Green Hydrogen Policy – Explained, pointwise

Introduction

The Green Hydrogen Policy released by the Ministry of Power envisages building a prominent role for clean fuels in the country’s fossil fuel-dominated energy mix.  The Policy also shows the scale of the Government’s renewable energy vision indicating that the Government wants India to lead the global clean energy transition. Hydrogen and ammonia are considered to be the fuels of the future and promoting the use of green hydrogen and green ammonia is one of the major requirements towards environmentally sustainable energy security of the nation.  However, there is still a scope of significant improvements in the Policy measures to create a robust Green Hydrogen production and consumption ecosystem in India.

What is Green Hydrogen?

There are various ways to produce hydrogen gas that can be used for commercial purposes. The most common method is Steam Methane Reforming which uses methane gas. Sometimes propane, gasoline, or coal are also used. The by-products of this process are carbon dioxide and carbon monoxide i.e., the process has high carbon footprint. The hydrogen produced through this process is called grey hydrogen.

Green Hydrogen is the clean hydrogen generated by using renewable energy such as solar and wind energy instead of fossil fuels. The electricity produced through solar/wind energy is used to undertake electrolysis of water (in electrolysers) to produce hydrogen. The carbon footprint of green hydrogen is negligible compared to other methods of production.

The Green Hydrogen Policy defines Green Hydrogen/Ammonia as hydrogen/ammonia ‘produced by way of electrolysis of water using renewable energy’ including banked renewable energy and ‘hydrogen and ammonia produced from biomass’.

According to the certification standards of CertifHy (established by European Commission and Fuel Cell and Hydrogen Joint Undertaking (FCH JU)) the hydrogen needs to be produced from renewable energy sources and should have a carbon footprint that is below 36.4 g CO_2equ/MJ to be classified as Green Hydrogen.

Source: World Economic Forum

What are the potential uses of Green Hydrogen?

Hydrogen is used extensively in chemical industry e.g., for manufacturing ammonia and fertilisers. It is also used extensively in refining, petrochemical industry, steel manufacturing, metallurgy and food processing industries. Using Green Hydrogen to replace the existing hydrogen feedstock produced using carbon intensive methods will contribute to extensive cut-down of carbon emissions. Green Hydrogen will play a crucial role in phase-out of coal.

Hydrogen can be used in Fuel cells which combine hydrogen and oxygen to produce energy. Fuel Cells can also be used in powering Electric Vehicles. Green hydrogen will also be key for mining vehicles, trains, aircrafts, lorries, buses and even maritime transport. 

In addition, research is underway to promote usage of hydrogen as fuel for domestic purposes e.g., in heating of households.

The International Renewable Energy Agency estimates hydrogen to cover up to 12% of global energy use by 2050. Global sales of hydrogen could be worth US$ 600 billion, and the value chains of green hydrogen could become a US$ 11.7-trillion investment opportunity by 2050. Governments led by France, Germany, and Japan have allocated at least US$ 65 billion in support for clean hydrogen.

Source: World Economic Forum

What is the need for Green Hydrogen Policy?

The 2^nd part of IPCC’s 6^th Assessment report has identified India as vulnerable hotspot i.e., India is one of the most vulnerable country to climate induced disasters. This necessitates immediate policy action that can cut down carbon emissions and mitigate the impact of climate change.

India has pledged to achieve NET ZERO by 2070 besides other targets like reducing carbon intensity of the economy and reducing carbon emissions by 1 billion tonnes by 2030. Domestic industrial sector is one of the biggest contributor to India’s total emissions, accounting more than 25% of total emissions. Hence it is imperative to cut down industrial emissions and the Green Hydrogen Policy is the first step towards improving adoption of clean energy.

What are the salient features of the Green Hydrogen Policy?

The Policy has been designed to meet the output target of 5 million tonnes of Green Hydrogen by 2030 under the National Hydrogen Mission. The policy provides several incentives for manufacturers and consumers of Green Hydrogen and Green Ammonia. These include: (a) Inter-state transmission charges waived for 25 years for Green Hydrogen/Ammonia projects commissioned before June 30, 2025; (b) Green Hydrogen/Ammonia production plants can be set up in the proposed Manufacturing zones; (c) Land in Renewable Energy Parks can be allotted for the manufacture of Green Hydrogen/Ammonia; (d) To ensure ease of doing business a single portal for carrying out all the activities including statutory clearances in a time bound manner (for manufacturing, transportation, storage and distribution of Green Hydrogen/Ammonia) will be set up by the Ministry of New and Renewable Energy; (e) Open access granted to source renewable energy from anywhere in the country; (f) Manufacturers of Green Hydrogen/Ammonia and the renewable energy plant shall be given connectivity to the grid on a priority basis; (g) The benefit of Renewable Purchase Obligation (RPO) will be granted to the hydrogen/ammonia manufacturer; (h) Bunkers to be set up near ports for storage of green ammonia for export, to be used by the shipping industry.

