Subject: GREEN
Capital expenditure (CAPEX) is the cost of developing or providing non-consumable parts for a product or system, while operating expense (OPEX) is the ongoing cost for running a product, business, or system.
Here are some of the ways Andhra Pradesh is encouraging green hydrogen production:
Policy
The state has a Green Hydrogen and Green Ammonia Policy that provides incentives for green hydrogen production, including:
Land: Government land is allocated for green hydrogen plants at a lease rate of ₹31,000 per acre per year.
The cost of green hydrogen is currently USD 4-6 per kilogram, which is 2-3 times more than grey hydrogen. The largest single cost driver is renewable electricity, but other factors also need to be considered.
Exemptions: Producers are exempt from land-use conversion charges and stamp duty payment.
Grid connectivity: Priority is given to grid connectivity for renewable projects.
Renewable purchase obligation: Renewable energy used to produce green hydrogen counts toward the renewable purchase obligation of the consuming entity.
Infrastructure
The state has a robust infrastructure of roads and rail, and all ports have infrastructure for storing liquid nitrogen, which can also be used to store green hydrogen.
Natural resources
Andhra Pradesh has abundant natural resources, including significant water resources from the Godavari and Krishna rivers.
The capital expenditure (capex) and operating expense (opex) for green hydrogen in India include:
National Green Hydrogen Mission
The Indian government has approved an initial budget of Rs 19,744 crore for the mission, with an outlay of Rs 600 crore for FY 2024–25. However, ICRA estimates that the government will need to provide Rs 8–9 trillion in capex to achieve the targeted production of 5 MMT of green hydrogen.
Present: 3.6–5.8 USD/kg
A capital expenditure is the cost of developing or providing non-consumable parts for a product or system. An operating expense is the ongoing cost of running a product, business, or system.
Hydrogen plant costs
Hydrogen plants in India can cost between Rs 1.50 crore and Rs 12 crore, depending on the production capacity. Larger generators can cost as much as Rs 20 crore to Rs 100 crore.
Cost of production
A research paper estimates that the cost of producing green hydrogen in India will be:
2030: 2.5–3 USD/kg
2040: 2 USD/kg
Economics of Green Hydrogen
Industry News
In September 2021, Mukesh Ambani, Chairman of Reliance Industries Ltd (RIL), said that India can set an aggressive target of 1-1-1 for Green Hydrogen . This means that India can target a cost of $1 for 1 kilogram of Green Hydrogen in 1 decade (by year 2030). He added that even the cost of green hydrogen is currently high, new technologies in storage and transportation of green hydrogen will lead to a significant drop in costs. While we do not have access to how the target of $1 per kg of Green Hydrogen can be achieved, we take a peek at the cost components of a Green Hydrogen system, and some estimates by NITI Aayog and KPMG on the cost trajectory of Green Hydrogen in India.
Cost drivers of Green Hydrogen
The costs of Green Hydrogen can be classified under three categories – Capital Expenditure (CAPEX), Operating Expenditure (OPEX) that includes energy cost, and transportation.
1. CAPEX
This refers to the cost of electrolysers used in generating Hydrogen from water. The two most popular electrolyser technologies are alkaline and polymer electrolyte membrane (PEM) technologies. The alkaline technologies have been around for several decades now and are quite mature, whereas PEM technologies are relatively new, but has some advantages over alkaline technologies because PEM electrolysis can quickly adjust to the fluctuations in power generation which is a feature of renewable energy sources. However, PEM electrolysers are typically costlier since they use rare earth metals like iridium or platinum. Irrespective of the technology, an electrolyser has two components – a stack and a set of balance of plant (BoP) components, which includes demineralised water required for electrolysis. The overall cost of Green Hydrogen generation will thus depend on factors like the electrolyser type and the scale of the installation.
2. OPEX
Energy costs - Since the electricity used for Green Hydrogen generation comes from renewable energy sources, the energy cost is typically the cost of solar or wind power, which is among the lowest in India. Depending on the citing of the Green Hydrogen Manufacturing facility, the cost of transmission and distribution(T&D) costs and wheeling charges for electricity should be added to the energy cost.
Other OPEX items includes all the costs required for running a hydrogen generation unit.
3. Transportation cost
A Green Hydrogen value chain typically consists of three major geographic nodes –
a green electricity generation location (a solar or wind farm),
a green hydrogen generation location and
the green electricity consumption location.
The first and third nodes – green electricity generation location and the consumption location are generally constrained due to renewable energy resource availability in case of the former, and a pre-existing demand centre in case of the latter. The key decision for a green hydrogen manufacturer is to decide on locating the green hydrogen plant either close to the green electricity generation site or close to the demand centre.
If the Green Hydrogen is located far from the demand centre, a storage and transportation infrastructure must be built, which can involve pipelines, trucks (road transportation) and tanker ships (water transportation in case of exports). However, storage and transportation are relatively difficult because Hydrogen is a highly flammable gas and must be compressed for storage due to its low density. It can also cause embrittlement of metals. As a result, locating the Green Hydrogen facility close to the demand centre is preferred in order to reduce the logistics issues. In this case, the green electricity can be wheeled from far off solar or wind power plants.
India’s Hydrogen policy supports locating the green hydrogen generation facility close to the demand centres by exempting inter-state transmission charges for green electricity and providing banking facility for unused power for Green Hydrogen generators ( read the policy here ).
Forecasts of Price Trajectory of Green Hydrogen
A joint NITI Aayog and RMI study estimates the current cost of green hydrogen from electrolysis to be between around $7/kg and $4.10/kg depending on various technology choices and the associated soft costs. With an expected price decline for both electrolysers and renewables, our analysis indicates that in the best-case scenario, the cost of green hydrogen can fall to approximately $1.60/kg by 2030 and $0.70/kg by 2050.
