Green Hydrogen Policy is great, but we need more

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The government has recently announced the n hydrogen policy that bolsters India’s image as the leader in the clean energy transition. It will help India to achieve its climate goals which include reducing the economy’s carbon intensity by 45% by 2030.

Why India needs a green hydrogen policy?

Currently, the industrial sector, including the manufacturing, refining, and fertilizer industries, contributes over a quarter of India’s total carbon emissions. A green alternative in the form of green hydrogen will accelerate the process of lowering emissions from these sectors.

What are the enabling features of the New Green Hydrogen Policy that will help India to reduce its carbon emissions?

Inter-state transmission charges – Policy has a provision for removal of inter-state transmission charges for 25 years for projects commissioned before June 2025. Using this incentive, industries such as fertilizer and refining sectors which are the key users of hydrogen and ammonia can cut the production cost of green hydrogen by sourcing cheaper renewable energy (RE).

Unconsumed renewable power – New policy allows for the banking of unconsumed renewable power with distribution companies for 30 days. This essentially will mean that an RE producer can sell surplus to discoms.

Bunkers near port- Allowing GH producers and manufacturers to set up bunkers near ports to store green hydrogen will help boost exports, which is essential for India’s ambitions of becoming a global green hydrogen hub.

Although these are welcome steps, currently 98% of the hydrogen produced in India is ‘grey’ (produced from fossil fuels). So, there is a need for additional reforms to tackle India’s clean energy transition.

What are some additional reforms that are required?

Cost differential – currently there is near 100% cost differential between grey and green hydrogen. If this is narrowed down it will help bring more companies into the decarbonization fold. Government can do this by introducing special mandates for different industries, till the ecosystem achieves scale.

Clarity of rules– States who will be executing the policy should provide clarity on the applicability of the cross-subsidy and additional cross-subsidy, on the type and quantum of financial support to GH manufacturers.

PLI scheme for the sector– On the lines of the additional ₹19,500 crore for the PLI scheme for manufacturing solar modules, a similar announcement for electrolysers would be hugely beneficial for green hydrogen.

India to meet its 5-million-tonne annual target for green hydrogen production by 2030, it will require 10GW of electrolyser capacity. India cannot depend on imports for this huge size of demand.

Government’s Support– Given that GH’s current cost is significantly higher than grey hydrogen, government support to industries like fertilizers, chemicals and steel through viability-gap funding and grants will help accelerate adoption.

Cutting GST- Reducing GST and customs duties on electrolyser equipment, currently at 18% and 7.5% respectively, till the point that domestic manufacturing capabilities are built, will act as an enabler.

Source– This post is based on the article “Green Hydrogen Policy is great, but we need more” published in Live Mint on 25th Feb 2022.

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