By Pranav Master
The green hydrogen policy announced by the Centre marks an important step towards realising the Panchamrit goals outlined by India at the COP26 summit, but it will need much facilitation to hit home. Setting up an enabling ecosystem for green hydrogen, under what maybe just the first phase of the policy, is thus a logical step to support India’s decarbonisation journey.
The policy focusses on providing easy access to and reducing the cost of renewable energy (RE), which currently accounts for about 60% of green hydrogen production cost. This will be achieved through measures like waiver of inter-state transmission system (ISTS) charges, banking of excess RE for 30 days and speedy open access approval. As per CRISIL analysis, waiver of ISTS charge is estimated to reduce costs by 5-7% assuming RE is sourced through third-party open access. Additionally, such waiver will support setting up of RE capacity in resource-rich regions, further reducing costs.
In a bid to offer scale, the Centre proposes to set up manufacturing zones, tap the export market by encouraging storage facilities at ports, and aggregate demand from different sectors through designated agencies. The policy also provides a stimulus to RE developers looking at scaling up their portfolios, as the plan to produce 5 MT of green hydrogen annually by 2030 could require ~250 BUs of green power, translating into RE capacity of 140-150 GW. In this context, coordinated planning with appropriate technology choices would be critical to ensuring effective RE capacity utilisation.
The policy also provides a diversification opportunity to players across the energy value chain. For green hydrogen to take off, however, the unit economics will need to be addressed. At generation point, a levelised RE cost of Rs 2/unit or lower augurs well for its production. In reality, the landed cost of renewable energy power would be Rs 3.5-6.5/unit due to open access levies, intra-state transmission charges and losses.
Thus, ex-factory price of green hydrogen would be Rs 450-500/kg versus Rs 150/kg for grey hydrogen. An alternative for green hydrogen producers would be to opt for RE on a captive or group captive model to avail waiver of open access charge, which could reduce costs by 20-30%. Despite this, sans additional supportive mechanisms (see box), competitiveness against grey hydrogen is expected to be unfavourable.
The writer is Director, Energy Practice, CRISIL
