Fuel Strategy

Policy suggestions for the proposed National Hydrogen Energy Mission

In the budget speech on February 1, 2021, the finance minister announced that a National Hydrogen Energy Mission will be launched in 2021-22 for producing hydrogen from green energy sources. This announcement is exciting but some scepticism remains. This is because in 2006 the National Hydrogen Energy Roadmap was released with ambitious targets for 2020; however, none of them was fulfilled. Therefore, innovative policies, large-scale demonstration projects, revamping of the regulatory environment and greater government support are now required so that previous failures are not repeated. This article provides such policy suggestions and ideas.

As the saying goes, do not let perfect be the enemy of good. Therefore, in the Indian context, it is advisable to not only focus on green hydrogen but also actively promote other types of hydrogen to move towards a hydrogen-based economy. Such an inclusive approach is already taking place in India, considering the fact that renewable energy is often clubbed with thermal power for round-the-clock supply of electricity.

Policy suggestions

According to the International Renewable Energy Agency (IRENA), there are four policy pillars that make the green hydrogen sector mainstream. One, the development of national hydrogen strategies that provide a reference point for private investment. Two, setting priorities for the use of hydrogen for transportation or industrial  purposes. Three, using guarantees of origin to increase consumer awareness and incentivise the use of green hydrogen. Four, an enabling policy framework that focuses on industrial, economic and social value. While these pillars give broad suggestions on policy strategy, FTI Consulting’s report, India’s Energy Transition “Towards a Green Hydrogen Economy: White Paper on Building a Green Hydrogen Economy and Policy Roadmap for India”, gives India-focused policy and project suggestions.

The report analyses three pathways based on different timelines. Pathway A (the most optimistic scenario) assumes that India will increase hydrogen adoption by 2025-30 in a bid to emerge as a serious global green hydrogen player. It specifies that India should have a hydrogen target of 4 per cent of the energy share by 2030. This represents about 13 mmt of hydrogen demand by 2030 and is comparable to the 17 mmt targeted by the US and 15 mmt by the EU. Taking inspiration from Europe where large green hydrogen energy demonstration projects are being planned in regions with high solar or wind energy potential, the report stresses on a similar road map for India. Therefore, for the production of green hydrogen, the focus should be on Rajasthan, Gujarat, Maharashtra, Karnataka, Andhra Pradesh and Tamil Nadu which are industrialised and also rich in renewable energy. This approach helps in reducing the cost incurred on the transportation of hydrogen over large distances.

In order to increase hydrogen demand without investing in expensive infrastructure, Indian stakeholders are already working towards the promotion of hydrogen-blended compressed natural gas for use in the transportation sector. The report suggests that the government should set a target of 20 per cent hydrogen blending in natural gas by 2030, similar to green fuel plans adopted by other countries.

Drawing inspiration from the H2Haul (hydrogen fuel cell trucks for heavy duty, zero-emission logistics) project that has been planned in Europe, the report proposes a hydrogen trucking corridor as part of the Delhi-Mumbai Industrial Corridor. Under this corridor, it suggests the use of a fleet of at least 10,000 hydrogen trucks (in two phases), and 10 hydrogen refuelling stations by 2030.

The report advocates a cluster-based approach for setting up large demonstration projects based on all types of hydrogen. It provides suggestions for various industries. The ports and logistics hubs that can be considered are Mundra, Gujarat; Nhava Sheva, Maharashtra; Chennai, Tamil Nadu; Visakhapatnam, Andhra Pradesh; and Paradip, Odisha. Meanwhile, states in eastern India can produce black hydrogen (using black coal) or grey hydrogen (using brown coal) as it has abundant coal reserves. This hydrogen can be consumed near the production sites by large-scale steel plants and heavy earth-moving evacuators deployed at the mines. The production of this type of hydrogen will release carbon dioxide emissions; however, there seems to be little scope for green hydrogen due to lack of large-scale renewable energy projects in the region.

The report recommends exploring hydrogen production from bio-waste or biogas reformation at large municipal bodies that can guarantee a steady supply of solid waste input. These large municipal bodies may be able to not only finance and fund such capital-intensive plants but also sell the power to industries nearby. The report has identified municipal bodies in Gujarat and Maharashtra in particular, given their past success with green bonds and proximity to industrial users.

