For all the brouhaha around the hydrogen economy at Davos and the competition amongst the Indian ministries to garner a piece of the regulatory action around this future energy business, it is hard to find any authentic, consistent information on the state of play in green hydrogen (GH) from government websites of the concerned ministries.
Who is in charge?
Presently, the Ministry of New and Renewable Energy appears to be the nodal point and has taken the lead. The Ministry of Petroleum and Natural Gas is on the back foot, though Indian Oil Corporations have been researching hydrogen production from biomethane for years. The ministry regulates gas pipelines through which hydrogen, or its derivates, will be distributed and also regulates natural gas, the fuel with which hydrogen could be blended. The embattled Ministry of Coal, which has been relegated to the status of a sunset ministry by climate action, is correctly trying to green its product by establishing an expert group to propose options for the production of blue hydrogen from coal with carbon capture and use/storage (CCUS)—a worthwhile endeavour, considering coal will remain a significant fuel for India till 2045.
The Ministry of Road Transport is, oddly, promoting the use of GH for road transport, unmindful that business prospects limit the foreseeable potential use of hydrogen to only very heavy road vehicles and construction equipment and shipping and in disregard of the negative impact on the nascent ongoing initiative to electrify cars, two-wheelers, and buses. The Minister for Shipping has appropriately made encouraging statements, given that shipping needs mainstream global green standards to remain viable, even though just around 2.5 percent of global shipping is registered in India. The Indian Railways is sensibly continuing with its plan for 100 percent electrification with associated solar capacity being created in-house or contracted in.
Meanwhile, a production target of 5 million tons or more of GH by 2030 has been casually mentioned. This would make it an impossibly high 24 percent of the forecasted global GH production by that year of 21 million tons, according to an International Energy Agency Global Hydrogen Review in 2021. The forecast based on projects under implementation is even lower. With so many cooks and protagonists, the hydrogen broth is bubbling in India but is there more to it than hot air?
The business case for Hydrogen—green and blue
The “Hydrogen Mission” was announced in the budget in February 2021 and endorsed by the Prime Minister last year in his Independence Day address to the nation. It is astonishing that despite there being no comprehensive policy in place, except the 17th February 2022 press release of the Ministry of Power, the domestic private sector has announced investment plans—some woolly, others buttressed by numbers to produce GH. Consider that even the terms for open access—a key link between renewable energy suppliers and GH producers remain undefined. Never before was a well-defined “policy” seemingly less crucial in driving potential investment.
The primary reason is that solar power producers, existing and future, welcome the possible forward integration with producers of GH as a lucrative and potentially big market for their green power. Till now they, like all power suppliers, face uncertain payment from the cash-strapped distribution utilities. Arrears to power suppliers crossed INR 1 trillion in May 2022. The prospect of supplying directly to industrial consumers with assured payment is sufficient to enthuse green power producers.
GOVERMENT MANDATES USE OF GH
The government seems to have helped (although there is no publicly available information) to also create domestic demand for GH by internally directing public sector refineries to target a 10 percent addition of GH from 2023–24 and fertiliser producers to target a 5 percent GH addition. The government spent INR1.4 trillion last year on fertiliser production subsidies to reduce the purchase cost for farmers (3.7 percent of its total expenditure). Expect that outlay to expand with this early, “mandatory” use of the GH directive. GH costs around US$4 per kg presently versus the target cost of US$1 per kg to make it competitive with natural gas at US$6 per MMBtu. The gas price post the Ukraine crisis has doubled, but it is a short-term aberration due to supply dislocations.
The internal mandate, if any, for publicly-owned refineries is less worrisome. Petroleum fuels are not subsidised heavily by the government. At worst, the profitability of national oil companies could reduce as costs increase and therefore impact dividends for the government. This is bearable, as an indirect subsidy for furthering R&D and scaling up electrolyzer projects.
A worthwhile alternative is to accelerate the production of blue hydrogen using carbon capture measures (CCUS). This will align with the Ministry of Coal initiative. Notably, IEA estimates that globally by 2030, CCUS will contribute 50 percent and even by 2050 around 15 percent to a total production of low carbon hydrogen production.
Look beyond transactional issues and align with India’s 2070 net-zero target
More generally, the GH strategy should align with our climate agenda. At Glasgow, India committed to net-zero by 2070 (China by 2060). India is unfairly pointed out as having a high pollution economy. On a per capita carbon emission basis, India emits less than one-half of the global average so it has the space (that needs to be vacated by others) to double energy consumption whilst remaining below the moving global average. The progressive carbon abatement measures announced by Prime Minister Modi at Glasgow (2021), are ample evidence of India’s time-phased, contextual, commitment to a greening of our economy.
BLUE & GREEN IS A GOOD COMBO
Both blue and green hydrogen should figure as a placeholder for collaborative research, principally funded by the private sector. Even advanced economy governments have committed no more than 10 percent of the total outlay on technology development and commercialisation. Our core strengths are geophysical and a diversified industrial manufacturing base, including electrolyser manufacturing, which can be repurposed to meet global demand. The abundance of solar power potential and our location in the Indo-Pacific illustrates our centrality to the future green growth potential in Asia and Africa.
INTERNATIONAL COLLABORATION IS KEY
For templates, we should look to the international collaborations Chile, Morocco, Saudi Arabia, and Australia have forged with key GH users like the European Union, South Korea, and Japan, and work closely with the United States and Canada. China is heavily invested in coal CCUS which aligns with our medium-term objectives. Australia has contracted to supply liquified GH by ships to Japan at US$4.3 per kg. The recent commodity price inflation would have negative implications for GH production since costs are bound to escalate. But this mirrors the cost escalation of natural gas, the fuel hydrogen seeks to replace. Secondly, commodity markets are cyclical. A longer-term view is appropriate for mature users with the capacity to pay for long-term term energy security.
Ignoring the domestic context imposes future costs
India is a price-sensitive market with a shallow fiscal capacity for securing its energy future. Considering the enthusiasm with which gas generation capacity was set up in India in the 2000s, it was never matched by the willingness to accept the higher cost thereof. The result is that 10 GW of private gas generation is virtually stranded even as coal imports increase to meet the summer load. Distribution utilities cannot pay for the higher supply costs of LNG versus coal-based electricity supply and they must also bear the cost of a “must-run” renewable energy supply.
A SUITABLE HOUSE FOR GREEN HYDROGEN
A common institutional framework covering all the concerned ministries—like an empowered Energy Transition Council, chaired by the Prime Minister—would help in integrating development plans across ministries and states. India needs to work towards higher carbon abatement levels over the next two decades so that the glide path to Net Zero by 2070 becomes granularly defined, in advance, with coal-based generation in secular decline from 2040–45.
The good news is that a great deal of entrepreneurial energy has been unleashed around the generic area of the energy transition to a low carbon future. Green Hydrogen is a central pillar—a vital segment of the energy transition. India has resources to offer the advanced economies in meeting emission targets by 2050—surplus solar electricity for green hydrogen, skilled engineering capacity, port-based industrial locations for export, and single window fast track clearances.
The Hydrogen Mission needs to go beyond this transitional phase when India can participate mostly on the supply side of green hydrogen. We must prepare for the post-2050 period when we would be a major player on the demand side of green hydrogen as well, to reach net-zero by 2070. This should not stop segments of our dual economy, like large cities and export-oriented industrial clusters, from developing accelerated plans for embedding green hydrogen in their supply chains. These segments can pay for a greener globe. They should step up and join the national effort.
This article first appeared in orfonline.org on June 6, 2022 https://www.orfonline.org/expert-speak/a-pie-in-the-sky-or-an-unfolding-transformation/