Green Hydrogen’s Next Phase: From Promise to Practice

Declining and competitive prices being discovered in recent tenders for green hydrogen and its derivative green ammonia have captured the imagination of policymakers and developers. It is a heartening development after a long spell of doubts over the achievability of the targets set by the National Green Hydrogen Mission.

India launched the mission in 2023, coinciding with its G20 presidency, where it projected green hydrogen as one of the important fuels of the future in the agenda for the working group on energy transitions. Though there were differences over the colour of zero or low-emission hydrogen, consensus was built on the need to promote production, use and global trade of low-emission hydrogen and its derivatives and also on working towards harmonised standards for developing an international market.

Irrespective of the temporary setbacks in some parts of the world, global efforts to combat global warming are succeeding in bringing down the emission intensity of electricity generation but at the same time face challenges in decarbonising hard-to-abate industries and the transport sector.

Though not completely exclusive in application, carbon capture utilisation and storage (CCUS) technology and low-emission hydrogen are seen as the two most viable options to overcome these challenges. Compared to CCUS application on coal or gas-based combustion, low-emission hydrogen has gained much faster traction from policymakers and investors across the world in the last few years.

While many countries find competitive advantage in producing blue hydrogen from natural gas through CCUS, India is among the leading countries that have opted for green hydrogen produced from renewable electricity through electrolysers, based on its ability to produce solar-based electricity at highly competitive prices.

Green hydrogen presents several advantages for India. It can cut down imports of ammonia, create growth opportunities in a sunrise industry, open up export potential and provide an important strategic option to achieve the goal of Net Zero by 2070.

Challenges Beyond Price Parity

Hydrogen has long been used as feedstock in fertiliser plants and oil refineries but mostly through on-site production from natural gas or crude oil. Its use in other areas has been limited because of the costs involved in compression, storage and transportation.

The use of low-emission hydrogen as an energy source in steelmaking, transport and shipping is being attempted now to achieve decarbonisation. However, there are three key challenges. Achieving price parity with brown hydrogen, developing the ecosystem for its transportation and storage and sequencing the use of renewable electricity for hydrogen production after direct electrification applications.

The Road to Efficient Decarbonisation

Immediately after achieving a significant reduction in the price of green hydrogen in tenders invited by oil marketing companies for use in refineries, the price of green ammonia discovered at around ₹50 per kg in Solar Energy Corporation of India tenders is almost at parity with imported ammonia. A lot of work has gone into the implementation of the mission to reach this stage.

Yet the parity goal is still far away as these prices factor in significant indirect subsidies to be borne by electricity consumers. These projects enjoy a waiver of transmission charges over inter-state lines for 25 years and this amount is socialised among other users of the grid.

Further, the cross-subsidy surcharge and the additional surcharge on electricity used for producing green hydrogen and its derivatives have also been exempted. ‘Must Run’ status granted to renewable energy and the concessional deviation settlement charges for renewable energy also put an additional burden on other grid users as they have to bear the balancing and stranded costs.

By a rough estimate, these indirect subsidies may account for around 50–60% of the discovered price of green ammonia. Common electricity consumers can be asked to provide such indirect support in a limited manner only to a few initial projects. We need to try harder to achieve price parity on a stand-alone basis.

Developing the infrastructure for transportation and storage of green hydrogen requires adequate volumes. The process can start with blending green hydrogen with natural gas in an increasing proportion. Simultaneous implementation of multi-sectoral use projects for green hydrogen and its derivatives in identified hydrogen valleys will be a prudent approach to facilitate learnings in the development of such an infrastructure.

Use of green hydrogen with price parity may make a viable case for commercial applications for  developers but it will not be prudent to do so at large scale from the angle of cost efficiency of decarbonisation at the economy level. India loses more than 40% of renewable electricity during the electrolysis process. There are additional energy losses in its compression, transport and storage.

If we want to optimise the economic cost of avoiding one unit of emission, use of the available renewable electricity first through direct electrification routes like electric vehicles or electric trains makes a stronger case. India should prioritise the incentives in that direction.