India’s maiden green hydrogen policy has opened the door to a promising green hydrogen economy. Green hydrogen – produced through electrolysis of water using electricity from renewable energy sources – could be used either as a chemical feedstock or as a fuel for various industries such as fertilisers, steel, power, transportation and maritime.
The production cost for green hydrogen is about US$5.5/kg in most geographies –higher than grey hydrogen produced using gas at below US$2/kg. Reducing the production cost of green hydrogen hinges on two important input costs – the cost of electrolysers and renewable energy. The cost of electrolysers needs to fall below US$250/MW from US$700-1,000/MW currently, while the cost of renewable energy has to come down to US$20/MWh from US$30-35/MWh.
High and volatile global gas prices have pushed fertiliser prices to record levels
However, in the last two years, fossil fuel prices have hit record highs and have been extremely volatile due to the Covid-19 pandemic and the Russia-Ukraine war; and prices are expected to remain high until the end of this year. High and volatile fossil fuel prices have pushed up the cost of production of grey hydrogen, making green hydrogen cost-competitive even at more than US$2/kg.
Many Indian energy companies have set aggressive targets to reduce the cost of green hydrogen. Reliance Industries Limited (RIL) has announced a target of below US$1/kgH2 by the end of this decade.
The evolution of the hydrogen economy will depend on how the various segments of the value chain – upstream, midstream and downstream – are integrated to deliver hydrogen at a minimum price.
The most commercially viable use case for green hydrogen is green ammonia (NH3) for fertilisers. The Indian government identifies green ammonia as the prime use for green hydrogen and hence the stated incentives are for green hydrogen as well as green ammonia projects.
Reducing the green hydrogen production cost hinges on two key input costs – electrolysers and renewable energy.
IEEFA’s recently published report reviewed the growing burdens of subsidy and import dependence for fertilisers in India. The recently announced Budget 2022/23 pegged the fertiliser sector subsidy at Rs1.05 trillion (US$14.2bn), exceeding a trillion rupees for a third consecutive year.
In this report, we review the cost competitiveness of producing green ammonia using various modes of electricity inputs (grid electricity, round-the-clock renewable power and solar plus batteries integrated with green ammonia production). Globally, many projects are implementing a model of fertiliser production facility that integrates onsite solar, battery storage and electrolysers.
According to the International Energy Agency’s (IEA) hydrogen project database as of October 2021, there is 8MT of green hydrogen to green ammonia production capacity planned worldwide. In this report, we cover some of the top green hydrogen to green ammonia projects.
Green ammonia could help the government to significantly reduce its trillion-rupee fertiliser subsidy bill. It could also create export capabilities whilst remedying India’s dependence on imported liquefied natural gas (LNG) for fertiliser production.
The green hydrogen policy provides a host of production side incentives. Other policy interventions are expected in the next phase of the policy which will focus on demand creation through the mechanism of a green hydrogen purchase obligation.
Deep localisation of the value chain will be key for successfully utilising green hydrogen for India’s energy transition.