GREEN HYDROGEN KEY INCENTIVES, TRENDS AND CHALLENGES

India wants to assume technology and market leadership and become a global hub of production, usage and export of green hydrogen and its derivatives.

The Fuel of the future. The fuel which will help India meet its de-carbonisation efforts and its ‘net zero’ goals. The fuel which will potentially make India a net exporter of fuels, from its current status of a significant fuel importer with a burgeoning dollar import bill. Green Hydrogen is increasingly being viewed as the fuel to achieve the aforesaid goals. While, the idea of using hydrogen as an alternative to fossil fuels is nothing new and has been discussed a thousand times over at policy making, think-tank and industry association tables, backed by an ever-evolving renewable industry and concrete governmental plans (in India and world over), Green Hydrogen, appears to have finally arrived and may indeed achieve whatever has been hoped for it. Almost, every major renwable energy player and industrial house, has started exploring and/or firming up their business plans for this fuel of the future, if not actively exploringor consummating investments and partnerships to participate in the manufacturing of this commodity.

What is Green Hydrogen?

Regulatorily, the Government of India defines Green Hydrogen as ‘Hydrogen produced using renewable energy, including, but not limited to, production through electrolysis or conversion of biomass’. Further, for Hydrogen to be considered ‘Green’, there are stipulations on how such hydrogen must be produced. For instance, regulatory requirements stipulate that “non-biogenic greenhouse gas emissions arising from water treatment, electrolysis, gas purification and drying compression of hydrogen must not be greater than 2 KG of carbon dioxide equivalent per kilogram of Hydrogen (kg Co2 eq/ky/Hyrogen), taken as an average over the last 12 month period”.

Key Regulatory Updates and Incentives

The National Green Hydrogen Policy was announced in February 2022 and the National Green Hydrogen Mission was announced in January 2023. The Mission (and as reflected in the budget for FY 23-24) has promised to provide 2.3 Billion USD (approx.) in funding the green hydrogen production and the electrolyzer manufacturing along with a production linked scheme (PLI). As on the date of this article, a bidding process has already been undertaken under the aegis of this policy and successful bidders have been identified. In addition, through various policy proclamations and regulatory measures, certain key incentives have been announced and these include:

• Waiver of Transmission Charges: Green Hydrogen manufacturers (commissioning their projects by June 2025) would not be required to pay transmission charges otherwise required to be paid on energy procurement / transmission from RE sources for a period of 25 years.

• Open Access Approval: Green hydrogen manufacturers procuring renewable energy through the electricity grid, for which open access approval is required, would be granted approval in a timebound manner (i.e., 15 (fifteen) days from the date on which an application is made for such approval).

• Priority towards Grid Connectivity:The renewable energy sources that are setup for green hydrogen projects would be given priority towards their connectivity to the grid.

• Single Window Approval: A single window portal for green hydrogen manufacturers is proposed by the Government, which portal will act as the one stop shop for all clearances in relation to manufacture of green hydrogen.

Additionally, various state governments have also recently announced their state level policies granting additional assistance (particularly on land procurement) for Green Hydrogen projects. Other governmental bodies, which are related to the government, also do not want to be left behind. For instance, there is active enthusiasm amongst Indian ports to ink MoUs to develop their ports as green hydrogen transit hubs. Through such MoUs, green hydrogen producers will be allowed to set up bunkers near the ports for storage and export of green ammonia. The land required for storage will be provided by the respective port authorities at applicable charges.

Key Trends and Major Deals

• Major RE players and Oil and Gas companies are actively looking to develop a Green Hydrogen/Green Ammonia Business or looking to participate in the Green Hydrogen/Green Ammonia supply chain. Their enthusiasm is understandable given similarity of products (including end-uses) and familiarity with overlapping supply chains

• Within the Green Hydrogen space, Green Ammonia is being seen as an easier product proposition given the relative ease to transport Green Ammonia in a secured manner when compared to Green Hydrogen.

• Integrated RE-RTC, PSP and Green Hydrogen/Green Ammonia projects are being preferred, whilst it also not uncommon to outsource certain elements of the supply chain (such as electrolyser procurement or even RE-RTC/PSP procurement)

• General enthusiasm amongst financial investors and lenders for these projects is being increasingly seen; Lenders also seem to prefer integrated Green Hydrogen/Green Ammonia projects given higher bankability.

• The sector has seen high value (US Dollar 1bn+) deals which have already been announced. These include, the Gentari (Petronas)- Greenko joint venture, the Indian Oil- L&T- Renew joint venture etc.

Key Challenges and Conclusion

As is the case, with every new sector or commodity, there do exist some teething issues with the Green Hydrogen sector. These include:

• Most (if not all) projects are in incubation/early conceptualization stage, every player is new to the sector.

• Legally, there is a lack of precedents for contractual arrangements; However, on the manufacturing/procurement side, precedents from the RE sector (particularly C&I PPAs) and on the supply side from the LNG/Gas/Oil Sales sector (offtake/supply agreements) are increasingly used.

• Therefore, prior experience on the RE side and LNG/Gas/Oil Sales sectors is helpful for transactions in the Green Hydrogen space, particularly given prior experience with similar products, supply chains and manner of contracting.

• Transportation is likely to be a major issue, particularly for cross-country sales, which will likely require appropriate infrastructure (including vessel chartering) support.

• The Domestic PSP Market is currently under supplied, PSP projects under-construction are facing delays which could in turn delay monetization of Green Hydrogen projects.

• Domestic PSP players are demanding highly skewed terms given limited capacity availability; similarly most electolyser supplies are currently from China, indigenous manufacturing capabilities are currently being developed by various players, but would likely take a few years before indigenous supplies come on stream.

India wants to assume technology and market leadership and become a global hub of production usage and export of green hydrogen and its derivatives. In order to achieve this, while, the steps taken until now are indeed helpful and already appearing to be attracting investment and excitement on ground, it would be helpful to pay heed to author Michael Blastand’s words, “This is the poorly guarded secret of the policy-making trade: that while telling us how this or that new initiative will change our world for the better, in truth it will likely fail by next Wednesday and be abandoned a year later after much kicking and screaming.” As pessimistic as these words may sound, it would be important to pay heed to such pessimism and ensure that the Government and the industry does not lose the momentum that has been injected into the sector. After all, all good things have to be seen manifesting and materialising, before the celebrations begin.

Disclaimer – The views expressed in this article are the personal views of the authors and are purely informative in nature.