Green hydrogen is increasing as a crucial link in the international energy transformation process. With India setting its target of reaching the net-zero carbon emissions by 2070, green hydrogen is one of the possible scenarios for the decarbonisation of the country’s industrial segments. But getting there has numerous financing hurdles to meet India’s plan for producing 5 MMT green hydrogen annually by 2030.
The economics of green hydrogen production
The economics of green hydrogen production hinge on two primary factors: namely the levelised cost of electricity (LCOE) and the electrolyser costs. Both are highly operated by the cost of capital. Glance currently has operations primarily in emerging markets such as India; where regulatory measures imply higher risks, borrowing costs are relatively high and hence Glance has a high WACC. This, in its term, causes a shift on the overall costs of green hydrogen production dramatically.
As for today, the cost of green hydrogen production is $5.30-6.70 per kg, while for the grey hydrogen, it equals 1.9-2.4 per kg. This large price differential makes it rather difficult to increase off take of domestic products and attract private investments. Since it is not cheap to purchase an electrolyser with prices ranging from $500 to $1,400/kW for alkaline systems or $1,100 to $1,800/kW for proton exchange membrane systems, the cost of green hydrogen projects is significantly financially damaging.
Financing Challenges
The feasibility of these green hydrogen projects is more challenged by the fact that the investment costs are between 50 – 80 % of the Furthermore, the LCOE in renewable energy projects. It was established that when all the factors of hydrogen production remain constant, a slight increase in WACC from 10% to 20% leads to up to 73% a rise in the levelised cost of hydrogen. This creates a classic market deadlock: green hydrogen is the most expensive technology and the expenditures cut only with the scaling of the technology; scaling requires economic viability.
Government policies and New sources of funds
To overcome these practices, India has to implement new most efficient financing practices and policies to unlock the risk of investment. Some countries are already leading in adopting the policy. For example, the Low Carbon Hydrogen Standard Certification from the United Kingdom suggests the best way to develop the market confidence in functioning of the expansion tools. In the same way, strategic hydrogen hubs in the U.S, Japan, and Australia create a shift from conventional industrial development typologies.
India can therefore replicate this through regional specific industrial zones connected to renewable energy sources to form self-sustaining hydrogen corridors and encourage investments. Furthermore, the government needs to have a coherent policy framework which covers more than mere production incentives, but also include core financing challenges. This includes power purchase agreements for a long-term and partial loan guarantees since prolonged uncertainty is unbeneficial for investors.
Issues that India likely to encounter when developing green hydrogen
Green hydrogen is seen as an alternative that could revolutionise the climate change war and move towards the creation of a sustainable world. To the emitter of greenhouse gases, which has set goals of achieving net-zero by 2070, green hydrogen presents a mechanism of decarbonizing industry, transport and energy. At once, there are several critical weaknesses to be overcome in order to achieve this vision:
High Production Costs
The first challenge however is that green hydrogen is relatively expensive to produce. While grey hydrogen is generated from natural gas, green hydrogen can be generated with the use of electrolysis driven by renewable power. This process is currently costly given the current expensive costs of electrolysers, and fluctuating nature of renewable energy sources like the solar, and the wind. The analysis indicated that green hydrogen faces the challenge of having high costs of production that would make it expensive when competing with the fossil fuel generated hydrogen.
Infrastructure Development
For large scale green hydrogen production, storage and distribution, there is no such infrastructure available in India. To have a stable and dependable hydrogen supply chain, which is critical for fuel cell and other applications, engineering investments will be needed upfront for hydrogen production and distribution plants, storage, transportation, and related equipment. The lack of this infrastructure is a significant challenge when it comes to developing green hydrogen to compete on the market.
Technological Challenges
Overall, best practices suggest that innovation is necessary to make adjustments, optimise large scale green hydrogen generation and bring down its costs. There is a need for India to come up with more effort and fund towards the electrolyser efficiency improvement, developing efficient storage mechanisms of green hydrogen and incorporation of green hydrogen into diverse industrial systems. Also, the country has to find how to overcome the challenges of technology transfer that are likely, given the demand increase.
Reforms and Politics
Thus, stable and comprehensive regulatory and policy environment is necessary for the development of green hydrogen in India. Today, there are no clear rules and stimuli for the provision of investments and development of the sector. It remains imperative for policy makers to develop a policy support, in the form of subsidies, tax holidays and long-term power purchase agreements to incentivize the private investors and de-risk investments in green hydrogen infrastructure.
Financial Constraints
Financing hurdle, therefore, could be regarded as one of the most critical factors influencing the development of green hydrogen. Lack of finance and awareness of risks pose a major challenge in investors contributing their capital into green hydrogen ventures. Blending, partnerships between the public and the private sector, and green bonds are needed to structure the financing instruments. Furthermore, International cooperation and funding shall be a significant enabler of green hydrogen in India.
Skilled Workforce
The goal of transitioning from grey hydrogen towards green hydrogen brings challenges concerning workforce that master new products and technologies. India is currently deficient in trained professionals for this promising sector. Education, training, and capacity building, to foster HR for the GH sector must be introduced to create awareness, availability of skilled human resource, and the capacity to advance the GH industry.