What are the potential benefits of the Green Hydrogen Policy?

Inter-state transmission charges: Waiver of charges will facilitate inter-state transfer of renewable energy say from a solar power plant in Gujarat or Rajasthan to a chemical plant in Assam. Using this incentive, industries such as fertilizer and petroleum refining which are the key users of hydrogen and ammonia can cut the production cost of green hydrogen by sourcing cheaper renewable energy (RE). Some stakeholders say that this will halve the cost of producing Green Hydrogen, while more conservative estimates expect cost reduction in the range of 15-25%.

Banking of Energy: New policy allows for the banking of unconsumed renewable power with distribution companies for 30 days. This will allow the users to inject non-utilized power into the grid and utilize this banked surplus within 30 days. This will increase the utilization of electrolysers bringing down their operating costs.

Exports: The provision allowing bunkers for storage of Green Hydrogen near the ports will help boost exports. Exports are essential for India’s ambitions of becoming a global Green Hydrogen hub.

Manufacturing Capacity: Policy measures like single window clearances, allocation of land for Green Hydrogen/Ammonia plants in Renewable Energy Parks etc. help create more manufacturing and storage capacities.

What are some issues with the policy?

Lack of Demand Side Measures: The policy is tilted more towards the supply side measures and has very few measures to promote demand of Green Hydrogen. Without adequate demand, the investments remain too risky for wide-scale production that could reduce costs. The policy, thus, requires incentives for industries to buy Green Hydrogen, without which private sector participation may be limited.

Support to new technologies: The Policy lacks measures to support technologies to produce and store green hydrogen like electrolysers and fuel cells. These technologies can help bring down green hydrogen costs to US$ 1-1.50/kg. India will need 20-30 GW of electrolyser capacity to meet its hydrogen targets while the global electrolyser capacity is just over 0.3 GW, projected to rise to 16 GW by 2024. At present, Europe and Japan account for the vast majority of patents in hydrogen production and fuel cells, respectively. China produces the cheapest electrolysers.

Note: Hydrogen electrolysers are devices that use electricity to split water into hydrogen gas and oxygen.

What additional reforms are required?

At present, 98% of the hydrogen produced in India is ‘grey’ (produced from fossil fuels). So, there is a need for additional reforms to fasten India’s clean energy transition.

Enhance Adoption of Green Hydrogen: At present, there is near 100% cost differential between grey and green hydrogen. If this is narrowed down it will help bring more companies to adopt decarbonization measures. This can be done by introducing special mandates for different industries, till the green hydrogen ecosystem achieves scale. The Government can also provide support to industries like fertilizers, chemicals and steel through viability-gap funding and grants to help accelerate adoption.

Clarity of rules: The Government should provide more clarity on the applicability of the cross-subsidy and additional cross-subsidy, and on the type and quantum of financial support to GH manufacturers.

PLI scheme for the sector: On the lines of the additional ₹19,500 crore for the PLI scheme for manufacturing solar modules, a similar announcement for electrolysers will be very beneficial for green hydrogen. India has a huge demand for electrolysers and should focus on meeting this demand domestically.

Tax incentives: Reducing GST and customs duties on electrolyser equipment, currently at 18% and 7.5% respectively, till the point that domestic manufacturing capabilities are built, will act as an enabler.

Conclusion

The release of Green Hydrogen Policy is indicative of the commitment of the Government towards climate action and clean energy transition.  However, much more needs to be done if India wants to gain a foothold in the rapidly growing green hydrogen market, which will not only ensure energy security but also create opportunities for India to become a manufacturing powerhouse for hydrogen equipment and new technologies. In the absence of a more proactive approach, India may end up depending on imports to meet its hydrogen/clean energy goals, a risk that is avoidable based on recent experiences be it disruptions in the global supply chains due to pandemic or the geo-political developments in Europe.

Source: Business Standard, Livemint, PIB, The New Indian Express