India’s clean energy push is seeing fresh momentum. As India targets to cut its dependence on fossil fuels and meet its net-zero target by 2070 without compromising the cost factor, can green hydrogen be the solution that bridges the price and efficiency gap?
Green Hydrogen, though a viable pathway to reduce emissions, continues to face a key challenge – the high production cost.
Global competitiveness is also another impediment as a result. Leading brokerage house, Nuvama however has some good news.
Nuvama believes that green hydrogen costs are likely to halve by 2030 and demand is expected to double to around 12 million tonnes per annum(mtpa). Companies which produce green hydrogen like Reliance Industries and Waaree Energies are likely to benefit from this boost in demand.
What can trigger a sharp slide in green hydrogen cost?
At present, green hydrogen costs about $3.5–4 per kg in India, significantly higher than around $2.2 per kg for grey hydrogen. Nuvama explains that this cost gap is expected to narrow sharply because of a combination of factors like cheaper renewable power, falling electrolyser costs and others.
1. Cheaper renewable power key to lowering green hydrogen prices
Renewable electricity, which accounts for 60–70% of the cost of green hydrogen, is expected to become cheaper as solar and wind tariffs continue to decline in India and more hybrid renewable energy projects come up.
2. Electrolyser costs set for sharp decline
Electrolysers, which account for roughly 40% of the production equipment cost, are also set to become significantly cheaper. According to CEEW estimates cited in the report, electrolyser stack costs could fall by as much as 75%, from around $150 per kW to nearly $38 per kW.
This decline will be supported by technology upgrades, the use of alternative materials, large-scale manufacturing and higher levels of indigenisation.
The report adds that 82–88% of the electrolyser supply chain can be indigenised, with only a small portion of inputs remaining proprietary or imported.
3. Policy support to sharply lower green hydrogen costs
Policy measures introduced by the government are also going to help significantly lower green hydrogen costs. According to CEEW estimates, waiving power banking and open-access charges alone could reduce costs by about 24%.
As a result, these factors in combination with other policy support and market-led improvements could result in a sharp drop in green hydrogen generation costs. Prices could decline by up to $1.9 per kg over time.
The National Green Hydrogen Mission – Role in reducing the cost factor
The National Green Hydrogen Mission (NGHM) could help bring the levelised cost of green hydrogen down by nearly half. It could look at achieving this particularly through viability gap funding (VGF).
The costs through this may come down to around $1.6 per kg by 2030 from around $3.5–4 per kg, supplemented by falling renewable energy and electrolyser costs.
The NGHM is the cornerstone policy driving green hydrogen infrastructure development in India, with a total outlay of about $2.5 billion. Nearly 89% of the funding is channelled through the SIGHT scheme.
The SIGHT scheme, Strategic Interventions for Green Hydrogen Transition, by the Indian government supports green hydrogen production and consumption and provides production-linked incentives (PLI) for electrolyser manufacturing with an outlay of Rs 17,490 crore. Additional support is provided through pilot projects, research and development, and other mission components.
What can drive green hydrogen demand: Fertilisers and refining key factors
Nuvama also noted that fertilisers, refining and petrochemicals will be the key demand drivers for green hydrogen in the coming years, while other sectors such as steel and city gas distribution are likely to add demand after 2030.
Fertiliser sector will lead the green hydrogen demand with around 6.1 mtpa by 2030, while the petrochemical industry may need about 1.3 mtpa of hydrogen as new capacities come online. In the longer term, sectors such as steel, long-haul transport, shipping and power generation could also become significant consumers of green hydrogen.
The refining industry alone could account for about 4.5 mtpa of hydrogen demand by 2030 and is likely to shift more smoothly to green hydrogen due to its lower sensitivity to production costs.
Green hydrogen competitiveness: High financing costs and lower PLFs weaken India’s
If we look at the capital expenditure figures, solar capex is 8–44% lower than several global peers. Wind capex is also lower by 17–40%. Despite that, green hydrogen is not cheaper compared with other global peers. Wondering why?
This is because borrowing costs and financing costs are much higher in India. Currently, financing costs of green hydrogen in India are estimated to be 1.4% to 5.8% higher than in competing export regions such as the Middle East, Australia and parts of Europe.
Another hurdle that is impacting India’s global competitiveness in green hydrogen is lower Plant Load Factors (PLFs).
PLF is, how much electricity a plant actually produces compared to its maximum possible output and India’s solar and wind plants don’t generate power consistently throughout the year. It reduces electrolyser utilisation and increases the cost per unit of hydrogen produced.
India’s solar PLFs are 400–1,500 basis points lower, while wind PLFs lag by 300–2,200 basis points compared with some global competitors.
Rising demand and lower costs to aid key players
However, the report noted that with full policy support in place, the economics of green hydrogen are expected to improve sharply. It estimates that access to central incentives, state-level concessions and cheaper renewable power could bring green hydrogen costs below $3 per kg for larger, well-structured projects. In states that offer additional benefits such as power banking waivers and land support, costs could fall further to around $2.6–2.7 per kg.
With green hydrogen costs expected to decline and demand rising, key companies operating in this space are also likely to benefit. According to the report, Mukesh Ambani-led Reliance Industries and Waaree are among the companies that stand to gain from India’s green hydrogen push.