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OPINION: Heading towards a green Hydrogen economy

New Delhi: In a world struggling to address the issue of climate change and growing carbon footprint, green hydrogen is being heralded as the future of energy. Owing to its decarbonising potential and non-polluting nature, green hydrogen is seen as a promising alternative to replacing fossil fuels. Divergent from grey hydrogen, which is produced from fossil fuels and causes significant carbon dioxide emissions, the production of green hydrogen employs a carbon-neutral process known as electrolysis. The recent initiatives of the Government of India (GoI), such as the announcement of a National Hydrogen Mission in Budget 2021-22 and the proposed introduction of green hydrogen consumption obligations for fertiliser and petroleum refining industry, indicate the country’s resolve to transition towards an economy fueled by green hydrogen.

Introduction of green hydrogen into the country’s energy mix could not have been timed better. The energy demand is expected to double by 2040 and though the country is making strides towards harnessing solar and wind energy, the inherent limitations in the expansion of these renewable energy sources could mean a continued reliance on fossil fuels. The pace of capacity addition to existing renewable projects has taken a hit due to the COVID-19 pandemic. Adequate availability of sites too continues to remain challenge to the development of large-scale renewable energy projects. The adoption of green hydrogen may offset these challenges and put the country back on track to achieve its renewable energy targets under the Paris Agreement.

However, India’s transition towards a green hydrogen economy (GHE) can only happen once certain key issues are addressed. GHE hinges upon the creation of a supply chain, starting from the manufacture of electrolysers to the production of green hydrogen, using electricity from a renewable energy source, for its eventual transmission to the end-users. Each of these activities carries risks that can have a cascading effect on the entire supply chain. For instance, a hydrogen plant may not be of any value unless it is tied-up with a renewable energy plant that can supply electricity for conducting electrolysis, and an offtaker to whom the green hydrogen can be delivered for transmission to the end users. A smooth implementation of the supply chain may, therefore, require development of back-to-back projects. To mitigate such risks and augment the financial viability of the green hydrogen sector, pilot projects are being developed in an ecosystem where the end-use takes place in close proximity to the production site. This model has been adopted for the development of a project at Puertollano in Spain where the green hydrogen, produced using electricity from a solar power plant, will be supplied to an ammonia plant located in the same vicinity. The Department of Science and Technology (India) is also working on a Hydrogen Valley Platform to create an ecosystem along the lines of the existing hydrogen valleys in Europe, to concentrate the production, transportation and end use of green hydrogen in a single region. Once the efficacy of closed-circuited pilot projects has been established, such local hydrogen economies will pave the way for the expansion of the supply chain at a macroeconomic level.

According to estimates, around US$ 300 billion will be invested worldwide in the green hydrogen energy sector by 2030. However, given the nascent nature of the industry and the magnitude of inter-dependence in the supply chain, banks and lending institutions may be wary of financing such projects, unless each link of the supply chain is adequately tied up with other links. Green hydrogen is produced using electrolysers, a technology for which the performance standards are yet to be established. The lenders may perceive this as an additional risk and may require robust manufacturer warranties, backed by insurance to ringfence the technological risks associated with a green hydrogen project. The multiple end-uses of green hydrogen, such as providing feedstock to chemical industries or fuel for the transportation sector, will further require the lenders to develop tailor-made financing packages for each project, based on the risk analysis of the industry of the intended end-use.

The regulatory support provided by the GoI will be key to the take-off and the subsequent scaling-up of the green hydrogen energy in the country. While the stakeholders are awaiting the formulation of guidelines under the National Hydrogen Mission, it is imperative that the measures adopted by the GoI are aimed at lowering the production cost to enable green hydrogen to compete with fossil fuels and other renewable resources in terms of pricing. This may be achieved by the grant of subsidies for the equipment required to be deployed at each stage of the supply chain, or in the form of fiscal incentives to promote the demand for green hydrogen. Once the necessary infrastructure is in place, a carbon emissions tax to disincentivise the use of fossil fuels may also be considered by the GoI to support the green hydrogen energy sector.

Green hydrogen has the potential to decarbonise the sectors, which currently have the largest carbon footprint in the world. With the capability to provide a zero-emission fuel, green hydrogen is well placed to be integrated into the transport sector and replace the use of coal and coke in the industrial sector. India’s transition towards a green hydrogen economy can be a testament to the world on the achievement of energy security, without compromising the goal of sustainable development. The GoI, therefore, must strongly pursue the objective of creating a GHE to make India a global manufacturing hub of green hydrogen and place itself
at the top of the green hydrogen export market.