India Targets Low Production Cost For Green Hydrogen, Aims To Become Export Hub

According to Niti Aayog, CEO, India will need cheaper financing options for the green hydrogen takeover to be successful and sustainable.

The transition to India’s economy fuelled by green hydrogen is conditional on costs of production falling from current levels of $5-$6 to $1, he said. This low cost of production can and will be achieved through investments, R&D, as well as pilot projects taking place.

Many unique challenges exist in the financing of hydrogen projects.

Challenges in financing green hydrogen

Hydrogen, the projected fuel of the future, has the potential to power many things, from vehicles to power grids, and has been used in industry, being a massive component in ammonia production.

There is a high projected future demand for hydrogen. However, the current demand for hydrogen mainly exists in ammonia production and oil refining. According to the experts, for now, greening the hydrogen used in these industries must be the primary focus, as demand is assured, and hence finance will be more easily provided.

The complexity of the production process for green hydrogen is the main reason why costs are still so high and why financing is hard to come by. Limited hydrogen pipeline infrastructure, combined with the task of converting between gas and liquid forms when transporting, elevate costs in comparison to other fuels. Furthermore, the need for a local source of renewable energy and water means that green hydrogen plants must be precariously located while ensuring that local biospheres are unharmed.

Tax breaks and land allocation from the central government are already underway, and an excellent start to the green hydrogen mission, with clear incentives laid out for industries that are expected to incorporate green hydrogen.

The stress on India becoming a future export hub for green hydrogen is a crucial aim and, if successful, a huge positive in the form of reduced future import bills and dependency on oil-exporting nations. These benefits justify high levels of government funding. However, market risk is still present, a reason why pilot projects are being carried out.

Private financing

The promise to bring down the cost of green hydrogen to $1 per kg by industrialists Ambani and Adani has been backed by commitments to invest $75 billion and $70 billion into renewables, respectively.

Along with them, several Indian companies have launched plans to open plants and invest in R&D, which, combined with government-backed policies, will help reduce the costs of green hydrogen.

Although seeking finance for green hydrogen projects is challenging given the complications surrounding its production and transport, investments by industry leaders and large conglomerates, as well as incentives and tax breaks from governments, will continue to make breakthroughs in cost reduction.

Suppose pilot projects bring success in cost reduction and efficiency. In that case, financing will gradually become more readily available for a more significant number of players to enter India’s race to emerge as a global green hydrogen leader.