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- The Lights on Lou Del Bello’s newsletter unveiled details of the new hydrogen policy, which is expected to be released towards the end of this month.
- According to its designers, the policy will avoid nearly 50 million metric tons of greenhouse gas emissions per year by 2030 and help add 150 GW of renewable capacity.
- Oil refineries will have to replace 30% of their fuel consumption with green hydrogen by 2035, up from 3% in 2025.
- By 2035, fertilizer production should run on 70% green hydrogen, and by the same year urban gas distribution networks should replace 15% of their fuel volume.
- According to experts familiar with the matter, the feasibility of these ambitions is still debated, but the consumption obligations will remain in place in the final version of the policy.
With a $2.5 billion 1 plan to boost hydrogen production and demand in the country, India is betting on fuel to reach its net zero target by 2070.
Lights on may reveal details of the new plan, due to be released towards the end of this month, which its designers say will avoid nearly 50 million metric tons (MMT) of greenhouse gas emissions per year by the end of the decade, and will lead to the addition of 150 GW of renewable capacity.
The hydrogen policy
As it prepares to assume the presidency of the G20 in December, the world’s third largest emitter is going beyond a transition strategy entirely based on solar development, to diversify into emerging fields such as hydrogen and battery storage.
The most abundant but elusive chemical element, hydrogen is not found in nature in its pure form: it must be extracted from compounds such as natural gas, biomass or water using an electric current, a process called electrolysis. When the energy used to obtain hydrogen comes from renewable sources, the resulting fuel – which only emits water vapor when consumed for energy – is completely carbon neutral.
According to the policy, countries’ growing needs for green hydrogen and its derivatives may not match their ability to produce it, which will boost international trade. And as the Covid pandemic and the recent energy crisis have shown, green fuels and raw materials are a way to protect energy systems from supply chain disruptions and geopolitical risks. The lawmakers conclude that the current volatility in global energy markets represents “a unique opportunity for India to capitalize on its abundant renewable energy.” […] and the growing global demand for green hydrogen”.
The policy seizes the moment by creating a comprehensive hydrogen ecosystem, driving supply, demand and infrastructure. As part of a robust supply chain, it will encourage the creation of hydrogen hubs where fuel is produced and consumed locally, avoiding transport costs and physical risks. The aim is to increase India’s production capacity to 5 MMT per year by 2030, from negligible levels today, potentially doubling the target once exports pick up. If achieved, the target will match the EU’s hydrogen ambitions.
Stimulate demand and innovation
Seen by Lights On, the latest draft of the long-awaited new policy under the National Green Hydrogen Mission sets new mandatory consumption targets for specific sectors to encourage demand. These Green Hydrogen Consumption Obligations (GHCOs) set usage targets for the petroleum refining industry, fertilizer production and town gas distribution networks, with percentages gradually increasing from 2025 to 2035.
Oil refineries will have to replace 30% of their fuel consumption with green hydrogen by 2035, up from 3% in 2025. By 2035, fertilizer production should run on 70% hydrogen green, from 15% in 2025, and by the same token the urban gas distribution networks should replace 15% of their volume of fuel oil, against 5% in 2025.
According to experts familiar with the matter, the feasibility of these ambitious figures is still debated, but the GHCO framework will remain in place in the final version of the policy.
With the equivalent of 50.3 million dollars2 to be released this year, the emphasis placed on research and development as well as the extension of the use of hydrogen to new sectors which are difficult to reduce such as steel, transport and shipping, is showing unprecedented drive towards innovation, says Balasubramanian Viswanathan, policy adviser at the International Institute for Sustainable Development.
However, he says, “when planning ahead, areas where there are low-carbon technologies or which can be easily electrified, [such as road transportation] should not be given priority. Supporting hydrogen should not lead to unnecessary competition with other clean technologies, such as electric cars, which are currently cheaper and more technologically mature than their hydrogen counterparts.
On the production side, three financial mechanisms will support the manufacture of electrolyzers as well as the production of green hydrogen itself, also compensating states and distribution companies choosing to supply renewable energy for the production of hydrogen . The framework, titled Strategic Interventions for the Transition to Green Hydrogen (or SIGHT), will receive the lion’s share of the planned budget, with the equivalent of $2.2 billion3.
The government recognizes that green hydrogen will initially be too expensive to compete with fossil fuels and intends to work to remove some of the financial risks associated with early-stage technology.
One of the main concerns is that India needs enough electrolyser capacity to produce the hydrogen it wants. The policy will target the first 15 GW of capacity nationwide, paying manufacturers who choose to enter the game early $60 per kW4, and gradually decreasing the amount as companies become more robust.
It will also encourage the production of green hydrogen, initially offering Rs50 per kg in 2025, and decreasing to Rs30 per kg in 2028, in a bid to convince producers currently using fossil sources to make hydrogen to switch to renewable energies.
Financing of the hydrogen balance
One of the risks identified in the policy document is the availability of credit, ie the ease with which companies can obtain the capital necessary to start an expensive project.
The draft suggests facilitating access to foreign direct investment (FDI) among other measures, but according to an expert who asked to remain anonymous, “the solutions they suggest are hardly solutions.” The issue of credit availability, according to the expert, has plagued the entire renewable energy sector for a long time, and India is not getting the kind of foreign interest it needs due to political uncertainty and poor quality products, among other factors.
For example, the Parliamentary Energy Committee found that India currently receives investments for its renewable sector equivalent to $9.4 billion5, but would need three times as much to meet its targets.
In this version of the policy, says the expert, “there is no direct subsidy granted for the financial aspect, the only direct support is for production objectives”. It remains to be seen how the government will incentivize investors, but not solving this problem, the expert believes, “is a big risk, especially later when we have pilots, we have a strong proof of concept but we are not able to scale”.
This interview was first published by Lights ona newsletter by Lou Del Bello, climate and environment correspondent in Delhi, and has been republished here with permission. Subscribe to Lights On.