Future of distributed green hydrogen in India

Under the ambit of the National Green Hydrogen Mission, the government of India has announced Strategic Interventions for Green Hydrogen Transition (SIGHT)—an ambitious and far-sighted program to support and incentivize domestic production of green hydrogen and electrolyzers. In its pursuit of making India a hub for using, producing, and exporting green hydrogen, SIGHT reflects the Indian government’s intent towards creating a green hydrogen ecosystem that stands on its own while giving the country the global edge regarding clean economy evolution. 

India is one of the largest consumers of hydrogen. The maximum of approx. 6 MMT of domestic hydrogen production is consumed in two sectors: fertilizers (55%), ammonia/urea production and refineries (43%). The remaining 2% is used in various industries, including steel, glass, and methanol production. 

With SIGHT, the government has rightly prioritized large-scale, export-oriented green hydrogen production. However, shifting a bit of the focus to decentralized production can prove to be a game changer. 2% is a small but vital market, which, if incentivized for a decentralized production model and supported with an encouraging policy framework, can provide broader acceptance and attract private investments for scalability. 

Distributed production 

A decentralized production model involves developers setting up and operating clean energy production plants for customers at the point of consumption, thereby avoiding long lead times and execution bottlenecks associated with offtake procurement projects. 

In the case of green hydrogen, flexible deployment of electrolyzers at the customer premises or industrial hubs can enable end users to transition to clean energy based on their specific needs and capacities. The developer is responsible for plant construction and operation and maintenance (O&M) for the duration of the plant’s life and green hydrogen is then sold to the customer, in the same way as green electricity is offered under RESCO arrangement in the case of roof-top solar PV plants. 

This approach not only improves the accessibility and reliability of green energy but also attracts private investments in the sector by opening new financing avenues.

Distributed roof-top solar business model, subsidized and supported by the government of India through initiatives like net metering, led to significant growth in India’s solar energy sector. Customers benefitted from cost savings and ownership in power generation, leading to significant adoption, especially amongst commercial and industrial (C&I) customers. 

Today, as India strives to diversify its clean energy mix and achieve ambitious net-zero goals, a similar framework in green hydrogen production is needed to realize this sector’s enormous scalability potential.

Current challenges and solutions

 Green hydrogen is produced by the electrolysis of water into oxygen and hydrogen by power derived from a zero-carbon source such as solar energy. While India’s intentions on green hydrogen are consistent with international opinion, factors such as price competitiveness, quality, technology, and innovation will determine global leadership in this industry. 

Renewable energy (RE) accounts for 70-80% of the total cost of green hydrogen production, necessitating the elimination of tariff and sourcing barriers such as ALMM, basic customs duty, and high GST (goods and services tax) on RE used in green hydrogen production. 

High landed costs of renewable energy due to varied and high open access charges across India currently pose a substantial barrier to commercially viable distributed green hydrogen production. Additionally, restrictions or limitations on banking (storage) result in unstable energy necessary for electrolysis. 

While several nations worldwide are incentivizing green hydrogen production, India should consider measures like open access charges waivers and suitable banking to greatly impact this sector, even if direct capital subsidies are not feasible.

Besides cost-related constraints, it is crucial to highlight that interest in hydrogen as an energy source has surged only recently. Due to limited experience in installation and operations in this sector, suppliers and consumers cannot fully comprehend the technical and commercial potential of green hydrogen. 

The availability of technologically advanced equipment is also a barrier, as there is a global supply shortage of electrolyzers, and India does not have sufficient domestic production capability. To minimize hindrances to the growth of this high-potential sector, initial reliance on imports necessitates avoiding import restrictions similar to those encountered in the solar energy sector. 

India has made significant strides in addressing climate change. The country can gain the necessary edge in this critical industry by focusing more on making green hydrogen production accessible and affordable. Using the distributed business model and building an enabling regulatory framework will stimulate wider acceptance and help India achieve its net zero ambitions.