Green Hydrogen in India: State of Play
Parveen Arora and Shloka Vaidialingam
Hydrogen is a naturally occurring element in a gaseous form, which requires extraction from compounds that contain it. The ability of hydrogen to produce and store electricity has been known for almost 180 years and has since been recognized as a versatile fuel that has uses across several industries, such as fertilizers, petroleum refining, food, electronics, and medicine.
Hydrogen can be classified based on the method in which it is extracted. However, some of these methods are less friendly to the environment:
India’s current hydrogen consumption is primarily ‘grey’ hydrogen.
Green hydrogen: Water is the primary element used to produce ‘green’ hydrogen. Water is subjected to the process of electrolysis (passing electricity through water) to split it into its constituents - i.e., oxygen and hydrogen gas. If the source of the electrolysis is also ‘green’, the process is considered a ‘renewable’ way to generate hydrogen, since the resultant hydrogen is generated without any carbon emissions. Green hydrogen can also be produced by the conversion of biomass, although this is a less popular method. Energy is then extracted from the gas through combustion or fuel cells, which emit water as the sole by-product.
In this update, we have summarised some of the recent policy initiatives announced by the Indian government to promote and develop this alternative-fuel source, as a way to progress India’s energy transition.
Among the highlights of the Indian Finance Minister’s budget announcement in February 2021, was a reference to a ‘National Hydrogen Energy Mission’ for generating hydrogen from ‘green’ power sources.
Following this announcement earlier this year, the Indian governments’ Ministry of New and Renewable Energy (“MNRE”) has reportedly issued 3 policy documents recently, all of which are currently undergoing inter-ministerial consultation. The most important of these documents is a draft ‘National Hydrogen Energy Mission’ document released within the government on May 31, 2021, which aims to scale up green hydrogen production and utilisation, and align India’s efforts with global best practices in technology, policy, and regulation. Along with this, the MNRE is also stated to have released a draft note on mandating green hydrogen consumption obligations in the fertilizer production and petroleum refining industries for the period 2023-24 to 2029-30, as well as a proposal to aggregate demand across industries in a single ‘mega’ tender.
These documents issued by the Indian government are yet to be made public or be implemented. We have summarised some of the key aspects known so far, below::
Clear and targeted policy direction: Some guidance is provided in the budget highlights for the renewable energy sector (2021-22) released by the MNRE. There will be a specific and targeted short-term (4 year) policy for promoting and developing all aspects of the green hydrogen supply chain. There will also be broad policy directions for the long-term (10 years) period, ensuring consistency and predictability. The primary focus is likely to be on the manufacture of hydrogen and fuel cell technologies in India, however, it is also expected that there will also be specific initiatives and benefits regarding the use of hydrogen in niche applications such as transport.
Mandatory consumption in specific industries: Green hydrogen consumption obligations are likely to be made mandatory in the fertilizer and petroleum refining industries, and one of the MNRE policy documents will provide further detail to this requirement. These obligations may be quite similar to the existing renewable energy purchasing obligations which are already in effect, which require electricity distribution companies to buy a minimum amount of renewable energy to reduce dependence on electricity generated from conventional sources. It has been reported that the MNRE policy document will stipulate that fertilizer plants and oil refineries will have to use green hydrogen to meet 0.15% of their total hydrogen requirements from 2023-24, and ramp this up to 10% of their total requirements by 2029-2030.
Consolidated government tender based on aggregate demand: Media reports in July 2021 suggest that the third MNRE document will relate to issue of tenders based on the ‘demand aggregator’ model for green hydrogen. This implies aggregating and estimating demand for green hydrogen from key industries such as fertilisers, steel, and refineries and offering this demand as a single ‘mega’ tender, with the aim of facilitating commercial supply of green hydrogen basis this demand. It is also reported that the Solar Energy Corporation of India may be the agency to conduct this bidding process (this is the MNRE agency that otherwise tenders wind and solar projects).
Parallel measures to support the proposed National Hydrogen Energy Mission have also been announced, such as:
Production-linked incentive manufacturing scheme for electrolyzers: The NITI Aayog (currently the primary policy body in India) announced in April, 2021, that the Production-Linked Incentive manufacturing scheme may be extended to the domestic manufacturing of electrolyzer machines, which is the primary equipment that is used to electrolyze water to produce hydrogen. If the scheme is implemented, it is certain to reduce the cost of such equipment, thereby boosting the production of green hydrogen. The operative guidelines are yet to be announced.
Legislative change in the Oilfilelds Regulation and Development Act: On June 15, 2021, the Ministry of Petroleum and Natural Gas released a draft amendment in the Oilfields Regulation and Development Act, 1948 (“Oilfields Act”), under which law the Indian government provides licenses/ approvals to explore oilfields. One of the changes proposed is an expansion in the definition of the expression “mineral oils”, which currently includes and refers to hydrocarbons such as natural gas and petroleum. The proposed amendment seeks to expand this definition, by including ‘naturally occurring sources of hydrocarbon’ as well, intending to capture cleaner sources of energy such as hydrogen within the meaning of “mineral oils”. By doing so, hydrogen will also be brought within the ambit of the Oilfields Act, allowing the Indian government to formulate new rules regarding the exploration/ establishment of hydrogen projects. The said amendment was in the public domain for comments till June 30, 2021, and it has not yet been passed by the Indian parliament.
Several major government-owned and private entities in the Indian renewable energy sector, such as National Thermal Power Corporation (NTPC), Indian Oil Corporation (IOC), Reliance Industries Limited, etc., have also announced initiatives/ investments regarding green hydrogen. IOC has recently announced the setting up of a green hydrogen plant to power one of its largest refineries in Mathura, and over the last 6 months, both NTPC and IOC have issued tenders for procurement of electric buses powered by hydrogen fuel-cell technology.
Primary Challenges: The primary challenge to the development of a green hydrogen ecosystem is cost competitiveness. Further, equipment that runs on green hydrogen is, at present, less cost-efficient than its grey hydrogen counterpart.
What to look out for: The draft of the National Green Hydrogen Mission is likely to be made public soon, along with details of mandatory consumption obligations, production-linked incentives schemes, etc. These policy announcements will accelerate increased investment in this sector (along with parallel initiatives in battery storage, solar manufacturing etc). Indian policymakers will also keep a close watch on the recently announced European ‘Green Deal’ and hydrogen-specific initiatives.