1.The shift towards a green hydrogen economy holds significant potential for decarbonization. What are the key barriers to its transition? Discuss a roadmap for overcoming challenges?
India’s ambition to become a leader in the global green hydrogen economy is integral to its net-zero goals by 2070. The country’s target of producing 5 million metric tonnes (MMT) of green hydrogen annually by 2030 reflects the role green hydrogen can play in decarbonizing its industrial sectors. However, India faces several challenges in transitioning to a green hydrogen economy, primarily due to the high production costs and financing barriers.
Key Barriers to Green Hydrogen Transition
1.High Production Costs Green hydrogen is produced through electrolysis, using renewable energy sources to split water into hydrogen and oxygen. However, the production cost of green hydrogen remains significantly higher compared to conventional grey hydrogen, which is derived from natural gas. As per estimates, the cost of green hydrogen production ranges from $5.30 to $6.70 per kg, while grey hydrogen costs between $1.9 and $2.4 per kg.
2.Financing Challenges The economic viability of green hydrogen hinges on two key factors: the cost of electricity used for electrolysis (Levelized Cost of Electricity – LCOE) and the cost of electrolyzers.
3.Limited Investment Commitment A BloombergNEF analysis indicates that India is on track to meet only 10% of its green hydrogen target by 2030. This reflects a broader global issue where large-scale clean hydrogen projects face delays in investment decisions due to structural barriers. The delay in investments highlights the reluctance of the private sector to commit to green hydrogen due to the lack of viable financing mechanisms and market uncertainty.
Roadmap for Overcoming Challenges
1.Comprehensive Policy Framework A robust policy framework is essential to de-risk investments in green hydrogen. India must establish long-term hydrogen purchase agreements (HPAs) to ensure demand certainty and reduce investor risk. Partial loan guarantees can also lower the financial risks associated with hydrogen projects, making them more attractive to investors.
2.Furthermore, regulatory sandboxes should be introduced to foster innovation in business models, similar to the fintech sector, while ensuring safety standards.
3.Innovative Financing Mechanisms Indian banks and financial institutions should create specialized financing products that address long development timelines, uncertain demand, and complex value chains. A modular financing approach, allowing projects to scale in phases, can reduce initial capital requirements and attract more investors. Moreover, “anchor-plus” financing models, where a large industrial customer guarantees a portion of the capacity, can help raise funds for the remainder.
4.International Collaboration: India must engage in cross-border collaborations, focusing on establishing standardized carbon intensity and hydrogen origin certifications. Such efforts would help boost trust in India’s hydrogen supply chain and facilitate exports.
5.Building Hydrogen Hubs and Industrial Clusters India can take inspiration from international models like the U.K.’s Low Carbon Hydrogen Standard and strategic hydrogen hubs in countries like Japan and Australia. These nations have created integrated ecosystems where hydrogen production, infrastructure, innovation, and consumption co-evolve. India can replicate this approach by developing localized industrial clusters linked to renewable energy sources, which would attract investment and foster self-sustaining hydrogen corridors. Key industrial hubs like Odisha, Gujarat, and Maharashtra can serve as early testing grounds for such models.
6.Leveraging India’s Renewable Energy Potential India’s vast renewable energy potential, particularly in solar and wind, is a critical asset for producing low-cost green hydrogen. Efficient project execution, access to low-cost capital, and strategic investments in renewable energy infrastructure will be essential to bring down the cost of green hydrogen production. By ensuring that hydrogen is produced using low-cost renewable energy, India can make the economics of green hydrogen more competitive and attract investments from both domestic and international players.
Conclusion
The shift to a green hydrogen economy offers a promising solution for India’s decarbonization efforts, particularly in hard-to-abate sectors like heavy industry and transportation. However, the country faces significant barriers, including high production costs, financing challenges, and limited investment commitments. Overcoming these hurdles requires a comprehensive policy framework, innovative financing mechanisms, international collaborations, and the development of integrated hydrogen hubs. By leveraging its renewable energy potential and adopting a phased, de-risked approach, India can accelerate its green hydrogen transition and emerge as a global leader in this emerging sector.