Getting the basics right. Good intention is not equal to good policy

On the surface, the government’s green hydrogen thrust looks pretty good. Around ₹19,440 crore will be given to the industry to build enough electrolyser capacity to produce 5 million tonnes of green hydrogen annually by 2030. Applause!

But scratch the surface, you see writhing worms.

Nobody is going to buy green hydrogen out of large-heartedness — it has to make economical sense. Here is the problem. For green hydrogen to become cheap renewable energy needs to become ultra-low cost. Today, all the measures of the government for the renewable energy industry only have the effect of raising the energy costs.

Secondly, it had been said that the government would bring in a ‘green hydrogen purchase obligation’, on the lines of the ‘renewable energy purchase obligation.’ But reliable sources who have interacted with the government officials say that the current thinking is not to bring in any such obligation. The thinking apparently goes that if it might be unfair to impose burdens on some select industries (mainly refineries and fertilizers). Instead, the Ministry of Petroleum and Natural Gas is ‘suggesting’ to the public sector oil refiners to ensure that a part of their hydrogen is ‘green’. Such ‘suggestions’ are peremptory. But oil refiners alone cannot provide the demand function on a scale consistent with 5 mtpa of the green hydrogen market.

Third, the government is saying that it would allow duty-free import of electrolysers for a few years and then erect barriers to cause a domestic industry to come up. Industry sources say that this is a problem because, while on the one hand duty-free imports would discourage domestic manufacturing, importing of electrolysers is also a challenge because of the tight supply situation. The fear is having neither.

Cost of renewable energy

You need electricity to split water into hydrogen and water. Even biomass-based plants need electricity. There is no point if this electricity comes from burning coal — it must necessarily come from renewable sources like wind, solar or hydel. Hydel is small and is difficult to scale up, so it boils down to wind and solar. As for wind, the government has just announced two measures, yielding to the long-standing demands of the industry — ’closed bidding’ method of capacity auctions and State-wise auctions. Leave aside what these are — suffice to say that both the measures will have the effect of raising wind tariffs. Today, wind power sells at around ₹2.80 - ₹2.90 per kWhr, but it could go up by 30-40 paise, if not more.

As for solar, the government has erected stiff barriers to prevent imported cells and modules, and has given PLI incentives to the domestic manufacturers in the vain hope that after a few years, the domestic industry will become globally competitive. Nobody in the industry believes it would ever be competitive against the Chinese — who have the advantage of scale and government support. The government would need to perpetually keep supporting the domestic industry to the detriment of the consumers. But that is another matter. What is important to note is that because of the higher costs of cells and modules, solar energy costs are slated to go up.

Rough calculations show that if renewable energy costs ₹ 3 per kWhr, with even the most efficient of electrolyser technologies — solid oxide — the cost of the hydrogen would be about $3.5 - $4 per kg. At this price, it is hard to see large-scale, voluntary adoption of green hydrogen. One kg of hydrogen has the same energy as 3.25 liters of diesel. At $4, hydrogen prices itself out, more so when you take into account the additional costs of transportation and storage.

Recently, the National Chemicals Laboratory, a public research institute based in Pune that has worked on electrolyser technologies, revealed some figures showing what it takes to have a market of 5 mt a year of green hydrogen. You are going to need 130 GW of renewable energy, 35 GW of electrolyser capacity, 115 million litres a day of water and 3,40,000 hectares of land. A recent publication of the International Energy Agency (IEA), said that by 2030, the world would have 65 GW of electrolyser capacity (from around 200 MW now). Is it conceivable that half the global electrolyser capacity will be in India? Further, after all these years, India has built 42 GW of wind and 62 GW of solar. You are going to need to more than double this capacity, exclusively for green hydrogen production, in just 7 years. Does it sound feasible, especially with policy niggles such as the tighter norms for ‘deviation settlement mechanism’ (DSM)?

Overall, the government’s green hydrogen policy is a mass of contradictions and unless the kinks are straightened out, it is difficult to see it achieve its objectives.

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