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India's Green Hydrogen Policy, Explained

Editor, TRANSFIN
Feb 22, 2022 12:03 PM 5 min read
Editorial

Hydrogen and Helium walk into a bar. Hydrogen asks, "He-lium, how do I become like you?". Helium says, "Be noble"

Our attempts at pun are just like hydrogen's attempts at mimicking helium - most likely doomed to fail. ;)

Case in point - The Hindenburg disaster! In 1937, a bunch of Germans wanted to make an enormous airship fly. They needed helium to do this but since the US government refused to lift an export ban on the gas, the Germans decided to go with hydrogen instead, thinking it resembles helium in lightness. But they forgot about helium's noble character which helps keep the gas stable as opposed to hydrogen which is highly reactive and inflammable. 

Result: The airship caught fire and crashed above New Jersey. 

Moral of the story - Handle hydrogen with caution, at both the chemical and policy level. 

The Indian Government evidently seems to think it can handle it. On February 17th, it notified the Green Hydrogen and Ammonia Policy. The goal is to boost the production of green hydrogen to 5 million tonnes by 2030. 

Let's see how the Government aims to handle this lofty target. 

God's Green Hydrogen

The world's rush towards renewable energy is manifesting itself in many forms. After waking up (however late) to climate change realities, countries have begun offering massive policy incentives in green energy initiatives ranging from EV manufacturing and solar installations to offshore windmills.

Now, hydrogen has been known to be a reliable and bankable feedstock in industrial processes for some time now, like in the manufacture of fertilisers and chemicals. In fact, India currently consumes around 6 million tonnes of hydrogen annually, largely for ammonia and methanol production. Most of this hydrogen, however, is "grey" meaning that it's produced using fossil fuels and it emits pollutants. India accounts for 9% of the global grey hydrogen market. (How the Hydrogen Industry Works.)

"Green" hydrogen, on the other hand, is produced by using renewable energy to electrolyse water and split it into hydrogen and oxygen. This is what the world (including India) is currently chasing after. 

The new policy, therefore, is aimed at providing incentives to manufacturers and consumers of green hydrogen and green ammonia. Following are the key highlights of the policy: 

  • Producers will be granted a waiver on inter-state transmission charges for 25 years (as long as the projects are established before June 2025). (This means a solar power plant in Gujarat will not be required to pay inter-state transmission charges to supply energy to a green hydrogen plant in Assam.)
  • Manufacturers can bank (or store) the unconsumed renewable power they produce with discoms (distribution companies) for up to 30 days. They can take it back later.
  • Grid connectivity will be offered to green hydrogen and ammonia producers at the manufacturing end on a priority basis.
  • Manufacturers can set up bunkers near ports for storage of green hydrogen for exports.
  • All statutory clearance of green hydrogen projects will be granted within 30 days of application via a single portal.

 

The H-H Cost Coefficient

There are a few things you should understand. First, this is the first phase of the Policy. It is primarily targeted to offer incentives on the supply side so as to entice investors and producers to bet on the development of green hydrogen and ammonia at affordable costs. 

Speaking of costs, we arrive at the second thing. Out of the 90 million tonnes of hydrogen produced in India currently, only 0.03% comes from the electrolytic (aka renewable) process. And the reason why is because, you guessed it right, high cost. Producing electrolytic hydrogen costs double as producing coal. Although producing renewable power has become more feasible over the years, the cost still remains high. Solar-powered electrolysers, for instance, can cost 6x those powered by natural gas. 

So, the aim here is to economise. The Government's target is to help produce 1 Kg of green hydrogen for $1 (as opposed to $3-6.5 now, which is already one of the lowest in the world). 

Third, accelerated deployment of green hydrogen is crucial for yet another reason, which is, to guide India's small- and medium-scale industries (or MSMEs) on a path of decarbonisation. MSMEs which operate in the iron and steel sector (also called "hard-to-abate" sectors) are hamstrung with old, inefficient technologies and processes. Green hydrogen will incentivise their push towards modern and sustainable operation. 

 

But H2's Got Problems Too

Hydrogen is an energetic fuel, yes. In fact, it's most famous for being used as rocket fuel. But there are one too many challenges that come with its use so dealing with it can be tricky. 

First and foremost, green hydrogen is a derivative of other green fuels. This means that green hydrogen can't be generated from scratch. The electrolysis itself is an energy-intensive process, so powering this process in a "clean" way means producing other renewable power (like solar or wind) and using that power to electrolyse. 

In that case, why not invest more in solar and wind directly? If the ultimate goal is the expansion of renewable generation, there are ways other than green hydrogen production to achieve it, right?

That's right, but we may be forgetting something important. Hydrogen can be stored (despite complications) more efficiently than wind and solar which would solve the problem of intermittency. On top of that, hydrogen is the most abundant element in the universe. So, derivative or not, there's always going to be enough to electrolyse and utilise. 

And, don't forget the industrial and political factors at play too. A number of corporations - all of them listed too (#tradingalert) - have announced their entries into the business of hydrogen production recently which possibly explains the rapidity with which the policy red carpet was rolled out.

When it comes to safety, the high reactivity of hydrogen fuel with oxygen in ambient air is a concern, yes. But given that we have learnt to power and monetise even nuclear fuel safely, enforcing quality control and safety standards in green hydrogen production is not particularly a reach. 

 

The Atomic Realities

Frankly, making 5 million tonnes of green hydrogen in a year is quite an ambitious target. Achieving a target like this requires considerable land, infrastructure and money. The policy is a step in the right direction, no doubt. But there is immense room for improvement. 

Waiving off the inter-state transmission charges is praiseworthy, and yet insufficient when you think about intra-state charges. Removing this disparity is crucial to avoid a distorted hydrogen market. 

Plus, the current production target requires  at least 10 GW of electrolyser capacity which can't be met locally. This means India will have to depend heavily on imports, at least in the beginning. Following that, rapid policy incentives are necessary to meet electrolyser capacity inside the country. 

And, finally, policy pills are needed not just on the supply side but also on the demand side which can whet the appetite for the new feedstock. Unless sufficient demand for green hydrogen is created, there could be a glut in supply which will likely turn the supply curve on its back. 

Jules Verne predicted the reality of a hydrogen economy almost 150 years ago when he wrote these words: 

Water will one day be employed as fuel, that hydrogen and oxygen which constitute it, used singly or together, will furnish an inexhaustible source of heat and light, of an intensity of which coal is not capable.

Let's see if the prophecy comes to pass, which it will, if the green hydrogen policy succeeds in a country like India where there's almost a horse-like rising appetite for clean energy needs in the next few decades. 

FIN.
 

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