The green hydrogen and green ammonia market in India has witnessed significant policy developments since the launch of the National Green Hydrogen Mission (NGHM). The high level of industry enthusiasm makes the sector even more interesting to follow. The policy momentum in this space continues to grow with the launch of tender auctions, as well as the introduction of various guidelines and incentives.
To add to this, there have been two key policy developments in the past one month itself. One, on June 7, 2024, Solar Energy Corporation of India Limited (SECI) issued a request for proposals for the manufacture and delivery of green ammonia within India. It was been issued as part of the Strategic Intervention for Green Hydrogen Transition (SIGHT) scheme (Mode 2A, Tranche I). The bid submission deadline is July 29, 2024. The bidding for the entire available capacity of 539,000 metric tonnes (mt) per year of green ammonia, intended for production and supply, will be conducted through an e-bidding process, followed by an e-reverse auction. A total of 11 projects will be allocated under this tender. Industry response to past auctions in this segment has been positive and the trend is expected to continue in this auction as well.
Two, as an indirect incentive, on May 27, 2024, the Ministry of New and Renewable Energy waived the Approved List of Models and Manufacturers (ALMM) requirement for solar projects and the Revised List of Models and Manufacturers (RLMM) requirement for wind projects to be used for green hydrogen production. This is applicable for renewable energy projects situated within export-oriented units or special economic zones and provides electricity only to green hydrogen (or its derivatives) production facilities situated within these demarcated zones. The exemption from the ALMM and the RLMM will be applicable to all renewable energy projects that meet the prerequisites and are operational by December 31, 2030. However, it remains to be seen if industry stakeholders will take this indirect incentive seriously, given the inconsistency of the ALMM policy over the years.
This article provides an overview of the policy initiatives in the green hydrogen space and posits that the ultimate goal should be not just the production of green hydrogen and its derivatives but the competitiveness of the final product in order to secure export markets.
Brief of policy initiatives
Approved by the union cabinet on January 4, 2023, the initial outlay for the NGHM is Rs 197.44 billion. This comprises Rs 174.9 billion for the SIGHT programme, Rs 14.66 billion for pilot projects (Rs 4.55 billion for low carbon steel projects up to 2029-30, Rs 4.96 billion for mobility pilot projects up to 2025-26, Rs 1.15 billion for shipping pilot projects up to 2025-26, and Rs 4 billion for hubs and other projects up to 2025-26), Rs 4 billion for research and development, and Rs 3.88 billion for other mission components.
The SIGHT programme, which is a key component of the NGHM, has two distinct financial incentive mechanisms aimed at promoting the domestic manufacturing of electrolysers and green hydrogen production. The recently floated green ammonia production tender also comes under this programme. Two auctions have already taken place under this programme. One, on July 7, 2023, SECI issued a request for selection (RfS) under Component I of the SIGHT programme, targeting the establishment of 1,500 MW of electrolyser manufacturing capacity in India. SECI received 21 bids totalling 3,328.5 MW. Ultimately, eight companies were selected in Bucket 1, including Reliance Electrolyser Manufacturing (alkaline), John Cockerill Green Hydrogen Solutions (alkaline) and Jindal (India) Limited (alkaline), each securing 300 MW of capacity with a maximum incentive allocation of Rs 4.44 billion. Other selected companies included Ohmium Operations (137 MW, polymer electrolyte membrane), Advait Infratech Limited (100 MW, alkaline), and Larsen & Toubro Electrolysers (63 MW, alkaline) with a maximum incentive allocation of Rs 2.03 billion, Rs 1.48 billion and Rs 932.4 million respectively. In Bucket 2, HomiHydrogen won 101.5 MW (AMSE/solid oxide) and Adani New Industries Limited secured 198.5 MW (alkaline) with a maximum incentive allocation of Rs 1.50 billion and Rs 2.94 billion respectively.
Two, on July 10, 2023, SECI initiated another RfS to select green hydrogen producers under Component II of the SIGHT scheme. The total outlay for this component is Rs 130.5 billion. Winners were selected based on the least incentives quoted for their production capacity. The green hydrogen production capacity was distributed with 410,000 mtpa under Bucket 1 (technology-agnostic pathways) and 40,000 mtpa under Bucket 2 (biomass-based pathways). Bid submissions exceeded the available capacity of 450,000 mtpa, reaching 551,500 mtpa from 13 bidders. The tender was awarded to bidders such as Reliance Green Hydrogen and Green Chemicals Limited, Greenko ZeroC, and ACME Cleantech, each securing 90,000 mtpa of capacity, while HHP Two (Hygenco) won 75,000 mtpa. Other winners included Torrent Power (18,000 mtpa), CESC Projects Limited (10,500 mtpa), Welspun New Energy (20,000 mtpa), UPL Limited (10,000 mtpa), and JSW Neo Energy Limited (6,500 mtpa). Bharat Petroleum Corporation Limited secured 2,000 mtpa of capacity under Bucket 2, with 38,000 mtpa remaining unallocated. For all these auctions, actual on-ground implementation remains key. In addition, it also remains to be seen if the incentives provided under the tenders are adequate to make the projects economical, or if additional incentives will be required going forward.
