OPPORTUNITIES FOR DEEP DECARBONISATION IN INDIA

Foreword
Harnessing Green Hydrogen http://www.niti.gov.in | http://www.rmi.org / 6 The publication of this report cannot come at a more opportune time as the urgency to take aggressive action to fight climate change has never been greater. The COP26 conference in Glasgow signalled India’s willingness to show leadership in fighting climate change. Prime Minister Narendra Modi put forth India’s vision to achieve net zero by 2070, in addition to achieving aggressive near-term targets such as 500 GW of renewables capacity, 50 percent of requirements to be met with renewables, one billion tonne reduction in cumulative emissions by 2030, and 45 percent lower emissions intensity of gross domestic product (GDP) by 2030.

India is undertaking a resolute march towards a sustainable energy future. Prime Minister Narendra Modi’s pledge at COP26 towards a net-zero India by 2070 promises to accelerate this momentum. Much action will be required to fulfil these pledges.

As highlighted in this report, India can target the following areas to make a successful transition to green hydrogen.
• Both near-term and long-term policy pathways to reduce the cost of green hydrogen need to be encouraged to enable cost competitiveness against alternatives.
• A cost-competitive green hydrogen is bound to lead to market creation. But the government can also encourage near-term market development by identifying industrial clusters and enacting associated viability gap funding and mandates.
• An emerging green hydrogen economy means opportunities around research and development and manufacturing of components such as electrolysers and fuel cells, crucial to enabling the industry to develop and scale.
• A globally competitive green hydrogen industry also leads to prospects of exports of green hydrogen and hydrogen- embedded low-carbon products such as green ammonia and green steel.

Preface
The Ministry of Power (MoP) recently unveiled the first part of India’s much awaited Green Hydrogen Policy on February 17, 2022. The policy is one of the key outcomes of the National Hydrogen Mission which was launched by the Hon’ble Prime Minister, Shri Narendra Modi, on India’s 75th Independence Day last year. It marks the culmination of months of efforts across multiple ministries and stakeholder groups, and affirms India’s intent to be a global green hydrogen hub.

Executive Summary
Hydrogen, as an energy carrier, is becoming crucial for achieving decarbonization of hard-to-abate sectors. Many sectors such as iron ore and steel, fertilizers, refining, methanol, and maritime shipping emit major amounts of CO2, and carbon-free hydrogen will play a critical role in enabling deep decarbonization. For other high-emitting sectors, such as heavy-duty trucking and aviation, hydrogen is among the main options being explored with an outlook to be the preferred solution for several applications. This has resulted in growing global momentum towards hydrogen in general, and green hydrogen—hydrogen produced through electrolysis of water using electricity from renewable sources—in particular. Declining prices of hydrogen, coupled with growing urgency for decarbonization means the global demand for hydrogen could grow by almost 400 percent by 2050, led byindustry and transportation.

India’s distinct advantage in low-cost renewable energy generation makes green hydrogen the most competitive form of hydrogen in the long run (Exhibit 1). This enables India to potentially be one of the most competitive producers of green hydrogen in the world. Green hydrogen can achieve cost parity with natural gas-based hydrogen (grey hydrogen) by 2030, if not before. Beyond cost, since hydrogen is only as clean as its source of generation, green hydrogen will be necessary to achieve a truly low-carbon economy. It will also enable the emergence of a domestically produced energy carrier that can reduce
the dependence on imports for key commodities like natural gas and petroleum.

Projected price trajectory of solar-green hydrogen production based on decline in electrolyser and
renewable costs

Hydrogen demand in India could grow more than fourfold by 2050, representing almost 10% of global
hydrogen demand.4 Initial demand growth is expected from mature markets like refinery, ammonia, and
methanol, which are already using hydrogen as industrial feedstock and in chemical processes. In the
longer term, steel and heavy-duty trucking are likely to drive the majority of demand growth, accounting for almost 52% of total demand by 2050.

Hydrogen demand outlook and potential green hydrogen share at cost parity
(without policy intervention)

From a price parity basis alone, green hydrogen’s share of this demand could grow from 16% in 2030 to almost 94% by 2050. This translates to an implied cumulative electrolyser capacity demand of 20 GW by 2030 and 226 GW by 2050, promising a sizeable opportunity for indigenous manufacturing of a global emerging energy technology. The cumulative value of the green hydrogen market in India could be $8 billion by 2030 and $340 billion by 2050. Electrolyser market size could be approximately $5 billion by 2030 and $31 billion by 2050. Adoption of green hydrogen will also result in 3.6 giga tonnes of cumulative CO2 emissions reductions between 2020 and 2050.6 Energy import savings from green
hydrogen can range from $246 billion to $358 billion within the same period.7 Beyond the financial savings, the energy security that green hydrogen provides will translate to less volatile price inputs for India’s industries as well as strengthen India’s foreign exchange situation in the long run.

