India needs to step on the gas to win the global green hydrogen race

Intentions aside, there are a series of issues that the country must urgently resolve in order to have a real chance of becoming a global hub for green hydrogen 

In August, CarbonCopy published a two–part essay on net zero. Given the green creative destruction that would accompany such a transition, the essay wondered how carbon neutral energy systems would reshape the world. Some countries and companies will fashion fresh competitive advantages for themselves–and emerge as the new suppliers of energy (or the technology that produces it). Some countries and companies will also transition better to the new energy systems. They, too, will profit.

How is India placed within this larger flux? What factors enable and disable our energy transition? 

Over the coming weeks, CarbonCopy will try to answer that question. Our first report looks at India’s chances of becoming a big player in the global hydrogen market. 

Clean energy hawks were thrilled by Narendra Modi’s speech this Independence Day. Speaking from the Red Fort, India’s Prime Minister said, “We have to make India a global hub for green hydrogen production and export.”

The statement was the latest in a series of government and private-sector announcements about hydrogen. In February 2021, finance minister Nirmala Sitharaman announced the National Hydrogen Mission in her budget speech. In the months that followed, a clutch of state-owned energy companies and private firms declared plans to blend hydrogen into existing fuels, to shift from fossil fuels to hydrogen, and to produce electrolysers and green hydrogen.

Then, shortly before Modi’s speech, came news about another central government plan to push green hydrogen. “[A] draft policy wants green hydrogen to account for 10% of the overall hydrogen needs of refiners from 2023/24, rising to 25% in five years,” wrote Reuters. “The respective requirements for the fertiliser sector are 5% and 20%,” an official told the newswire.

How transformative are these announcements? Hydrogen doesn’t just break the old corollary between growth and pollution—as fuel cell, it can replace liquid fuels used for transport; as raw fuel,it can decarbonise sectors like steel; as storage, it can make round-the-clock renewable power possible—it gives countries (and companies) a chance to build fresh competitive advantages.

And so, countries are vying with each other to dominate the hydrogen market. Be it to develop the best technology for producing hydrogen, to build the cheapest electrolysers, or to produce the cheapest hydrogen.

Like China did with solar manufacturing, can India capture hydrogen?

The economics of hydrogen

The answer to that question lies in how hydrogen gets produced.

As PV Magazine wrote, electrolysis (using electricity to split water into hydrogen and oxygen) has been around since 1800. By the middle of the 20^th century, it had been refined into alkaline electrolysis. Here, voltage passes through an electrolyte of caustic salts, breaking water into hydrogen and oxygen.

Since then, newer methods have emerged. Proton exchange membranes (PEM) did away with the liquid electrolyte. Here, cells with electrodes, (mostly) platinum as a catalyst, and a polymer membrane, produce the gas more efficiently. Another technology, Anion Exchange Membrane (AEM) electrolysis, does away with the need for precious metals. There is also high-temperature electrolysis, which uses ceramic membranes to separate superheated steam into oxygen and hydrogen.

Essentially, as PV Magazine wrote, the cost of producing hydrogen comprises the cost of the electrolyser—including the maintenance and replacement of membranes—the cost of electricity consumed to create the high temperatures needed for water to split, and subsequent costs like drying, cleaning and compression of the gas, not to mention transport.

Of these, the biggest is electricity. It accounts for as much as 70-80% of the cost of the hydrogen.

As for electrolysers, they are getting cheaper, but are still expensive. In 2018, an electrolyser producing one cubic metre of hydrogen per hour cost $7,600. By 2020, that number ranged between $4,900-$6,000. Alkaline electrolysers, less efficient than those using technologies like PEM, had fallen below $3,300. There is room for further reduction. Given low sales volume, electrolyser manufacturing has seen little automation, some are even manufactured by hand.

For a while, the hydrogen market was relatively well-ordered. Europe led in R&D, especially for green hydrogen, thanks to technologies like PEM and AEM. China dominated manufacturing, producing the cheapest alkaline electrolysers in the world, at one-fifth the price of equivalent models in Europe.

Those boundaries are rapidly dissolving. To avoid a repeat of solar PV manufacturing—developed in Europe at high cost only to later move to China—the EU wants to set up at least a 6 GW line for electrolysers by 2024. In the UK, ITM Power has opened a 1 GW facility. Norwegian electrolyser maker Nel has unveiled plans to set up a new 2GW factory.

