India has become the 18th country to release a comprehensive green hydrogen policy — a watershed moment in India’s energy transition journey. The policy — envisaging a tangible strategy for developing a green hydrogen economy — sets in motion the process of decarbonisation of ‘hard to abate’ sectors such as steel, cement industries, and long-haul transportation.
This is a giant first step for India after its commitment to achieve net zero carbon emissions by 2070, and revised renewable energy addition target of 500 GW which primarily aims at decarbonisation of the power sector. With its cross-sectoral applications and decarbonisation potential, green hydrogen is poised to become one of the most disruptive feedstock-cum-fuels that can catalyse India’s transition from oil and coal.
Incentives For A Green Hydrogen Economy
The launch of the green hydrogen policy puts in place a sturdy foundation for developing a competitive green hydrogen sector in India — a transition well underway in most developed countries. The definition for green hydrogen/green ammonia as products obtained through electrolysis of water using renewable electricity or from biomass is an essential step in categorising a low carbon pathway for their production. Besides the capital investment required for electrolysers, purchase of renewable energy (RE) accounts for a significant share in its total cost of production. Acknowledging this, the policy focuses on enabling access to low cost RE power for green hydrogen/ammonia production.
The policy offers a bouquet of incentives to green hydrogen producers for RE power procurement:
- Wavier of interstate transmission system (ISTS) charges for 25 years for projects commissioned before June 30, 2025
- Access to renewable energy through State utilities with 30 days of banking facility (mechanism to store and withdraw surplus renewable power)
- Priority access to connectivity with the ISTS network.
Multiple modes for procuring RE for green hydrogen production have also been announced, including purchase of RE from power exchanges, and expedited access to open access mechanism. Distribution utilities have also been directed to procure and supply RE power to hydrogen and ammonia producers at nominal wheeling charges.
The policy also states that green hydrogen producers can avail land in solar parks across states for establishing their production units. They would also be allowed to establish bunkers near ports for use by the maritime sector and export.
To streamline the procurement process and ensure competitive pricing, the Ministry of New and Renewable Energy (MNRE) has been directed to consolidate demand from various sectors, and procure green hydrogen through the competitive bidding route.
Nuances Left Unaddressed
While most of the incentives announced in the policy cater to the supply side, the policy does not specify mechanisms or incentives for demand creation. Currently, the cost of grey hydrogen produced from natural gas is nearly one-fourth the cost of green hydrogen. Bulk consumers of hydrogen, especially industrial sectors including fertilisers, steel, chemicals, and refineries are unlikely to transition to low carbon alternatives because of the higher associated costs. With no incentives to reduce emissions, such industries might not find the transition viable for themselves. This, in turn, could lead to huge supply risks for first movers establishing green hydrogen/ammonia production plants.
Additionally, some of the measures announced under the policy such as renewable electricity through open access, banking, and wheeling are concurrent subjects that necessitate consensus and buy in from the states and Centre. For instance, the open access mechanism for RE procurement is already facing issues across certain states, where public sector electricity utilities are unwilling to let go of their monopoly in power distribution. Presently, 30-50 percent of the total landed cost of renewable power under this mechanism constitutes open access charges (sum of cross subsidy surcharge, additional surcharge, and standby charges). Green hydrogen, one fears, could also meet a similar fate that may thwart its growth potential.
While the first step towards developing a green hydrogen economy has now been taken, it is crucial that the Government of India retains this momentum with further policy initiatives to address key challenges. The policy must evolve to also address other key factors that are essential for establishing a green hydrogen economy, such as measures to establish a domestic value chain, and, most importantly, financing the transition cost.
Pawan Mulukutla is director, clean mobility & energy tech, and Anuraag Nallapaneni is senior programme associate, hydrogen, at the World Resources Institute India. Views are personal, and do not represent the stand of this publication.
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