Solutions That Could Help to Overcome Green Hydrogen Challenges in India
Green hydrogen may prove to be one of the most promising solutions in India’s energy mix that can pave a way towards decarbonisation and key industrial segments. Nonetheless, achieving this potential comes with several ardent barriers to consider. Here are some possible solutions that can help India address these challenges and promote the adoption of green hydrogen:
Reducing Production Costs
- Economies of Scale: As hydrogen is produced in quantity the cost reduces as economies of scale set in meaning that more green hydrogen can be produced. If large-scale projects are undertaken and hydrogen production facilities are developed, it is possible that other related technologies such as electrolysers will be made more affordable.
- Technological Advancements: By continuing to develop better technology for this method, there is the potential for lowering the cost associated with electrolysis making the process more efficient. In general, the cost of producing electricity through electrolysis can be considerably reduced through improvements in materials science including improvements in electrolyser components.
Infrastructure Development
- Public-Private Partnerships (PPPs): The involvement of private industry participation with government backing could help to spur the roll out of hydrogen in new and efficient ways. When it comes to infrastructure development for production, storage and sales, PPPs offer the right combination of capital and competence.
- Strategic Investment in Infrastructure: Critical infrastructure projects related to pipelines which would distribute hydrogen, refuelling stations, and storage facilities should be the focus of the government when it comes to investing in this type of technology. Granting financial and fiscal incentives for the investment promotion and subsidizing infrastructure projects.
Strengthening the Regulation and Policies
- Supportive Policies and Incentives: Policies must be well-defined and stable and should cover long-term horizons from investors’ points of views. These measures involve providing incentives or economical support such as subsidies or tax exemptions and grants for green hydrogen plants while the introduction of renewable purchase obligation (RPOs) for specific industries to use green hydrogen.
- Creating a Hydrogen Economy Roadmap: Creating an integrated roadmap of hydrogen economy with specification of goal and objectives may serve as a framework to coordinate those involved in the process. This factor should identify measures that would help put in place or strengthen relevant regulation, funding and strategic directions for the development of green hydrogen as a commodity.
Financing Solutions
- Blended Finance Mechanisms: Blended finance can hence help de risk investments in green hydrogen projects and the use of green hydrogen as energy feedstock. Exemption from taxes for certain periods, the provision of partial loan guarantees and performance-based incentives can be utilized to mobilize private sector participation.
- Green Bonds and Sustainable Finance: The use of green bonds whereby an organization can borrow money for green hydrogen projects can help with sustainable revenue. Encouraging banks and financial institutions to integrate environmental, social, and governance (ESG) criteria into their lending practices can also promote sustainable finance.
Building a Skilled Workforce
- Education and Training Programs: These improvements require the provision of increased resources to education and training in order to foster the creation of a skilled workforce. This includes establishment of new, distinct courses related to the renewable energy and hydrogen technologies in universities and technical colleges.
- Industry-Academia Collaboration: Probably one of the most promising ways would be to advance the formation of links between the economic and academic worlds. Initiating research centres based on hydrogen technologies can contribute to development of new technologies and develop human resources.
What is Green Hydrogen?
Green hydrogen is hydrogen fuel which is generated using the process of splitting water through electricity generated from renewable sources of energy such as wind, solar and hydro. Unlike grey hydrogen which comes from fossil fuels, giving out vast amounts of carbon emissions, green hydrogen is a clean fuel that only releases oxygen when in use, making it a strong contender in the shift towards net zero.
The Production Process
Green hydrogen creation process includes the splitting of water which is composed of hydrogen and oxygen H₂O by process known as electrolysis. Electrolysis is done in an electrolyser, an apparatus through which an electrical current is passed through water to bring about the splitting of the water molecules. In the event that this electrical current is supplied by renewable sources of energy, then this is said to be green hydrogen.
Use cases of Green Hydrogen
- Industrial Use: Today hydrogen is an indispensable reagent in many industries, and it can be used in refining petroleum, generating ammonia for fertilizers, and metal processing. Exchanging the use of grey hydrogen in these processes with green hydrogen, which has a much lower carbon footprint, can be effective.
- Transportation: It is also stated that green hydrogen can be used as a fuel in fuel cell vehicles, such as cars, buses, trucks, even trains. Hydrogen when combusted in fuel cells produces electricity, with the only by product being water vapours hence an environmentally friendly source of energy.
- Energy Storage: This is true as hydrogen can store excess renewable energy production in intervals that witness low energy utilization. Consequently, electricity storage is able to accommodate changes in demand since the energy that has been saved may be turned back into electricity when it is required.
- Heating: The uses of green hydrogen include in residential, commercial, and industrial heating processes. It can be mixed with natural gas or it can be used on its own, as a way of generating low carbon heat.
Benefits of Green Hydrogen
- Environmental Impact: The primary advantage of green hydrogen is arguably its capability to reduce GHG emissions, by a large measure. Green hydrogen provides a means of defeating climate change because it is a replacement of hydrogen that is produced from fossil fuels and other carbon-based energy sources.
- Energy Security: Green hydrogen can be generated at manufacturing sites, or nearby renewable energy generation facilities and thus helps in reducing import of fossil fuels and securing energy supply.
- Economic Opportunities: The expansion of a green hydrogen economy thus has potential to yield new industries and employment opportunities in renewable power generation, hydrogen infrastructure and support activities and services. It can stimulate growth and economic development and encourage individuals to invest heavily in more ideas.
- Versatility: The possibility to apply green hydrogen in many sectors, including transports and industries, contribute to the overall great opportunity for utilizing green hydrogen as a tool for decarbonisation of many sectors.