China is scaling up as well. The China Baowu Steel Group, for instance, has announced plans for 1.5 gigawatts of renewable-powered electrolyzers. So are other countries. In Australia, Fortescue Future Industries has announced a plant that will produce up to 2GW of electrolysers from 2023. This scaling up alone might cut costs by 65-75%, Bernd Heid, a consultant at McKinsey, told the Economist.

And then, there are countries like Chile, Egypt, South Africa and Oman which, riding on cheap renewable power and electrolysers made elsewhere, are trying to become hydrogen producers. China features here, too. 

Between these races, hydrogen prices are expected to fall swiftly. According to the Economist, analysts at Bloomberg NEF expect green hydrogen (made from PEM) to touch $2 by 2030. Those at Morgan Stanley are even more bullish. According to its analysts, wrote the newsweekly, “at the very best locations for renewables in America, green hydrogen will be able to match grey hydrogen’s $1/kg in “2-3 years”.”

How is India placed on each of these races?

Leading research into hydrogen

When it comes to R&D in producing hydrogen, India is a laggard.

While oil companies and government-backed scientific bodies have been studying hydrogen since 2003, disruptive technologies like PEM have originated elsewhere. As the 2016 report of the “Sub-Committee on Research, Development & Demonstration for Hydrogen Energy and Fuel Cells” chaired by professor SN Upadhayay wrote: “From the gap between international and national state of art of technologies… India has to take a leapfrog to come at par with the international level.”

We have seen this in clean energy as well. Whether solar PV, wind or lithium ion batteries, says a Teri paper, their development and manufacture “occurred largely outside India”.

Some of this can be traced back to deeper causes. India is not very good at breakthrough innovation. “Whether it is pharma or any other sector, we have been better at taking ideas to market,” a renewable energy executive told CarbonCopy.

Other reasons are more prosaic. Hydrogen research is underfunded. Take the NDA’s 2020-21 budget.  It allocated just ₹25 crore to the Ministry of New and Renewable Energy for R&D into hydrogen. Despite leading a large chunk of research into hydrogen, complained a researcher at ONGC Research Centre in Mumbai, oil companies have been left cash-strapped as well. “There is the hydrogen corpus fund. All oil companies have put Rs16-20 crore into a Rs100 crore fund,” he said, on the condition of anonymity.

These numbers need context. This January, Germany offered €700 million (₹6,096 crore) as research grants for firms working on offshore wind to hydrogen production, gigawatt-scale electrolyzer production, and hydrogen transport options alone. In October, France announced a $35 billion investment to build “the technological players of tomorrow”, as a part of a drive to revive the country’s industrial sector. Hydrogen is one of six sectors the country is targeting. “A lot of effort has been put into R&D. It is now time we start taking electrolysis out of the labs and start manufacturing it at a large scale,” said Gniewomir Flis, project manager-hydrogen at Agora Energiewende.

Is that where the opportunity lies for India?

Leading the world in the production of cheap electrolysers

On the condition of anonymity, an executive working on hydrogen for a large business group spoke to CarbonCopy about the economics of hydrogen in India. 

If we assume, he said, green hydrogen costs about ₹550 a kilogram, ₹158 will be the cost of power; ₹185 will be the cost of the electrolyser; EPC (the cost of setting up the whole factory) will add another ₹153, and the final ₹55 will be incurred on land.”

To bring hydrogen’s price down to ₹143 ($2), India has to score a 76% reduction in these costs.

The biggest of these costs is the electrolyser. The membrane-electrode unit—the heart of the cell—accounts for 60% to 70% of its cost. Pure materials—including precious metals—account for the rest.

As Bernd Heid told the Economist, manufacturing at greater scale is one way to reduce those costs. India is taking promising steps here. At this time, no more than a handful of sectors— like petrochemicals and fertilisers—use hydrogen. Given limited demand from them, production capacities have stayed low. But now, given new policies mandating the use of green hydrogen—not to mention ESG pressure—demand is rising.

In tandem, India is pushing large assembly lines. In September, the country announced plans to set up 5 GW electrolyser manufacturing capacity. A PLI scheme for hydrogen—similar to those incentivising large manufacturers in solar PV and batteries—is expected next year.

The potential size of the domestic market is already attracting investors. American renewable energy start-up Ohmium is setting up an 500 MW electrolyser plant in Bangalore, with plans to scale up to 2 GW. The other big company in the fray is Indian conglomerate Reliance.