Towards a National Action Plan on Green Hydrogen Given

the prospects that green hydrogen presents for India, real action is required for the country to truly
benefit from the opportunities. This report provides ten actionable steps that can guide a National Action Plan on Green Hydrogen.

A detailed roadmap focused on all aspects of Green Hydrogen’ The recent announcement of the National Hydrogen Mission needs to be complemented with further policy direction in the form of a national roadmap/strategy.8 A long-term roadmap focused on green hydrogen will improve investors’ confidence and will converge the entire value chain and the various government agencies towards a singular vision.

Intervene on the supply-side to reduce the cost of green hydrogen to $1/kg
Similar to other technology deployment and scaling efforts, government can encourage the cost economics of early producers. The current Green Hydrogen policy already focuses on measures like waiver of inter-state transmission (ISTS) charges and granting of open access for green hydrogen and green ammonia production. Other measures could include reduction in taxes and surcharges, preferential dollar-based electricity tariff, revenue recycling of any carbon tax, low-emission power purchase agreements (PPAs), and avenues for firming electricity supply including discounted grid electricity
to complement variable renewable energy (VRE) generation.

Build manufacturing capacity totalling 25GW by 2030 coupled with supportive manufacturing
and R&D investments
The roadmap should also identify a timeline and scale of manufacturing support for electrolysers. India may aim for 25 GW of electrolysers by 2030, while also investing $1 billion in R&D to catalyse the development of commercial green hydrogen technologies across the value chain. Radically improving the speed of regulatory clearances coupled with preferential treatment in public tenders will help catalyse local manufacturing. Grand challenges, public-private venture capital and financing test bench infrastructure could be part of the R&D investments.

Initiate green hydrogen standards and a labelling programme
Immediate action should be undertaken to further develop standards and a green hydrogen labelling
programme.

Visionary 2030 electrolyzer target for green hydrogen production

Introduction
The world is in a unique and necessary phase of energy transition, where emerging low-carbon technologies are replacing existing fossil fuel assets and are shaping a new energy paradigm. Rise of technologies such as solar and wind, lithium-ion batteries, and alternative fuels have paved the way for decarbonization in various end-use sectors. However, there are certain sectors like industry and heavy transport that are hard to decarbonize using the current low- or zero-carbon technologies. Hydrogen
promises to address those challenges and contribute to the decarbonization of these hard-to-abate sectors.

Energy density profile of different fuels compared with Hydrogen

Production
Although hydrogen is the lightest and most abundant element in the universe, it is rarely found in nature in its elemental form and always must be extracted from other hydrogen-containing compounds. It also means that how well hydrogen contributes decarbonization depends on how clean and green the method of production is. Based on the sources and processes, hydrogen can be classified into various colours:

What Drives the cost of Hydrogen production?

Renewables prices have witnessed incredible declines over the past years and the economic inertia is expected to drive further decrease. When coupled with the decline in electrolyser costs, as technology matures and volume production and deployment take place, there is an emerging consensus that green hydrogen production will become economical. RMI’s analysis of IEA’s outlook shows that the green hydrogen market could be US$120–US$175 billion annually by 2050 based on a range of projected prices.

The driving forces of the emerging economics of green hydrogen

Globally, demand for hydrogen has increased by 17% between 2010 and 2018,22 used mostly to produce ammonia and in refineries. With the global decarbonization push, current policy momentum, and improvement in economics and durability of end-use technologies like fuels cells, hydrogen could serve 7%–18% of global final energy demand in 2050.23 Significant upside exists if net zero targets are pursued seriously. The IEA projects potential hydrogen demand of 528 million tonnes under their net zero scenario, up from 287 million tonnes as per their sustainable development scenario.iv This
could result in the mitigation of 1.6-3.5 giga tonnes of greenhouse gas emissions annually by 2050.24 Industrial decarbonization (both energy and feedstock) is driving near-term hydrogen demand creation. But longer-term opportunities fall in transport, power, and even for decarbonization of the shipping and airline industry.

