by Sehul Bhatt, Director-Research, CRISIL Market Intelligence and Analytics
India strives to increase green hydrogen production, but cost is a big worry
Green hydrogen is emerging as a crucial alternative as the world transitions from fossil fuels to sustainable and cleaner sources of energy. For India, the fuel is a strategic input in its quest for energy security and to meet its net-zero goal. India’s journey to becoming a global leader in green hydrogen commenced with the announcement of the National Green Hydrogen Mission (NGHM) in January 2023, underlining the commitment to reduce carbon footprint and enhance energy security. The mission, supported by Rs 19,744 crore in financial aid from the government, aims to produce at least 5 million metric tonne (MMT) of green hydrogen, add 125 gigawatts (GW) to the country’s renewable energy capacity, attract investments worth Rs 8 lakh crore and create 600,000 jobs — all by 2030.
The government has introduced incentive schemes under the Strategic Interventions for Green Hydrogen Transition (SIGHT) programme to accelerate the production of green hydrogen by supporting the setting up of electrolyser manufacturing facilities, ramping up technology, and developing infrastructure and skills. As much as Rs 4,440 crore is being allotted under the programme to encourage electrolyser manufacturing capacity. The first phase of the project aims to create 1.5 GW of electrolyser capacity. The auction for this drew participation from 20 companies, which bid 2.2 times the targeted capacity. Contracts were awarded to eight companies, with a maximum incentive allocation of Rs 2,220 crore. The second phase, launched in July 2024, that aims to create another 1.5 GW of electrolyser capacity, saw more companies — 23 of them — joining the fray.
In addition, Rs 13,050 crore has been allocated for the green hydrogen production scheme. The first phase in this aimed to create 450,000 metric tone (MT) capacity. As many as 10 out of 14 companies were offered support worth Rs 3,055 crore to create 412,000 MT of capacity. The second phase, also launched in July 2024, is in progress. If these capacities come on stream as envisaged by 2030, India will be close to having 5 GW capacity.
Refining and fertiliser sectors to lead domestic demand for hydrogen
The government is implementing aggregation schemes for green hydrogen and green ammonia to stimulate demand, particularly in the refining and fertilizer sectors. In refining, green hydrogen is set to transform processes such as hydrocracking and desulfurisation. To incentivize this, a green hydrogen production aggregation scheme called Mode2B has been initiated,which would help oil and gas companies aggregate demand and invite bids for the production and supply of green hydrogen at the lowest cost.
In July, India issued a tender for the production and supply of 7.4 TPA of green ammonia, one of the largest initiatives of its kind globally. The integration of green hydrogen into ammonia production is expected to significantly reduce emissions and position India as a potential exporter, aligning with broader environmental goals.
India’s green hydrogen strategy also encompasses various sectors that contribute to emissions reduction and sustainability. Key end-user industries include shipping, steel, and mobility, where specific schemes have been launched. For instance, a pilot scheme for green hydrogen in ship propulsion has an outlay of Rs 115 crore until fiscal 2026. On the other hand, a budget of Rs 455 crore until fiscal 2030 has been allocated for a pilot scheme to promote the use of green hydrogen in steelmaking processes. In addition, initiatives to promote research and development have received a significant allocation of Rs 400 crore, underscoring India’s commitment to advancing technology and facilitating green hydrogen adoption.
Another strategic priority is the establishment of hydrogen hubs and guidelines have been issued to set up two of them to foster innovation and collaboration. In addition, India has published its own green hydrogen standards. A draft certification scheme is currently under public consultation. Also, the government is prioritising skills development within the sector to create a workforce capable of driving the green hydrogen agenda forward.
Cost of green hydrogen poses a challenge
Despite all the initiatives, challenges of cost competitiveness, calibrated investments in the industry, safety concerns and the need for infrastructure investments impede widespread adoption of green hydrogen.
The cost challenge
Green hydrogen is nearly twice as expensive as grey hydrogen derived from fossil fuels — primarily natural gas. This is a significant barrier to adoption. This price disparity is due to high renewable energy costs and the expensive electrolysers needed to produce hydrogen. Further, the cost gap remains unbridged to a great extent despite waiver of inter-state transmission charges and central support.
Sectors wary of adoption
Many sectors remain cautious about adoption also because demand is currently limited to refining, fertilizers and chemicals. There is slower adoption in sectors such as industrial heating, transportation and power generation because of the substantial capital investment required, which casts a shadow on economic viability.
Safety concerns
Hydrogen’s high flammability raises worries about explosion risks during storage and transport. In addition, existing pipelines may not be compatible, leading to fears of material degradation and potential failures. Such issues necessitate the development of stringent safety protocols, which can add to costs and deter industries from making the switch to hydrogen-based systems.
Infrastructure investment
For widespread adoption of green hydrogen, significant investments are required to develop storage and refueling facilities, particularly in the transportation sector. As battery electric vehicles gain popularity, the case for a competitive hydrogen infrastructure will improve. The lack of it currently deters industries.
Way forward
To harness the potential of green hydrogen, several steps are underway. India is trying to reduce the costs associated with adoption of green hydrogen through various incentives, including those under the NGHM. State governments also plan additional incentives and support for green hydrogen production and technology development. However, more efforts, such as mandates for usage and investing in local technology to enhance efficiency and reduce reliance on imports, are needed. Strengthening the safety regulations and standards is also vital for mitigating risks and building industry confidence. And fostering public-private partnershipsor facilitating lowinterest rateloans to build infrastructure can accelerate adoption.
Companies explore exports market as global demand evolves
Despite these challenges, green hydrogen presents significant opportunities for India.
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Reducing emissions and saving import bills
One of the main opportunities lies in reducing greenhouse gas emissions in hard-to-abate sectors, such as steel and fertilisers, aligning with India’s goal of achieving net zero emissions by 2070. In addition, green hydrogen presents a strategic opportunity for India to reduce its reliance on imported fossil fuels and save precious foreign exchange. By developing a robust green hydrogen infrastructure, the country can improve its energy independence and promote economic resilience.
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International ties and export opportunities
Green hydrogen adoption can help improve international ties, especially with the United States (US) and the European Union (EU). For instance, Ohmium, the US-based company, is setting up an electrolyser manufacturing unit in Karnataka with a capacity of 2 GW. Ditto Reliance Industries, which has partnered with Denmark’s Stiesdal. The EU aims to import 10 MTPA of green hydrogen by 2030, which aligns with India’s production goal of 5 MTPA, creating a promising export market.
India is at a pivotal moment in its green hydrogen journey. There are strategic opportunities to lower the country’s import bill and enhance energy independence. To be sure, there are significant challenges, such as high costs and inadequate infrastructure, which can only be addressed through regular collaboration between the government and the private sector.
Getting things right will position India as a major player in the global green hydrogen economy.
