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Will India take centre stage in energy transition with Green Hydrogen?

December 2023

Read Time: 4 minutes

Over the last decade, investments worth USD 5.2 trillion have been mobilized globally for energy transition segments. Approximately 60% of these investments have targeted the renewable energy generation segment but only around 20% of the energy consumption is in the form of electricity. Unfortunately, the world still widely relies on fossil fuels. Over the last two years, a multipronged decarbonisation approach has driven investments worth USD 1 trillion across other segments such as Green Hydrogen, Electric Vehicles, Energy Efficiency and Circular Economy.

At its current demand of over 95 MMTPA globally, the production of hydrogen alone has been contributing ~2.4% of global CO2 emissions. With widening use cases, this demand is set to rise to over 430 MMTPA by 2050 and the need to shift towards green hydrogen need not be stressed further.

Emergence of green hydrogen in India

India has an annual hydrogen demand of approximately 6 MMTPA and is the 3rd largest consumer of hydrogen globally. India is also home to one of the cheapest renewable electricity costs globally, has abundant availability of fresh water for the foreseeable future and is emerging as a global manufacturing hub – three key ingredients required for the production of cost competitive green hydrogen.

To promote the green hydrogen industry, the Indian government has incentivised production of electrolysers and green hydrogen through an outlay of over USD 2.4 billion in the form of production linked incentives (PLIs) along with multiple other incentives through the National Hydrogen Mission. State governments have also announced incentives to bolster the green hydrogen ecosystem. The recent tender by SECI under the SIGHT programme witnessed participation by multiple large and upcoming Indian corporates in the green hydrogen value chain. Many global electrolyser manufactures including John Cockerill, Stiesdal and Ohmium have already commenced their India green hydrogen plans through multiple JVs and strategic partnerships.

Europe, Japan and many other countries that do not have necessary resources to produce green hydrogen at competitive costs have announced import plans and are creating import focussed infrastructure near ports. India is being seen as a giant green hydrogen hub owing to its significantly lower cost of production, its geographical proximity to importing countries and its export infrastructure. The Indian Government has already identified three green hydrogen/ammonia hubs situated near the ports of Kandla, Paradip and Tuticorin. Indian green hydrogen players are already forging strategic partnerships with existing ammonia facilities near ports to cater to export demand, while also building export-oriented offtake arrangements.

Decoding the myth around green hydrogen economics

Most data available today around hydrogen pricing is rather generic without accounting for project and region-specific factors. The cost of grey hydrogen largely relies on the cost of natural gas procured (50-60% of grey hydrogen’s costs). The landed cost of natural gas procured by Indian consumers is currently >USD 15/MMBTU due to high reliance on LNG imports as compared to the Henry Hub prices of ~USD 3/MMBTU.

Large scale consumers of hydrogen already have their captive steam methane reforming (SMR) plants from which they procure grey hydrogen. Given the high natural gas prices in India, grey hydrogen is also produced at a higher price compared to global markets. For this segment, green hydrogen is becoming increasingly competitive as witnessed in the case of refineries exploring large green hydrogen projects for their incremental demand. Even in cases where price differential between grey and green exists, it can be offset if accounted for carbon pricing.

Small and mid-scale consumers currently procure grey hydrogen from merchant market or produce using other technologies at a significant premium compared to the procurement price of large-scale consumers due to scale of production, technologies used and transportation costs. For this segment, green hydrogen is already making economic sense as already proven through private offtake agreements that are now gaining traction.

In the crucible of COP28, leaders converge to inscribe a narrative of hope, resonating a legacy for generations. The Government’s policy level commitment to a carbon neutral future is set to push India to take centre stage in energy transition. This would help India garner disproportionate interest over the next decade as green hydrogen proves its prowess in decarbonizing the energy chain.

(This article was first published by Outlook Business)

Author: Prateek Jhawar, Managing Director and Head, Infrastructure and Real Assets Investment Banking, Avendus Capital

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