Green Hydrogen Policy | 04 Mar 2022

Recently, the Ministry of Power (MoP) announced a Green Hydrogen Policy (GHP). Industry participants have largely welcomed it, for it fits in well with the climate-action thrust of India’s budget for 2022-23.

The policy has set a target of 5 million tonnes per annum (MTPA) of green hydrogen production by 2030, more than 80% of the current hydrogen demand in the country.

It is a watershed moment in India’s energy transition journey, and by doing so, India has become the 18^th country to release a comprehensive Green Hydrogen Policy. Ammonia and Hydrogen are seen to be the future fuels to replace fossil fuels.

What is the Green Hydrogen Policy?

• Under the policy, the government is offering to set up manufacturing zones for production, connectivity to the ISTS (Inter-State Transmission System) on priority basis, and free transmission for 25 years if the production facility is commissioned before June 2025.
• This means that a green hydrogen producer will be able to set up a solar power plant in Rajasthan to supply renewable energy to a green hydrogen plant in Assam and would not be required to pay any inter-state transmission charges.
  • Besides, producers will be allowed to set up bunkers near ports for storage of green ammonia for export by shipping.
• Manufacturers of Green hydrogen and ammonia are allowed to purchase renewable power from the power exchange or set up Renewable Energy (RE) capacity themselves or through any other developer, anywhere.
• It provides facility for producers to bank any surplus renewable energy generated with discoms (power distribution companies) for upto 30 days and use it as required.

What is the Significance of the Policy?

• India’s largest oil refiner, Indian Oil Corp (IOC) estimates that GHP measures will reduce the cost of green hydrogen production by 40-50%.
• Fuels like Green Hydrogen and Green Ammonia are vital for any nation's environmentally sustainable energy security.
• India has already committed to achieving net-zero carbon emissions by 2070, and green hydrogen will play a significant role as a disruptive feedstock in India's transition from oil and coal.
• The GHP lays a solid foundation for developing a competitive green hydrogen sector in India.

What are the Challenges Associated?

• Charges on Transmission: Producing 1kg of green hydrogen takes about 50kWh of electricity (with electrolyser efficiency of 70%).
  • While India boasts one of the world’s lowest average costs of RE generation, it levies a plethora of charges on wheeling and transmission of electricity between the points of generation and consumption.
• Lesser Cost-Effective than Green Hydrogen: In cases where the green hydrogen is produced from a remotely-located RE plant, the landed cost of power determines the cost of output which ranges from ₹3.70 to ₹7.14 per kWh.
  • At this rate, green hydrogen will be made at a cost of about ₹500 per kg, which is nearly 3.5 times the cost of grey hydrogen.
  • So the landed cost of RE from a distant source will need to at least be halved to make green hydrogen competitive vis-a-vis grey.
• Reluctance of States: Many public sector electricity utilities are unwilling to let go of their monopoly in power distribution. The RE-rich states are either moving away from allowing RE banking or introducing regulations to restrict this facility.
  • Gujarat allows settlement for banked solar power only between 7am and 6pm and levies ₹1.5 per unit as its banking charges for ‘high-tension’ consumers.
  • Rajasthan permits banking of up to 25% of RE generation and settlement on an annual basis, but levies a 10% charge, among the highest in India.
  • Tamil Nadu and Andhra Pradesh do not allow RE banking.
  • Also, most states do not permit banked energy to be drawn during the peak hours.
• Lesser Margins for Producers: The GHP omits to mention any waiver of ISTS losses for green hydrogen and ammonia projects.
  • Also, it provides for discoms to procure and supply RE to makers of green hydrogen/ammonia at the cost of procurement with only a small margin determined by the SERCs.
  • This margin may not be enough incentive for discoms to procure and supply RE to green hydrogen makers on a long-term basis.
• Unwillingness of Industries: Industrial sectors such as chemicals, fertilisers, steel and refineries are unlikely to transition to low carbon alternatives because of the higher associated costs. Such industries might not find the transition viable with no incentives to reduce emissions.

What Steps Can Be Taken?

• Role of State Governments: The measures announced in the GHP would require the active cooperation of state governments (including allotment of land in RE parks and proposed manufacturing zones) and the relevant SERCs.
  • The RE-rich states shall implement the GHP’s banking provisions and levy uniform charges, otherwise, it may not help green hydrogen producers much.
• Role of Central Government: To get the cooperation of RE-rich states, the Centre may consider providing concessional finance to the discoms in such states to clear their dues to power generators, and in return require them to waive the aforementioned surcharges for open-access RE projects and cap RE-banking charges at the level specified in the GHP.
• Demand Generation: While large refiners like Reliance and IOC have plans to set up green-hydrogen production facilities, other manufacturers and RE developers would be hesitant to commit large-scale investments in the absence of demand generators.
  • The GHP measures beside enhancing the supply of green hydrogen at competitive rates shall also aim to make moves to stimulate demand.
• Incentivising Industries: Hydrogen-purchase obligations or other demand boosters are required to support the creation of a green hydrogen ecosystem.
  • The Centre may consider incentivizing petroleum refiners and fertiliser makers to make and use green hydrogen by offering subsidies linked to their level of its utilisation as feedstock.
  • This would further India’s goal of achieving its net-zero emissions target by 2070.