Other policy ideas

Apart from the suggestions mentioned in the report, a green hydrogen production plant can be set up at the site of the planned 30 GW renewable energy park in Kutch, Gujarat. In Kutch district, Bhuj already has renewable energy plants and this can be a key production site in north Gujarat. Meanwhile, in south Gujarat, a possible site for green hydrogen production can be in Bhavnagar where renewable energy plants have already been set up. With these two production centres in north and south Gujarat, the transportation of green hydrogen to industrial users in Ahmedabad (food processing), Vadodara (heavy industries), Surat (textiles), Rajkot, Kutch (cement), and Vapi (chemicals) can be considered.

India can also produce green hydrogen from hydropower, similar to what China and Canada are contemplating. This will be beneficial as electrolysers, when used round the clock, produce cheaper green hydrogen. In China, green hydrogen production is seen as a solution to the issue of curtailment of electricity from hydropower projects. Also, the need for constructing long transmission lines from hydropower projects can be done away with if the electricity is consumed near the plant itself. India can make the most of this opportunity as many large hydropower projects have been installed and more are on the anvil. Furthermore, in India this route may be even more lucrative for green hydrogen production given that the integration of floating solar plants with hydro projects has already become a part of policy discussions and many such projects are being explored.

The country can also explore the production of carbon-neutral pink hydrogen (from nuclear energy) as electricity is available round the clock, thereby making electrolysers more efficient. This type of hydrogen can be produced near the nuclear power plants at Kalpakkam and Kudankulam, Tamil Nadu, and supplied to large industrial clusters across the state. In addition, pink hydrogen can be produced near the planned 9,900 MW Jaitapur nuclear power plant in Ratnagiri, Maharashtra. This is because French utility EDF, which is supplying reactors for this plant, is also exploring business opportunities in the hydrogen fuel space in India.

Initiating discussion on hydrogen production obligation

On the regulatory front, bold steps will be needed to promote the use of hydrogen, as was done to promote renewable energy sources such as solar and wind. One such regulatory tool is the renewable purchase obligation (RPO), which is enforced by state electricity regulatory commissions and is based on recommendations of the central government. While the RPO has indeed led to the promotion of renewables, certain issues have emerged that impact the viability of the power sector. Many states find it difficult to meet their RPO targets due to various reasons such as lack of availability of renewable energy sources and reluctance to promote renewables due to their intermittent nature  which often leads to frequent regulatory changes.

Considering this, states may be allowed to choose between RPO and hydrogen production obligation. This can be done at least in those states where there is opportunity for hydrogen production and consumption. State utilities should have the freedom to choose the renewable energy source to produce hydrogen, if they opt for hydrogen production obligation. This decision would be based on the availability of the energy source in the state and proximity to industrial clusters. Also, as the renewable energy industry is slowly becoming mature, the discussion regarding removal of RPOs should be revived. Now that renewables are considered the cheapest source of electricity, It makes commercial sense for state governments to set up renewable energy projects anyway. Renewable energy developers can support this regulatory transition as utility-scale plus storage projects will need to be constructed if utilities decide to produce green hydrogen. Moreover, the issue of curtailment will be addressed as excess electricity will be used for hydrogen production.

The way forward for governments and utilities

Initially, the uptake of green hydrogen can be expected to be low. This is because green hydrogen is still two-three times more expensive than blue and grey hydrogen. However, according to IRENA, with rapid scale-up over the next decade, green hydrogen will become competitive with blue hydrogen by 2030 in many countries. Therefore, the Indian government should have no reservations in incentivising large-scale green hydrogen demonstration projects. Utilities too should think out of box and start diversifying their business activities to include hydrogen production and sale, and create new sources of revenue generation. Across the globe, many European countries, the US, Canada, UAE, Saudi Arabia, Australia, Japan, etc. have already started moving towards a hydrogen-based economy with governments earmarking a huge corpus of subsidies for hydrogen production projects, and utilities actively partnering with industrial consumers and transportation agencies.

The time is right for the promotion of hydrogen as fuel. With the ongoing economic slowdown and the contraction of GDP, there has been a growing consensus that the government should freely invest in large-scale infrastructure projects in order to create demand, without worrying much about the fiscal deficit. The construction of capital-intensive large-scale green hydrogen projects with government support aptly fits the bill.

By Sarthak Takyar

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