India can start with a few large green hydrogen hubs that could in future interconnect rather than think of an expensive and premature national hydrogen backbone, but a similar policy framework would work well in hydrogen, as it did in payments
India is on the cusp of a green hydrogen development journey. The National Green Hydrogen Mission indicates India’s seriousness in pursuing green hydrogen for its net zero pathway in the long run, but making it successful requires a strong focus on building financially viable green hydrogen projects. Here are some of the key imperatives that India should get right as we create the green hydrogen economy in India.
The first step has been taken with public finance allocation towards green hydrogen development, with budget allocation for the US $2.3 billion for National Green Hydrogen Mission and should be followed up quickly with creation of a demand aggregating agency, in the form of a National Green Hydrogen Development Corporation, working independently but under supervision of the proposed Green Hydrogen Secretariat. Such a corporation-structure is important for housing large-scale green hydrogen projects and acts as a clearing house for green hydrogen demand from different sectors – matching demand and supply in specific industrial clusters. This project development enablement should be the key priority of all hydrogen players – industry, government, and funding agencies. Without a strong pipeline of large, financially viable green hydrogen projects, there will be no green hydrogen production and so no consumption or a hydrogen market creation.
There is precedent from the financial services sector – the National Payments Corporation of India (NPCI) was created as a consortia of banks and related payment enabling entities to run India’s national financial switch, scaling rapidly beyond its original mandate to run the domestic RuPay card network and now the UPI payment platform. There are parallels here in building of underlying infrastructure – both payment and energy networks are critical infrastructure – pipes that need to be built before usage platforms can be built on them. Hydrogen commercialisation being at an early stage of development is at the pipe-building stage. Due to the stage of commercialization and India’s own maturity, India can start with a few large green hydrogen hubs that could in the future interconnect rather than think of an expensive and premature national hydrogen backbone, but a similar policy framework would work well in hydrogen, as it did in payments.
Demand-side Offtake Price Support
The next priority is to address demand-side support for green hydrogen offtake. Contracts for Difference (CfD) and carbon prices for volume-defined offtake in large-scale projects or hubs offer one way to address the issue of offtake incentives to induce demand. This is a cautious approach – limiting the financial exposure of the state to specific projects of scale (say more than 100 MW electrolyser capacity) – and well suited for the level of market maturity. The use of shadow carbon prices, in the absence of an existing market, in large hydrogen projects and allowing for carbon credits as revenue is one way to increase the financial viability of such projects, till a national carbon market emerges in the long run.
The issue of volume and price risk is a key concern for large-scale green hydrogen project development, particularly in the early stages. Sufficient offtake volumes are important but early-stage commercialization entails high levels of incentives – which can turn prohibitive at high volumes, those posing a dilemma for policy makers and public finance experts. It can be resolved by designing graded offtake incentives structures, first in specific sectors and then capping incentives to defined volumes. This requires strong evidence-based economic modelling so that both volume and price risks can be adequately mitigated for projects in an optimal manner, without putting undue pressure on public finance. If the hydrogen eco-system and players operating in it are able to address this issue, it will address a fundamental issue in building project viability and the hydrogen economy in India. If they are unable to do so, project developers and the government will continue to negotiate with an air of mistrust on incentives, with the possible result being that projects don’t see financial closure and then aren’t built as a result. This would leave everyone worse off.
Manufacturing of electrolyser and Balance of Plant (BoP) equipment in India will take at least 2-3 years to be ready for large-scale project deployment. We need a combination of different electrolysers – Alkaline, AEM, PEM, Solid-Oxide – for project developers to choose from, as each will have a different optimal solution depending on the plant design and use case. A large-scale electrolysis plant catering to a single industrial offtaker may choose an electrolysis technology (and the electrolyzer) that is different from a multi-offtake, public-private consortium structure.
Design of the electrolysis plant is an infrastructure design question, as it must be good for the next 15-20 years i.e. the full life of the electrolyser. Scaling up the plant will be efficient using the same electrolysis technology so developers should factor in the costs of technology lock-ins when designing their projects.
Project Development and Skilling
India critically needs project development expertise in building multiple commercial-scale hydrogen electrolysis plants, across different technologies and use-cases. This will require new technical and managerial expertise that will have to be acquired organically and only through an active-learning route. National project development learning can only happen through jointly owned projects where expertise is pooled in, and learning is openly shared with all participants. The Hydrogen Valleys in Europe and some of the proposed Green Hydrogen Hubs in India, such as the Green Kochi Hydrogen Hub (GKH2) are examples of such an approach. India needs more such examples of innovation at scale and national learning in the still-nascent hydrogen market.
In conclusion, there are multiple hydrogen commercialisation hurdles to be crossed before we see a green hydrogen economy in India. These hurdles need to be addressed on priority. Our work through the India Hydrogen Alliance (IH2A), has been to bring players across the value-chain together and work with the government to build a commercialisation pathway for large-scale green hydrogen hubs. This is an exciting time for collaboration across all players and we hope to see more public-private partnerships in this area.
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