A report by KPMG India estimates the current cost of green hydrogen production at about INR 320-330 per kg. 25-35% of this cost can be attributed to the cost of electricity transmission. According to the projections of KPMG India, the cost of green hydrogen could halve from the today’s cost and fall to as low as INR 160-170/kg by 2030. At this cost, Green Hydrogen will be competitive with grey hydrogen and other competing fuels. The KPMG report can be accessed here .
Conclusion
Green Hydrogen today is still quite expensive, which makes it uncompetitive with grey or brown hydrogen (NITI Aayog). However, the falling costs of solar and wind power coupled with the reduction in the costs of electrolysers, Green Hydrogen will achieve parity with grey hydrogen and other competing fuels over the next decade.
To learn & understand more about Green Hydrogen from top experts visit The smarter E India Conference , 7-9 Dec. at Gandhinagar Gujarat India.
National Green Hydrogen Mission
Overarching Objective
“To make India the Global Hub for production, usage and export of Green Hydrogen and its derivatives. This will contribute to India’s aim to become Aatmanirbhar through clean energy and serve as an inspiration for the global Clean Energy Transition. The Mission will lead to significant decarbonisation of the economy, reduced dependence on fossil fuel imports, and enable India to assume technology and market leadership in Green Hydrogen.”
Demand Creation
Demand Creation
Exports: Mission will facilitate export opportunities through supportive policies and strategic partnerships.
Domestic Demand: The Government of India will specify a minimum share of consumption of green hydrogen or its derivative products such as green ammonia, green methanol etc. by designated consumers as energy or feedstock. The year wise trajectory of such minimum share of consumption will be decided by the Empowered Group (EG).
Competitive Bidding: Demand aggregation and procurement of green hydrogen and green ammonia through the competitive bidding route will be undertaken.
Certification framework: MNRE will also develop a suitable regulatory framework for certification of Green Hydrogen and its derivatives as having been produced from RE sources.
Strategic Interventions for Green Hydrogen Transition (SIGHT)
Strategic Interventions for Green Hydrogen Transition (SIGHT)
In the initial stage, two distinct financial incentive mechanisms proposed with an outlay of ₹ 17,490 crore up to 2029-30:
Incentive for manufacturing of electrolysers
Incentive for production of green hydrogen.
Depending upon the markets and technology development, specific incentive schemes and programmes will continue to evolve as the Mission progresses.
To ensure quality and performance of equipment, the eligibility criteria for participation in competitive bidding for procurement of Green Hydrogen and its derivatives will specify that the project must utilize equipment approved by Government of India as per specified quality and performance criteria.
Pilot Projects
Targeted Sectors For Pilot Projects
Outlay of ₹ 455 crore up to 2029-30 for low carbon steel projects
Outlay of ₹ 496 crore up to 2025-26 for mobility pilot projects
Outlay of ₹ 115 crore up to 2025-26 for shipping pilot projects.
Other target areas include: decentralized energy applications, hydrogen production from biomass, hydrogen storage technologies, etc.
Green Hydrogen Hubs
Green Hydrogen Hubs
The Mission will identify and develop regions capable of supporting large scale production and/or utilization of Hydrogen as Green Hydrogen Hubs.
Development of necessary infrastructure for such hubs will be supported under the Mission.
It is planned to set up at least two such Green Hydrogen hubs in the initial phase.
Outlay of ₹ 400 crore up to 2025-26 for Hubs and other projects.
Enabling Policy Framework
To facilitate delivery of RE for Green Hydrogen production, various policy provisions including inter-alia waiver of Interstate transmission charges for renewable energy used for Green Hydrogen production; facilitating renewable energy banking; and time bound grant of Open Access and connectivity, will be extended for Green Hydrogen projects.
Infrastructure Development
The National Green Hydrogen Mission, which aims to accelerate the deployment of Green Hydrogen as a clean energy source, will support the development of supply chains that can efficiently transport and distribute hydrogen. This includes the use of pipelines, tankers, intermediate storage facilities, and last leg distribution networks for export as well as domestic consumption.
Regulations and Standards
The Mission will coordinate the various efforts for regulations and standards development in line with the industry requirements for emerging technologies. Work has commenced on establishing a framework of regulations and standards to facilitate growth of the sector and enable harmonization and engagement with international norms.
Research and Development
A public-private partnership framework for R&D (Strategic Hydrogen Innovation Partnership – SHIP) will be facilitated under the Mission. The framework will entail creation of a dedicated R&D fund, with contributions from Industry and respective Government institutions. These institutions will pool resources to build a comprehensive goal-oriented Research and Innovation programme in collaboration with the private sector.
Skill Development
A coordinated skill development programme, that covers requirements in various segments, will be undertaken in coordination with the Ministry of Skill Development & Entrepreneurship.
Other Components
In addition to the above, the Mission will also cover Public Awareness, Stakeholder Outreach and International Cooperation.
Mission Governance Structure
An Empowered Group (EG) chaired by the Cabinet Secretary and comprising Secretaries of Government of India and experts from the industry will guide the Mission; an Advisory Group chaired by the PSA and comprising experts will advise the EG on scientific and technology matters; and a Mission Secretariat headquartered in MNRE will undertake the programme implementation.
Mission Outlay
The initial outlay for the Mission will be ₹ 19,744 crore, including an outlay of ₹ 17,490 crore for the SIGHT programme, ₹ 1,466 crore for pilot projects, ₹ 400 crore for R&D, and ₹ 388 crore towards other Mission components. MNRE will formulate schemes guidelines for implementation of the respective components.
National Green Hydrogen Mission Outcomes
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