MC Exclusive | No inter-state transmission charges up to December 2055 for green hydrogen projects: Govt order

The Union Cabinet approved the National Green Hydrogen Mission on January 4, 2023.

The government has decided to levy no inter-state transmission system (ISTS) charges on renewable energy (RE) used for the production of green hydrogen and its derivates up to December 2055, an order issued by the Ministry of New and Renewable Energy (MNRE) on April 5 stated. The decision has been taken to keep the overall cost of green hydrogen low in India as RE accounts for 65-70 percent of the cost of production of green hydrogen and its derivatives, senior MNRE officials told Moneycontrol.

Earlier, the government had allowed an ISTS charge waiver for 8 years with the cutoff date for commissioning of the green hydrogen or green ammonia unit being June 30, 2025. This meant if a green hydrogen production unit was ready by June 30, 2025, then it would be exempted from paying ISTS charges till June 2033.

With this order, the government has not only increased the cut-off date for the commissioning of green hydrogen units and that of its derivates by 5.5 years but has also extended the post-commissioning waived-off period from 8 to 25 years.

"It is proposed that no ISTS charges may be levied on RE used for green hydrogen and its derivatives, for units commissioned up to 31.12.2030. This waiver may be provided for a period of 25 years from the date of commissioning of such plants for the production of green hydrogen and its derivatives. The waiver will be applicable to electricity generated from solar, wind and hydro energy sources including hydro-PSP (pumped storage plants) Battery Energy Storage systems or any hybrid combination of these technologies, provided that hydropower projects commissioned before March 2019 may not be eligible for the waiver," read the memorandum issued with the approval of Minister of Power and Renewable Energy, RK Singh.

Moneycontrol has a copy of the order.

This means that even if a green hydrogen-producing facility is commissioned in December 2030, it will be exempted from paying ISTS charges for the RE used to produce the carbon-free gas till December 2055. If a plant is commissioned in April 2025, ISTS charges will be waived off till April 2050 for that facility.

Based on the feedback from the industry, the government is expecting that green hydrogen/green ammonia facilities will be set up in the vicinity of export terminals and end-use industries. Renewable energy (RE) production, however, is likely to be situated in RE-rich states, to optimise the cost and capacity utilisation factor (CUF) of generation.

The ISTS charge is levied to transmit electricity from one state to the other. According to government estimates, the ISTS charge to transmit RE from the generating units to such green hydrogen units would range from Rs.1 -2 per kWh depending on the location, which would increase the cost of the delivered RE at the site. Production of 1 kg of green hydrogen requires 55-60 kWh of renewable energy. Therefore, a Rs 1/kWh increase in the delivered cost of RE would increase the cost of green hydrogen production by about Rs 60 per kg (or USD 0.75/kg), the government document stated.

"Waiver of ISTS charges could significantly improve the economic viability of green hydrogen plants and those of its derivatives. The order that existed until now, allowed for ISTS charges waiver only for projects to be commissioned up to 30 June 2025. But, industry feedback indicates that the construction period for a large-scale green ammonia facility is likely to be between 30-36 months. So, it is unlikely that the substantial capacity of projects is likely to get commissioned by the cut-off date of June 30, 2025. Hence, an extension of the exemption beyond this date was necessary to enable cost reduction of green hydrogen and green ammonia projects," a senior MNRE official said requesting anonymity.

The reason for the extension till 25 years post-commissioning of the project is that the operational lifespan of a green hydrogen/green ammonia project would be co-terminus with the RE facility i.e. 25 years.

After being approved by the Union Cabinet on January 4, the government released a blueprint for its ambitious National Green Hydrogen Mission (NGHM) on January 13, with a total initial outlay of Rs 19,744 crore, of which Rs 17,490 crore has been kept for the production-linked incentives (PLIs) for producing green hydrogen and manufacturing electrolysers.

India has set an ambitious target of setting up 500 GW of renewable energy capacity by 2030 and going net zero by 2070, which is why the NGHM will play an important role in the years to come. Companies such as Reliance Industries, Indian Oil, NTPC, GAIL, BPCL and so on have already committed to green hydrogen production in India.

The government has set a target of capturing about 10 percent of the global green hydrogen market. In the NGHM document, the government has hoped its manufacturing capacity would double to 10 million metric tonnes (MMT) from its initial target of 5 MMT per year till 2030.

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