By: Sanchit Makhija and Sudeep Maheshwari
Last updated : October 20, 2026 5:55 pm
Green hydrogen is still an evolving sector and will require strong, coordinated support across the ecosystem to become competitive at scale in India
Green hydrogen is moved slowly from concept to centrepiece in global decarbonization strategies. Governments see it as essential for net-zero ambitions while industrial players view it as a pathway to decarbonize processes that electricity alone cannot reach. Yet, a central question remains unresolved: when, where, and how will green hydrogen become economically competitive?
The answer is nuanced. Green hydrogen will not become competitive everywhere at once, nor across all applications simultaneously. Instead, competitiveness will emerge first in specific geographies, sectors, and use cases—driven by a combination of renewable power economics, technology learning, policy design, and financing structures. This pattern is particularly evident in India, where structural advantages coexist with practical constraints. India is expected to play a structural role in green hydrogen global ecosystem. It has advantages of largest integrated grid in the world, backed by low cost of renewable energy potential and strong policy intent from the government to enhance energy security for the country. In addition, high cost of gas also makes gap lower vs. green hydrogen. However, multiple challenges exist which need to be addressed to define the economics for Green hydrogen in India going forward.
Green Hydrogen: Cost gap that needs to be addressed for India
Cost of Green H2 is fundamentally determined by three key factors- price of clean electricity, electrolyser capital costs & its utilization rates and financing for the project. Together these determine the extent of cost gaps we see in India/ globally from conventional H2/ alternate fuels.
Electricity dominates the cost structure: Green H2 production is a power intensive process with requirement of 50-55 kWh of electricity per kilogram of hydrogen depending upon technology and efficiency. In India, renewables have been fairly competitive globally (ranging from Rs. 2.5-3.8/kWh depending upon the technology/ location). However, over the last 3 years, renewable tariffs have been rising consistently due to ALMM restrictions on the regulatory side, increase in equipment costs, cautious approach on CUFs by developers and lenders leading to higher cost of capital. In addition, co-location of renewables, access to banking and financing mechanisms, clear rules on grid supplied power in lines with global requirements critical to influence operating hours.
Capital intensity of electrolysers and utilization are critical: Electrolysers are capital intensive assets. In India, electrolyser domestic manufacturing is rising, however currently its exposed to global supply chains and currency risks. In future, backed by scaling, standardization, stack life improvements, electrolysers can have significantly lower costs. However, learning rates materialize only when deployment is sustained and supply chain mature. Stop start signals on policy can delay the cost reductions & keep “first of its kind” premiums high. In addition, in case electrolyzers run on low capacity factors on account of renewable power being intermittent or grid access being constrained, costs for the hydrogen rises further.
Financing costs and structures need addressal: Green Hydrogen is an emerging sector where risks on projects are not completely understood due to limited on-ground projects. By nature, these projects also involve large upfront investment, long payment periods and limited long term off taker agreements. Indian capital markets have been hesitant to fund such projects- thereby increasing costs and limited flexibility on structures for meeting project needs.
In addition to these challenges, it’s also critical to address the overall supply chain costs- including compressors, storage, transport and conversion into derivatives such as ammonia/ methanol. In India, where hydrogen infrastructure is limited, these downstream costs can rival productions costs especially for distributed/ export oriented projects
Path for Competitiveness in India
In our view, India can follow a 4 pronged approach for addressing the competitiveness of green hydrogen. This over the coming 3-5 years can enhance India’s chances to reach 5 MMTPA targets for domestic production and 10 per cent of global green hydrogen demand. It’s imperative that India progresses all these imperatives in parallel to meet the pace of global developments and needs for meeting its Net Zero targets.
Building hub & valley infrastructure to drive scale and reducing the costs of hydrogen production as supply chain mature. This would involve multiple activities including expediting plans on developing three to four 1-MMPTA+ eastern & western coast hubs, fast tracking 3-5 high priority ports anchored for GH2 exports with adequate ammonia/ methanol storage, standardization of certifications (RFNBO/ non RFNBO) early and aligning with global (European/ US/ Japanese) benchmarks. In addition, allocation of high CUF sites for wind and solar projects is critical for enabling the environment for hub development. Overall, country needs to plan hydrogen corridors/ valleys for enabling scale in this area.
Domestic demand certainty via mandates/ standards/ public procurement: Accelerate ammonia and GH2 demand aggregation opportunities across Indian refinery and fertilizer space. In addition, push on methanol based opportunities such as diesel blending in the Indian domestic market through similar routes. In addition, imported urea can be replaced by green urea via domestic GH2 route. These would demonstrate viabilities as well as get large private investors/ developers in the space which would create a virtuous cycle of interest in the space.
GoI support for making GH2 competitive: This is a critical enabler for building the viability of Indian export oriented projects, especially in early days. Active engagement at G2G level for inclusion of Indian grid as a bidding zone in European standards, inclusion of carbon trading under bilateral Japanese / Korean agreements is key. State/ central level support as capex subsidies, waivers on electricity duty in the target states, push on inter/ intra state waivers on power transmission (charges & losses), push on production subsidies on domestic electrolyzer manufacturing can also enhance the viability of the GH2 product from India. In addition, existing provisions for SEZs for GH2 hubs and associated RE infrastructure can also help.
Green financing push customized for GH2 projects: Typically, GH2 and its derivative projects would have 10-12 year offtake agreements. This would require innovative structures on green financing to fund the projects. Indian NBFCs can take a lead in mobilizing global capital for these area and build the ecosystem for accessing th real risks for such GH2 projects. In addition, evaluating mezzanine funds/ short erm arrangement for construction phase at competitive rates would also enable faster movement. GH2 derivative linked bonds can also lead to active investor interest in this area.
In summary, green hydrogen is still an evolving sector and will require strong, coordinated support across the ecosystem to become competitive at scale in India. This includes sustained engagement from central and state governments, public and private developers, EPC contractors, electrolyser manufacturers, certification agencies, banks, and patient, long-term capital providers.
Financial institutions will need to adapt appraisal frameworks to reflect the unique risk profiles of GH₂ and derivative projects, while policy clarity and standardization will be essential to build investor confidence.
The next three to five years are critical for establishing hub infrastructure, supply chains, and market demand at scale. Timely and well-aligned interventions can create a virtuous cycle of scale, cost reduction, and investment. If executed effectively, India can emerge as a global leader in the green hydrogen ecosystem, while strengthening energy security and long-term industrial competitiveness.