Coming up on 5,000 acres in Jamnagar, the Dhirubhai Ambani Green Energy Giga Complex will have four giga-factories that will make and integrate critical components of the new energy ecosystem—solar modules, batteries, electrolysers and fuel cells. The group is using acquisitions to gain knowhow. In batteries, it picked up Ambri. In solar, it bought Norway’s REC Solar Holdings. In hydrogen, it has tied up with Denmark’s Stiesdal Fuel Technologies.

Stiesdal has designed an electrolyser that can be produced cheaply—about €200 ($231) per kW, in a market where prices typically range between €500-1,000/kW. It runs on alkaline technology, not AEM, PEM or solid oxide. By not needing rare metals—like iridium or platinum for PEM—company founder Henrik Stiesdal told ReCharge, it can be produced at scale. Not needing high temperatures to operate, it can also be bought by a wider set of customers—which gives another boost to scale.

Leading the world in production of cheap hydrogen

The third way to obtain competitive advantage in hydrogen is to export the gas itself, like Chile.

What determines success here? “Countries that have the potential to produce hydrogen at $1/kg in the near future need cheap electrolysers and cheap renewable power,” said Flis. 

Take electricity. “It takes 50-55 units of power to produce one kilo of hydrogen. Multiply that by ₹2 (solar tariffs, today) and that is ₹100-110,” said the Mumbai-based executive.

This is where things get complicated. In commodities, value chains compete with each other. And so, the competitiveness of India’s hydrogen-producing value chain (renewable powerplant > transmission > electrolyser > hydrogen plant > reconversion) will be determined by not only solar tariffs, but also the competitiveness of each of these rungs, like the efficiency of the solar equipment or the electrolyser they use.

As CarbonCopy has reported, the cost of solar equipment is rising in India. Seeking to push domestic manufacturing, the Indian government has slapped a Customs duty of 40% on Chinese modules. Since then, GST rates on solar equipment have been hiked as well. The outcome is close to a 60% increase in the cost of solar equipment, said the solar sector executive. Tariffs will rise. “Solar tariffs could cascade negatively on the competitiveness of Indian hydrogen,” said Flis.

That’s not all. Firms shipping their power across state boundaries have to pay transmission charges. And so, consider a solar unit located in Rajasthan with its hydrogen plant at Bangalore. After paying transmission charges, complained the Mumbai-based executive, “our cost of power rises to ₹4.” One option would be to convert renewable electrons into hydrogen near the renewables park itself, but moving hydrogen isn’t easy. Given its low energy density, it needs to be cooled to -252°C before transportation. Other alternatives, like storing hydrogen as ammonia, are more stable, but involve expensive reconversions.

This is another reason hydrogen exports might be a tough task. It’s an expensive fuel to move. The farther it’s transported, the greater the loss of its competitiveness vis-a-vis the fuels it seeks to compete with.

The bigger picture

What does all this add up to?

1) The race to develop electrolyser technology, at this time, seems to be split between Europe and the USA.

2) A wider clutch of countries (and companies) are vying to produce electrolysers. In that set, given the acquisitions it’s making and the scale it’s planning, Reliance could be a competitive player.

3) Exporting hydrogen to the world is a pipedream. The gas’ nature makes long-distance transport expensive, weakening its competitiveness against the fuels it seeks to replace. In that sense, each exporting company is likely to have a radius within which its hydrogen is competitive. Seen like that, India might be able to supply hydrogen to South Asia. Rising solar tariffs, however, will weaken India’s competitiveness. It’s another contradiction in India’s energy policy. The country is pushing up solar costs while wanting to become the lowest cost producer of hydrogen.

4) In India, hydrogen’s development—as in solar—will be led sizeably by the private sector. The country’s domestic market, given the scale Reliance is planning and its tie-up with Stiesdal might find hydrogen very competitive. 

5) Within India, unless transmission charges are waived, distributed facilities might be more competitive than large, centralised hydrogen plants. Hefty entrants in the space, like Reliance, as CarbonCopy wrote in August, might set up renewable and hydrogen arrays near big and small consumption centres and reprise its actions in telecom. There, the group had given phones away for free and charged for airtime. In energy, it might set up renewable energy infrastructure (local grids for colonies and industrial areas) at no cost and charge for the power.

What implications this may have, especially on DISCOMs and existing power generators, is the larger question that will need to be answered sooner rather than later. 

(Next: Why big steel companies are decarbonising faster than smaller ones)

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M Rajshekhar

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