would lead to an investment of about `16 trillion over the next decade across the value chain. However, the rising price of its production could be a dampener.

Industry experts are of the view that a combination of technological advancements and regulatory support is needed to boost cost-competitiveness of green hydrogen in the country, compared with other energy sources.

At present, green hydrogen – produced by splitting water into hydrogen and oxygen using renewable power such as wind or solar – is not produced on a commercial scale in India. On the other hand, grey hydrogen — used for industrial purposes — is produced using fossil fuels, mostly natural gas.

“In terms of technology, while the electrolyser technology is well-tested, producing cost-competitive hydrogen versus alternate energy sources is the major hindrance faced. The levelised cost of green hydrogen is estimated at around $3-6 per kg.

The ongoing Russia-Ukraine conflict had spiked the prices of natural gas to a record high level of $30 per metric million British thermal unit (mmBtu) in calendar year 2022, thereby putting grey and green hydrogen almost on a par in terms of cost,” Naveen Vaidyanathan, director at Crisil Ratings, said.

“However, on considering the historical long-term average price of natural gas of $10-13 per mmBtu, the cost of grey hydrogen could average $2-2.5 per kg, significantly below $3-6 per kg for green hydrogen,” he added.

In January this year, the Union Cabinet approved a `19,744-crore ($2.3-billion) incentive plan aimed at producing 5 million metric tonne (MMT) per annum by 2030, which would position India as a top producer of the element.

“The government’s initial aim to turn India into an export centre for hydrogen generation will gain momentum as a result of this announcement. The investment commitment will concentrate on the growth of indigenous electrolyser manufacturers and the development of green hydrogen. The production cost of electrolysers in India is currently high due to various factors such as low economies of scale and limited local manufacturing capabilities,” Hussain Shariyarr, senior vice-president & business head at Godrej Process Equipment, a manufacturer of process equipment for core industries, said.

“The government of India has initiated several measures to promote domestic manufacturing of electrolysers and reduce their costs. There has already been an increasing trend in terms of development of indigenous electrolyser manufacturers and technology tie-ups and partnerships are being announced by various companies,” Shariyarr added.

The firms that have already announced their green hydrogen intentions are Larsen & Toubro (L&T), Reliance Industries, Adani Group, Oil and Natural Gas Corporation, Bharat Petroleum and Indian Oil, among others.

“While price continues to be biggest impediment in mass adoption of green hydrogen, other factors impacting adoption include the need to expand the infrastructure to handle hydrogen and rapid evolution in electrolysers which make economic redundancy a real threat. India has limited capacities for manufacturing of electrolyser stacks, which constitute 40-45% of the overall capex for a green hydrogen unit,” Munish Aggarwal, managing director-investment banking at Equirus, said.

According to Vish Iyer, global chief commercial officer at Jakson Green: “While globally the overall percentage of green hydrogen production within all hydrogen produced is less than $1, the current green hydrogen or green ammonia production capacity in India is almost next to none. Most announced sizeable green hydrogen projects are either at feasibility or final investment decision stages and yet to produce molecules, as producers are testing business cases and usability with pilot plants.”

“Price is certainly one of the many niggling impediments, but that is expected to change with the national green hydrogen mission kicking off this year driven by procurement mandates and a general transition of the fertiliser, chemicals, process, and refinery space towards green products driven by markets,” Iyer added.

According to Subramanian Sarma, whole-time director and senior executive vice-president (energy) at L&T: “Looking at the multiple pathways that can bring down the cost of green hydrogen, L&T believes that it’s only a matter of time for its full potential to materialise.”

https://www.financialexpress.com/industry/corporates-likely-to-invest-rs-16-trn-in-green-hydrogen-in-10-years/3012515/