Green hydrogen is one of the most recent additions to the list of clean fuels. It is primarily produced by the process of electrolysis using renewable energy as a resource; however, some research has also been undertaken to produce it by the conversion of biomass. The production of green hydrogen through electrolysis involves the use of water as a primary element which is subjected to electric current sourced from a renewable energy resource, in order to break it down into oxygen and hydrogen gas. Hydrogen, so obtained through electrolysis is a 100% sustainable source of energy as no harmful gases or environmental pollutants are emitted during its production.

Green hydrogen is believed to have an incredible potential to replace fossil fuels. The Union Minister for Ministry of Road Transport and Highways, Mr. Nitin Gadkari, while delivering a speech in Maharashtra recently, expressed his belief in the potential of green hydrogen to replace petrol in India in the next 5 years.

Apart from this, green hydrogen can easily be converted to green ammonia. It, therefore, assumes vast application for agriculture, fertilizer-producing industries, and refineries. These industries are some of the major consumers of hydrogen, utilizing around 6 million tonnes of hydrogen every year. Further, it has been suggested by the reports of the NITI Aayog and The Energy and Resources Institute that the demand for hydrogen in India will see a five-fold increase by the year 2050, especially in the steel and heavy-duty transportation industry.

Several Indian companies such as Reliance Industries Ltd. (“RIL”), and Indian Oil Corporation Ltd. have already announced their plans of going green by establishing green hydrogen plants in Jamnagar, Gujarat, and Mathura, Uttar Pradesh respectively. RIL has also announced its plan to assess new technologies to produce electrolyzers and to bid for any production linked incentives (“PLI”) that may be provided by the Government. Additionally, Larsen and Toubro, Solar Energy Corporation of India Limited, Adani Group, ACME and GAIL have also taken significant steps to enter the green hydrogen sector.

Bringing an industrial shift from grey hydrogen (hydrogen produced using fossil fuels) to green hydrogen will be immensely effective in bringing down overall carbon emission levels. However, the leap from grey hydrogen to green hydrogen is undeniably going to encounter an abundance of obstacles, arising primarily from the novelty of the green hydrogen sector and the underlying challenges- ranging from cost and complexities associated with its production to the absence of a robust regulatory framework.

Indian Landscape for Green Hydrogen

In November 2020, the Hon’ble Prime Minister announced his plan to launch a comprehensive National Hydrogen Energy Mission at the 3rd Global RE-Invest Conference with an aim to reduce India’s carbon emissions by 5 million tonnes by the year 2030. The idea was taken forward with its formal inclusion in the Union Budget 2021-22 which proposed to launch Hydrogen Energy Mission. Consequently, the Green Hydrogen Policy (“Policy”) was notified by the Ministry of Power on February 17, 2022, to regulate and facilitate the transition from fossil fuels to green hydrogen. The Policy laid down certain incentives and facilitation measures for stakeholders in the green hydrogen sector.

Incentives: The Policy included incentives for producers of green hydrogen by allowing them open access to renewable resources and offering up to a 25-year waiver on inter-state transmission charges to the producers of green hydrogen from the projects that are commissioned before June 30, 2025. It has also allowed the green hydrogen producers to bank their excess renewable energy with the distribution companies (“DISCOM”) for up to 30 days at applicable banking charges. Additionally, the green hydrogen producers can get their renewable energy consumption adjusted against their Renewable Purchase Obligation (“RPO”) compliance and any renewable energy utilized beyond this obligation limit can be adjusted against the RPO compliance of the DISCOM in whose area the project is located.

Facilitation measures: The Policy also facilitates the export of green hydrogen by enabling the port authorities to provide land, at applicable charges, to the green hydrogen producers to construct bunkers for storage. Further, the Ministry of New and Renewable Energy (“MNRE”) will also establish a single-window portal for expediting approvals relating to manufacturing, transportation, storage, and distribution in the green hydrogen sector.

To further supplement the Policy, the Government is also working on a proposal to extend the application of the PLI scheme to encourage the indigenization of electrolyzers. Moreover, the recently notified Electricity (Promoting Renewable Energy Through Green Energy Open Access) Rules, 2022 (“Rules”), defined “green energy” to include the use of renewable energy used for mechanisms to produce green hydrogen. The Rules have allowed the distribution licensees, captive users, and open access consumers to meet their RPO compliance by purchasing green hydrogen.

Challenges for the Green Hydrogen Sector in India

Production of green hydrogen is a capital-intensive process. Further, the availability of cheaper alternatives such as grey hydrogen; uncertainty in the policy framework; and lack of research and development (“R&D”), have led to the investors deliberating on the viability of investing in the sector.

For example, there is no clarity on the industrial categorization of green hydrogen under the Central Pollution Control Board Directions for the categorization of industries into red, orange, green and white categories (“CPCB Directions”) which could result in complete chaos at the time such approvals are sought. This is because, while the process of electrolisation of water to produce green hydrogen does not emit or discharge harmful effluents, hydrogen itself has been categorized as a hazardous substance and the industries producing hydrogen as a secondary product have been kept under the ‘Red’ category of industries under the CPCB Directions. Moreover, while it may be argued that green hydrogen being a renewable resource should attract a Goods and Services Tax of 12%, there is no clarity on its taxability so far.

Road ahead

The goal of decarbonization of industries by replacing the use of grey hydrogen with green hydrogen will require a great amount of support from the Government as the sector is in its nascent stage of development.

The Policy is indeed a positive step toward making India a hub of green hydrogen production. However, a more detailed framework for the green hydrogen sector is still awaited and is expected to be set out in the form of a comprehensive national green hydrogen mission. Like any other emerging sector, the Government would be required to take certain steps to encourage green hydrogen production. This could include, providing tax incentives for the production and supply of green hydrogen, viability gap funding for setting up production plants, facilitating research and development focused on finding cost-efficient methods of production, and providing incentives for its export to other countries. The Government had indeed allocated Rs. 25 crores to the MNRE for the purpose of undertaking R&D in the green hydrogen sector. However, proactive steps and a larger corpus are a must to achieve the mammoth goal of reducing carbon emissions.

Further, it would be useful to aim at making green hydrogen a sustainable and marketable commodity. As also highlighted in the NITI Aayog’s report of June 2022 on green hydrogen, India can further take a cue from the measures adopted in other jurisdictions to augment the supply-demand chain for green hydrogen. This could be achieved by identifying potential industrial clusters or by creating small hydrogen hubs across the country like the hydrogen valley model adopted in Europe. By converging the production, transportation, and end use of green hydrogen in a single region, such measures will prove conducive to the goal of reducing costs and other challenges associated with the transportation of green hydrogen and will boost the overall growth of the sector.

This article has been written by Rachika Agrawal Sahay, Partner and Sakshi Sharma, Associate and was first published by ET Energyworld.

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