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How can India realise the transformative potential of green hydrogen?

  • Article

Hydrogen and hydrogen-based fuels are a critical part of the global transition to net zero. Because hydrogen burns without releasing carbon dioxide, it is an alternative to fossil fuels in industries where electrification is not currently a viable option, such as steelmaking, cement production, shipping and heavy-duty trucking.1 It is also used to produce chemicals including ammonia, the key input for the fertilizer industry.

Green hydrogen – one of the most climate friendly shades – is produced by the electrolysis of water using electricity from renewable sources. The other main shades, blue and grey, are derived from fossil fuels.

The trouble is, green hydrogen typically costs in the region of USD5 per kilogram, compared to about USD2 per kg for grey.2 But the cost of green hydrogen has been declining steadily, and according to Bloomberg New Energy Finance, could drop to USD0.70 to USD1.60 per kg in most parts of the world by 2050, making it competitive even with natural gas.3

As the market develops, low-cost producers will be best placed to capture the potential of green hydrogen. India – where land and labour is affordable and the sun shines reliably – is in a prime position.

Considering that electricity accounts for the lion’s share of green hydrogen production costs, India’s most significant advantage is the availability of some of the cheapest solar and wind power in the world. (In fact, India boasts the lowest-cost solar and second-lowest cost onshore wind energy among 54 countries covered by BloombergNEF’s analysis of levelised costs of electricity).4

This gives India a clear opportunity to become a global supplier of green hydrogen. Realising the potential, however, will require a combination of entrepreneurial initiative, industrial innovation, and support from government and finance.

Driving demand

Policy support is already in place. The National Green Hydrogen Mission has set aside INR197 billion (USD2.3 billion) to incentivise domestic production capacity of at least 5 million metric tonnes of green hydrogen per annum by 2030.5 In January, the government allocated 0.41 million tonnes of green hydrogen capacity to a total of 10 companies in the first round of the scheme.6 Much of the increased output could be destined to markets abroad – India is reportedly already in preliminary talks to supply green hydrogen to the European Union and Singapore.7

While exports are doubtless a major opportunity, it will be equally important to create local demand for green hydrogen. According to the Institute for Energy Economic and Financial Analysis, one of the main factors likely to hold back India’s green hydrogen ambitions is the lack of end-use obligations guaranteeing future demand. Without certainty about how demand will evolve, companies are reluctant to make investments and project financing can be more costly.8

Hydrogen is already used widely in India for various industrial purposes such as manufacturing of ammonia for fertilizers, methanol production, petroleum refining, and treatment and production of metals, though nearly all the current 5 million metric tonnes of annual consumption is of the grey variety.9

Subsidies and purchase obligations for green hydrogen would stimulate local demand –similar to policies used to promote the adoption of renewable energy. Indeed, government purchase obligations for renewable energy and incentives during the early stages of the evolution of the sector have helped India add renewables capacity at the fastest rate among major economies.10

Another issue holding back investment in green hydrogen is the lack of a standard global definition of green hydrogen across countries and regions, along with mechanisms for tracking and tracing its green attributes. The Indian government has taken the lead to address this issue, proposing global standards for green hydrogen. 11

Private sector support

But the government alone cannot spark a green hydrogen revolution. Industry and finance also have a crucial part to play in realising the country’s green hydrogen targets – and its broader goal of progressively reducing the country's reliance on fossil fuels and achieving energy self-sufficiency by 2047, the 100th anniversary of India’s independence.

The financial sector needs to develop structures and instruments to channel investment to projects with long-term green objectives, helping to bridge the gap between ambitious visions and commercial reality.

For instance, multilateral development banks are working with private sector lenders to establish blended financing structures to support India’s nascent green hydrogen sector. Blended finance is an approach that involves the use of public funds to change the risk and return profile of investments, attracting private-sector funding and mobilising financing for marginally bankable projects.

Such investments will be crucial to spurring the innovation needed to bring down the cost of green hydrogen and overcome challenges such as storage and transport. The government’s draft research and development roadmap for green hydrogen, released in July, aims to develop safe and cost-effective methods to store hydrogen, as well as large-scale production through low-cost, efficient electrolysers.12 The private sector will need to demonstrate that these projects are also commercially viable.

Collaboration supercharges innovation

HSBC India has partnered with Indian Institute of Technology Bombay and Shakti Sustainable Energy Foundation to pursue the technological solutions needed to make green hydrogen more efficient, cost-effective and scalable.13

New technologies can be developed and commercialised much faster when academia, industry and government agencies in different nations collaborate. To that end, we have joined the US-India Hydrogen Task Force, which brings together India’s MNRE and the US Department of Energy, along with prominent corporations, to promote cooperation among various public and private entities to accelerate the development and deployment of hydrogen technologies.

As green hydrogen emerges as a key enabler of the global energy transition, India’s academic excellence, industrial expertise and clean energy capacity leave it ideally placed to become a leading player in one of the world’s key future fuels. Bringing these elements together today will lay the foundations for future transformational growth.

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