Future of Hydrogen in India The emerging opportunity for hydrogen in India rests in the ability to produce price-competitive green hydrogen and enabling market creation for that hydrogen. This chapter will focus on the supply and demand dynamics within India.

The cost of hydrogen from electrolysis today is relatively high, between around $7/kg and $4.10/kg depending on various technology choices and the associated soft costs (see Exhibit 9). This makes it hard to compete with the existing cost of grey or brown hydrogen. But India has some of the most competitive levelized cost of electricity (LCOE) for solar and wind in the world while remaining a net importer of natural gas. Given the promises of electrolyser cost and LCOE decline, it is more beneficial
to expand green hydrogen production in India rather than production of grey or blue hydrogen.

Current cost economics of green hydrogen production in India

Soft-cost driven green hydrogen price reduction pathway
While electrolyser and electricity costs will guide the long-term price trajectory of green hydrogen, there are soft cost elements that can help reduce green hydrogen production costs today to help spur market development. Specifically targeting duty waiver and reduction of the GST and T&D charges, the levelized cost of hydrogen (LCOH) can be reduced to around $3.2/kg in the best case, making it closer to becoming competitive with grey hydrogen.

Soft cost led price-reduction pathway for current (2020) round-the-clock (RTC) renewable-based
green hydrogen

Future Price Trajectory of Green Hydrogen
With an expected price decline for both electrolysers and renewables, our analysis indicates that in the bestcase scenario, the cost of green hydrogen can fall to approximately $1.60/kg by 2030 and $0.70/kg by 2050 (Exhibit 11). Regardless of the scenario, the conclusion is clear. Green hydrogen can become competitive with grey hydrogen by 2030, if not earlier. Additional factors such as a potential carbon price on fossil fuels could also aid in the cost-competitiveness of green hydrogen.

Hydrogen Demand Outlook
As per our assessment, hydrogen demand can potentially grow more than fourfold between 2020 and 2050, amounting to around 29 million tonnes by 2050 (Exhibit 13). While steel and heavy-duty trucking will be the long-term driver for demand, in the near term, demand will likely be driven by the more mature markets in industrial feedstock—ammonia and refining. Increasing consumption from these
two sectors can result in a demand of almost 11 million tonnes per year by 2030 from the current demand of around 6 million tonnes.

Hydrogen demand outlook and potential green hydrogen share at cost parity (without policy intervention)

Near-Term Market Development
Encouraging market development for green hydrogen will require further analyses than can inform decision-making. Exhibit 15 lays out the relationship between the impact of hydrogen on the price of the final products of the end-use sectors and their green hydrogen market potential by 2030 and 2040. End-use sectors should be assessed to identify those ready for scaled consumption and those ripe for small- and large-scale pilot development.

Assessing opportunity for green hydrogen market creation by 2030

Targeted Viability Gap Funding (VGF)
A targeted viability gap funding (VGF) mechanism that can help address industry-specific cost differentials/ green premiums for some of the possible early markets should be considered. As Exhibit 15 shows, refining and ammonia could be ideal sectors for a targeted VGF approach in the initial phase of green hydrogen development. This is due to the current size of hydrogen consumption and the potential to replace grey with green hydrogen.

Manufacturing Opportunities
Beyond supply and demand, India’s robust economy and manufacturing and industrialization ambitions present other opportunities to partake in the emerging global hydrogen economy. A robust market for green hydrogen translates to a growing demand for production and consumption technologies such as electrolysers and fuel cells and an opportunity for scaled manufacturing.

India’s Electrolyser Demand
In our reference case, India’s own internal market for electrolysers could be around $31 billion by 2050 representing a demand of 226 GW (Exhibit 19). By 2030, India can expect a demand of 20 GW.

Potential electrolyser market in India

There is significant near-term increase in the FPS scenario and demand of up to 44 GW can be expected by 2030 (Exhibit 20), provided VGFs, mandates, pilots, and cost reduction incentives can accelerate market development. Early government efforts can help domestic manufacturers capture a significant share of the pie while potentially emerging as a global manufacturer.

Export Opportunities
India’s domestic demand expectation will mean that it will not be a pure export-driven hydrogen producer like the Middle East or Australia. But driven by the low cost of renewables in the country, India can still emerge as a one of the most competitive sources for green hydrogen in the world (Exhibit 23). This will impact not just the prospects for hydrogen exports but also the competitiveness of low-carbon products with embedded hydrogen such as green steel and green ammonia.

