India’s Path to Overcome Green Hydrogen Challenges

Source: The post India’s Path to Overcome Green Hydrogen Challenges has been created, based on the article “Green hydrogen and the financing challenge” published in “The Hindu” on 17th December 2024

UPSC Syllabus Topic: GS Paper3-Infrastructure: Energy

Context: The article highlights India’s challenges in achieving its green hydrogen goals due to high production costs and financing barriers. It suggests innovative financing, policy frameworks, industrial hubs, and global collaborations to reduce risks and scale green hydrogen production efficiently. India’s Path to Overcome Green Hydrogen Challenges
For details information on Green Hydrogen Mission read this article here

Why is Green Hydrogen Important for India?

1. Ambitious Goal: India aims to produce 5 million metric tonnes (MMT) of green hydrogen annually by 2030 to decarbonize its industrial sectors and achieve net-zero emissions by 2070. However, current progress is slow, with BloombergNEF estimating that India may meet only 10% of its goal.
2. Reducing Reliance on Fossil Fuels: Current traditional hydrogen methods (grey/blue) cost $1.9-$2.4 per kg, while green hydrogen costs $5.30-$6.70 per kg. Scaling production can reduce this gap.
3. Global Leadership Opportunity: Countries like the U.K., U.S., and Japan are creating hydrogen hubs, providing successful examples for India.
4. Industrial Hubs Development: States like Odisha, Maharashtra, and Gujarat can become green hydrogen hubs.
5. Access to Abundant Renewables: Leveraging India’s renewable energy resources with efficient financing can lower production costs.
6. Economic Potential: Policies like purchase agreements and international collaborations can attract investments and boost exports.

What are the major challenges related to India’s green hydrogen sector?

1. High Production Costs: Green hydrogen costs $5.30-$6.70 per kg, while grey/blue hydrogen costs only $1.9-$2.4 per kg, making it hard to attract investment.
2. Levelised Cost of Electricity (LCOE): High Weighted Average Cost of Capital (WACC) in emerging markets like India increases LCOE. Studies show WACC rising from 10% to 20% can increase hydrogen costs by 73%.
3. Electrolyzer Costs: These range between $500-$1,400/kW for alkaline systems and $1,100-$1,800/kW for proton exchange membrane systems.
4. Slow Investments Globally: By May 2024, only 27.6% of 1,572 large-scale hydrogen projects (valued at $370 billion) reached final investment decisions.
5. Lack of Policy Innovation: Unlike the U.K.’s Low Carbon Hydrogen Standard or U.S. hydrogen hubs, India lacks policies to build market confidence and integrated ecosystems.

How Can India Overcome Financing Barriers?

India must adopt a multi-pronged approach to attract investments:

1. Policy Measures:

• Implement long-term hydrogen purchase agreements.
• Provide loan guarantees to reduce risks.
• Use regulatory sandboxes to experiment with new business models.

2. Innovative Financing Models:

• Introduce modular project financing to scale facilities in phases.
• Use “anchor-plus” financing where industrial anchor customers support initial capacity.
• Adopt equipment-leasing structures to reduce upfront electrolyzer costs.

3. Global Collaboration:
4. Set up standardized hydrogen certification to boost exports.
5. Develop cross-border trade partnerships, such as the Australia-Japan Hydrogen Energy Supply Chain Project.

Way Forward

India needs to develop industrial hubs in states like Odisha, Maharashtra, and Gujarat, where projects can demonstrate effective business models and achieve lower hydrogen prices through strategic planning and financial structuring.

Question for practice:

Evaluate how India can overcome the challenges of high production costs and financing barriers to achieve its green hydrogen goals.