Apart from the policy initiatives under the NGHM, key initiatives include the exemption of ISTS charges for 25 years from the project’s commissioning date for green hydrogen/green ammonia production units using renewable energy (commissioned after March 8, 2019), pumped storage systems, battery storage systems, or any hybrid combination of these technologies. Projects commissioned on or before December 31, 2030 are eligible for this waiver, while those commissioned after this date will incur graded transmission charges. This decision effectively extends the waiver applicability from June 30, 2025 to December 31, 2030. The waiver of ISTS charges has been a key incentive for renewable energy developers, and green hydrogen developers will also benefit from this.
A rather contentious incentive has been the exemption of green ammonia plants from requiring prior environmental clearances according to the Environment Impact Assessment notification of 2006, released on July 28, 2023 by the Ministry of Environment, Forest and Climate Change (MoEFCC). The MoEFCC clarified that standalone plants producing green hydrogen and green ammonia through water electrolysis using renewable energy will not require prior environmental clearances. This policy move may receive harsh criticism from environmentalists and put the construction of green ammonia projects at risk.
Future outlook
While the policy initiatives are well appreciated, going forward, the aim should be to make green hydrogen and its derivatives more competitive so as to tap the export potential. According to the World Economic Forum’s (WEF) report titled, “Green Hydrogen: Enabling Measures Roadmap for Adoption in India”, green hydrogen production currently costs around $4-$5 per kg in India, which is about twice the production cost of grey hydrogen. The majority of this cost (50-70 per cent) is due to the requirement for round-the-clock renewable electricity, while the remaining 30-50 per cent is attributed to electrolyser costs. The production cost of green hydrogen needs to decrease to a benchmark goal of $2 per kg. This would require renewable energy to cost less than or equal to Rs 2 per kWh.
Electrolyser costs can also be significantly reduced through scaling and innovation. While several players have announced plans for approximately 10 GW of production capacity, this is still significantly below the 35-40 GW needed to meet the 5 mmtpa green hydrogen target by 2030. To achieve this, stakeholders should consider several essential interventions to quickly increase electrolyser production capacity. These include increasing direct subsidies for early adopters, similar to the Inflation Reduction Act of the US, which offers a tax credit of up to $3 per kg of hydrogen; supporting long capital investment cycles for technologies with long-term policy and incentive clarity; and encouraging the development and testing of indigenous electrolyser technology.
Meanwhile, according to the Institute for Energy Economics and Financial Analysis (March 2024), with the aid of incentives, affordable renewable electricity, exemption from ISTS open access charges, distribution and transmission fees, and a reduction in the GST rate for hydrogen to 5 per cent, the levellised cost of green hydrogen in India is expected to decrease by up to 40 per cent, reaching Rs 260-Rs 310 per kg. Reaching a low cost compared to other countries is necessary to ultimately tap export markets. Globally, the European Union (EU), Japan and South Korea are already exploring international agreements related to hydrogen imports due to the high cost of local production. In this context, India could become a cost-competitive exporter of green hydrogen derivatives, benefiting from its relatively low-cost renewable energy, skilled workforce and connected power grid infrastructure.
To lead in green hydrogen derivative exports, India will need to compete with countries such as Saudi Arabia, Chile and Australia, where production costs are also expected to be low, according to the WEF. Therefore, India should be proactive in international cooperation and co-developing hydrogen networks and supply chains. The government has already started taking small steps in this endeavour and has signed an MoU with Singapore for green hydrogen derivative exports. In addition, to facilitate exports, the Indian government has allowed manufacturers of green hydrogen and green ammonia to set up storage bunkers near ports.
While these developments to promote exports are positive, much more needs to be done to scale it up. A significant hurdle is the lack of harmonisation of standards in the green hydrogen space, with different countries working mostly in silos to develop their standards. For instance, India includes banked renewable energy electricity in its green hydrogen definition, while the EU does not. This is a major risk for developers looking to export their final product to the European market. Another discrepancy lies in the permissible carbon emissions for green hydrogen production. If India aims to take the lead in the global green hydrogen race, it should work with key importing countries to implement common standards. In addition, it should consider providing more subsidies to match those being provided in other countries, especially in the US after the introduction of the Inflation Reduction Act.
Net, net, while the growing policy momentum is appreciated, much more needs to be done for India to lead in the export market of green hydrogen and its derivatives. While there has been ample focus on improving domestic uptake, policymakers should not lose sight of the twin goal of improving export offtake.
