Making green hydrogen cost-competitive

What is the issue?

For India to become a global leader in green hydrogen, production costs has to be reduced significantly.

India is placing a big bet on green hydrogen to transition away from fossil fuels.
Recently, the ministry of power issued a policy on green hydrogen.
The government has waived the central inter-state transmission charges for a period of 25 years for green hydrogen production projects commissioned before June 30, 2025.

The cost of power used to produce green hydrogen varies between 50% and 70% of the total cost of green hydrogen.
It depends on the location of production as well as the source of renewable energy, whether wind or solar.
Also the open-access charge constitutes a significant portion of the cost of power.
According to Council on Energy, Environment and Water (CEEW) for states importing renewable power, the waiver is expected to reduce the production cost of green hydrogen production by 17%.

Reduce or eliminate intra-state transmission charges -

For solar power consumption, UP, Gujarat, and Maharashtra have intra-state transmission charges of 0.25, 0.90, and Rs 2.3 per kWh, respectively.
This disparity in intra-state transmission charges between different states would distort the green hydrogen market.
Competitiveness of producers in states with high intra-state charges gets affected.
So the states should either reduce or eliminate intra-state transmission charges as a top-up to the central policy.
From example, waiving-off intra-state charges would reduce production cost of green hydrogen
- in UP by 5%.
- in Gujarat by 12%.

Higher Renewable Purchase Obligation (RPO) credit -

RPO’s mandates the power distribution companies, electricity consumers to purchase a certain percentage of their requirements from renewable energy sources.
Unlike mature renewable power markets, implementation of RPO in hydrogen market remains in a nascent stage.
Also the cost of green hydrogen today is at least twice as much as fossil-based hydrogen.
Therefore producers and end-users of green hydrogen should be incentivised for taking on the risk for their investment.
So, Green hydrogen projects commissioned before 2025 should be awarded higher multiple of RPO credit.
For instance 1.5 times the amount of power consumed to produce green hydrogen.

Significant banking of Renewable Energy -

Banking of renewable power is done by supplying excess power during peak generation periods into the grid and then withdrawing it during off-peak generation periods.
Green hydrogen cost depends on the level of utilisation of the electrolyser.
Electrolysers are devices used to split water into its constituents, hydrogen and oxygen, using renewable power.
With solar power the electrolyser is utilised only 33% of the time in a year.
However, green hydrogen production costs could be reduced by up to 40% if solar power is banked and the electrolyser is utilised 95% of the time in a year.
Centre should allow significant banking of RE in the initial phase of the mission without any monetary implications.

Waiver of inter-state transmission charges -

Current policy allows waivers for projects set up before June 2025.
The National Hydrogen Mission is expected to be released this year.
The Mission is expected to be raise the norms for blending green hydrogen in current fossil-based hydrogen streams and natural gas pipelines.
These norms can only be implemented starting 2023.
Since it is incremental blending, the early years would see smaller cumulative volumes compared to higher blend requirements post-2025.
It is expected to reach 5 million tonnes per annum by 2030.
Hence, the inter-state transmission charge waiver should be extended beyond 2025 and up to 2030.
Post 2030 green hydrogen would become commercially viable due to scale of production, advancement in production technology and lower renewable power costs.

Reference