Hydrogen policy misses the mark

25 February 2022 |

The Ministry of Power has issued a green hydrogen policy. The policy was much anticipated post Indian government’s commitments at COP 26 as green hydrogen is seen as a very promising route to decarbonisation. The policy focuses mainly on provision of renewable power for hydrogen production. DISCOMs ‘may’ sell renewable power to hydrogen producers at a price equivalent to actual cost plus ‘small margin.’ For open access procurement, the policy has provisions for 15-day single window connectivity approval, one month banking and ISTS charge waiver for 25 years for projects commissioned by June 2025. It also envisages location of hydrogen production plants in renewable energy zones or dedicated manufacturing zones developed by the government as well as setting up storage bunkers at port sites.

  • The policy fails to address most key areas for development of a green hydrogen ecosystem;
  • Providing cheap renewable power, a critical requirement for reducing cost of green hydrogen, would be a major problem;
  • Immediate priority should be to nurture domestic technology and infrastructure development capabilities through R&D investments, subsidies and tax breaks;

Overall, the policy fails to address most key areas for development of a green hydrogen ecosystem – technology, manufacturing capacity, infrastructure for transportation and storage, demand creation and cost reduction. In the run up to the policy release, the government had made various provisional announcements – green hydrogen purchase obligation of 20-25% for fertiliser and petroleum sectors by 2030, Viability Gap Funding (VGF) for heavy mobility sector and a PLI scheme for setting up 10,000 MW per annum electrolyser manufacturing capacity. The Ministry of Power had also talked about setting up a target to develop 5 million tonnes per annum of production capacity by 2030 and an aim to reduce cost of green hydrogen by about 80% to INR 75/ kg (USD 1/ kg) in the next four to five years. The policy is notably silent on all these aspects. Most substantial elements of policy – relating to grid power cost and open access power procurement – fall under the purview of state government agencies, which remain fiercely resistant to growth of open access market. It seems unlikely that they would change their stance for green hydrogen. So what gives? Playing catch up on solar and battery manufacturing, the government is under pressure to scale up green hydrogen. But the challenge of supporting a nascent technology with limited production capacity worldwide and high cost must not be underestimated. It is a classic chicken-and-egg problem. Setting consumption targets for industrial users can be counter-productive in absence of route to economical procurement. We believe that instead of adopting ambitious targets, the government should focus on nurturing an all-round ecosystem through R&D investments, subsidies for pilot projects and seeding infrastructure development.

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