Comparison of levelized cost of green hydrogen in selected countries

Hydrogen Export Opportunities
Disparity in sources and consumption of green hydrogen is bound to create markets for green hydrogen as a tradeable energy commodity in the long term, albeit with challenges. We are already seeing early momentum as traditional energy importers like Japan and South Korea, willing to pay premium prices, are increasingly pursuing the possibility of importing hydrogen through ocean shipping (e.g., with Australia, see Box 14) either through LH2, LOCHs, and NH3. European countries are also welcoming the prospects for both intra-regional and international hydrogen trade. Traditional energy exporting regions like Australia and the Middle East are increasingly positioning themselves for hydrogen exports.

Steps to make India a global hub of green hydrogen
The analyses and discussions presented in this report are only meant to highlight the opportunities that green hydrogen presents for India for decarbonization, manufacturing, and exports. Real action is required for the country to truly benefit from these opportunities. This chapter distills the insights into ten actionable recommendations that can lead to a National Action Plan on Green Hydrogen to guide and enhance the National Hydrogen Mission.

Potential direction of a National Green Hydrogen Roadmap

Establish an aspirational cost-reduction target and initiate supply-side intervention for achieving
cost reduction of green hydrogen
Enabling this roadmap with require both demand and supply side interventions. In tandem with cost reduction targets in the roadmap, the government should also focus on enabling a cost reduction pathway for green hydrogen to be produced in the country. The current Green Hydrogen policy lays out adequate measures focusing on inter-state transmission (ISTS) charges waiver and open access for green hydrogen and green ammonia production. It can be further improved by:

Initiate mandates and incentives towards a visionary target of 160 GW of green hydrogen
production capacity including 100 GW of exports In the demand sector, the government should set a
visionary target complemented by strict mandates and adequate VGFs on more immediately addressable
end-use demand. End-use sectors should be further assessed to identify those sectors ready for scaled consumption and those ripe for small- and large-scale pilot development. They should also be supplemented with geographical
• Reduction or exemption of tax and duties like the GST and custom duties;
• Dollar-based tariffs for green hydrogen like the standard practice in the oil and gas sector; and
Other measures such as revenue recycling of any carbon tax, low emission PPAs, and avenues for
firming electricity supply including discounted grid electricity to complement VRE generation.

VGF and electrolyser capacity for exports

shows the VGF required for exports along with associated electrolyser capacity in the three scenarios. Overall, a range of $1.4 billion – $5 billion will be required in VGF for India to match its aspirational
electrolyser targets for exports. It’s also interesting to look at why and how VGF is different for each scenario. In scenario 1, where price declines for green hydrogen are happening at the fastest rate, the VGF will only be required from 2024 to 2026. This is mainly because from 2027, green hydrogen prices will be less than the target grey hydrogen price, negating the need for VGF. Moreover, the electrolyser scale till 2026 is around 10 GW of cumulative capacity. In scenario 2, the VGF requirement runs for four years, from 2024 to 2027. In this scenario, the cumulative VGF requirement is $ 3 billion, which is twice the requirement in scenario 1. This is because of two reasons – 1) the VGF is for four years instead of three years, because the price parity is reached from 2028, instead of 2027 as in the first scenario and 2) cumulative GW capacity is also higher because of added capacity in the year 2027. Similarly, VGF is the highest in scenario three because price parity of green hydrogen happens in 2029, thereby necessitating the requirement of $5 billion across five years (2024 – 2028).

Conclusion
Hydrogen can play a critical role in India’s energy transition by enhancing its industrial competitiveness in an increasingly decarbonizing world, boosting economic development, reducing CO2
emissions, and improving public health and quality of life. Major countries around the world are placing big bets and investing in hydrogenbased technologies, and India can play a leadership role at the global level in moving forward the hydrogen economy.

Appendices
Appendix A: Global Examples of Hydrogen Strategies and Roadmap

European Union7

Opportunity
India’s refinery sector is the fourth largest in the world in terms of capacity, processing almost 250 million tonnes of crude oil yearly.78 Currently the refinery sector accounts for almost 3 million tonnes of hydrogen demand, representing 46% of the total hydrogen demand in the country.79 The majority of this hydrogen is generated from on-site SMR plants, which amount to 27 million tonnes of CO2 emissions currently, which are expected to rise to 47 million tonnes by 2050.

Source: Niti Aayog