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10 Mar 2023

Green Hydrogen Cost Reduction Critical for Accelerated Adoption in India

Green hydrogen is expected to have a significant role in achieving decarbonisation goals globally. However, in India, its adoption needs spirited efforts from both technological advancements and regulatory support. CRISIL, a rating agency, has noted that the industry's growth in India could help transform the country from a net importer of energy to a net exporter in the long run. However, the cost of green hydrogen needs to come down from US$3-US$6 per kg to less than US$$2 per kg to be competitive with other energy sources.

CRISIL Director, Naveen Vaidyanathan, highlighted that the recent Russia-Ukraine conflict had raised the prices of natural gas, which is used to produce grey hydrogen. As a result, grey and green hydrogen have become almost cost-competitive. Despite this, prospective customers may think twice before signing long-term contracts for green hydrogen since the cost of grey hydrogen could average US$2-US$2.5 per kg, significantly lower than green hydrogen's cost.

To bridge the cost differential, reducing the cost of renewable power generation and electrolysers is crucial for the adoption of green hydrogen. Renewable energy prices, which account for 50-65% of the total cost of green hydrogen in India, may have to decline to below Rs2 per unit from Rs2.6-3 per unit at present. Moreover, improving electrolyser efficiencies and reducing electrolyser capital costs by 60%-70% through technological improvements and economies of scale is also essential to achieve the targeted cost.

The Green Hydrogen Mission has provided an initial financial incentive of Rs19,744 crore, out of which Rs17,490 crore is allocated towards funding domestic manufacturing of electrolysers and green hydrogen production. In addition, mandates for green hydrogen consumption for refineries and fertilizers are also expected, which will be crucial till economics catches up. Domestic companies plan to invest around Rs16 lakh crore over the next decade or so across the green energy value chain, including green hydrogen, as economics become favourable.

CRISIL has noted that the pace of execution and relative regulatory and policy support will determine India's export competitiveness, as developed economies such as the US and Europe have announced massive subsidies to incentivise green hydrogen production and adoption. While India benefits from cheap renewable power, large land, a vast grid, and human capital, it faces competition from countries such as China, the Middle East, Australia, and Chile. Finally, firm offtake contracts, technological evolution, and policy support are essential for companies to achieve financial closure.

In conclusion, scaling up green hydrogen production and adoption in India will require spirited adoption efforts from technological advancements and regulatory support. CRISIL has highlighted that reducing the cost of renewable power generation and electrolyser efficiencies are crucial for achieving the targeted cost. Incentives and mandates for green hydrogen consumption for refineries and fertilizers are also expected to promote green hydrogen adoption.

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