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Green hydrogen: Prominent names set to benefit from government push

Nomura prefers Reliance Industries and Larsen and Toubro as the major players in the green hydrogen segment.

February 28, 2023 / 04:53 PM IST
Representative image  (Source: ShutterStock)

Representative image (Source: ShutterStock)

On February 1, finance minister Nirmala Sitharaman allocated capital investment worth Rs 35,000 crore towards energy transition and achieving India’s goal of net zero carbon emissions by 2070.

An additional Rs 19,700 crore was sanctioned for the government's National Green Hydrogen Mission. India views green hydrogen as a key decarbonisation tool and plans to increase its production to 5 million tonnes annually by 2030, entailing the setting up of at least 125 GW of renewable energy and significant electrolyser manufacturing capacity.

Hydrogen is a clean fuel with no carbon emissions at the end-use stage. However, producing hydrogen from fossil fuels adds to the carbon footprint.

The target is to produce green hydrogen from electrolysis of water using green or renewable energy, which has no carbon emissions. This will result in virtually zero emissions during generation and end use.

G20 Sherpa Amitabh Kant said India has the possibility of becoming a major exporter of green hydrogen and producer of electrolysers.

Speaking at the World Sustainable Development Summit 2023, Kant said the price of green hydrogen needs to come down to about $2.5 per kg in two to three years and to $1 by 2050.

“This will require massive size and scale. No other country can provide the size and scale which India can,” he added.

Current green hydrogen prices are $4-5 per kg, which are relatively high, leading to premiums of 110-320 percent across products to make the green fuel. For the production of green fuels to be viable, the cost of production should be lowered to $1 per kg, said Nomura.

Analysts said reducing costs is possible only by increasing scale and enhancing electrolyser efficiencies.

Plays on Green Hydrogen

Nomura prefers Reliance Industries and Larsen & Toubro as the major players in the segment. It said L&T is constructing the largest green ammonia plant in Saudi Arabia. The company has also put in place technology tie-ups and joint ventures to target the refining segment.

Reliance targets at least a 20 percent Indian market share with a fully integrated plan consisting of establishing giga factories and securing technology tie-ups, Nomura said.

With the increased production of green hydrogen, demand for power electronics will benefit companies such as Siemens, ABB India and Honeywell Automation, according to Nomura. It is estimated that the addition of 90-100 GW of renewable energy capacity by FY30 for green hydrogen will also lead to power transmission and pipeline-linked capital expenditure.

The battery storage policy and pump storage policy are in sync with India’s net zero carbon emission target for 2070, said Sreeram Ramdas, vice president at Green Portfolio. “We like Exide industries and JSW Energy in this space and we maintain a good exposure.”

Exide Industries, the market leader in lead acid batteries, will invest Rs 6,000 crore on manufacturing lithium-ion cells, which is expected to start in late 2024. The company will also benefit from 4,000 MW-hour battery energy storage projects that have been announced.

JSW Energy has been transitioning into renewable energy. It aims to have an 80/20 mix, with renewables as the primary source of energy production.

“On valuations and growth prospects, we remain highly inclined to these names,” said Ramdas.

Torrent Power has been in the limelight lately because its stock has rallied, given upbeat quarterly earnings and the huge growth potential in the renewables space. The integrated power player is expected to be one of the prime beneficiaries of the government's thrust on the clean energy transition.

It has a presence across the entire power value chain, including generation, transmission and distribution, and seems to be well-positioned to capitalise on the opportunities in the sector, analysts said. Clean energy assets comprise 90 percent of its power generation assets. Torrent Power is also exploring new and upcoming opportunities in areas like green hydrogen and battery energy storage.

JM Financial Institutional Securities is of the view that the abatement in transmission and distribution losses along with the renewable portfolio addition will drive the company’s growth over the medium to long term.

Praj Industries is a prominent player in the green energy space and provides solutions, technology, and equipment to industries such as environment, energy, and agri-processing.

Amit Anwani of Prabhudas Lilladher said the company is well-positioned to benefit from the government’s green push.

Disclaimer: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.

Dipti Sharma
first published: Feb 28, 2023 04:53 pm