Latent Demand

Green hydrogen potential and development plans

Hydrogen is a key component of the efforts being made towards greening the grid in India. While the hydrogen segment is at a nascent stage, it holds immense growth potential. To scale up green hydrogen development, there is a need to understand the current demand-supply mix and opportunities in the Indian market.

In this context, India is well placed to integrate and scale up the production of green hydrogen given its aggressive renewable energy capacity additions. However, green hydrogen is still costly to produce due to expensive electrolysers. It is expected to achieve commercial viability in the next 5-10 years, with significant technology advancements, increase in scale and falling cost of renewable electricity.

Financing opportunities

The IEEFA evaluated 60 major large-scale hydrogen project proposals across Asia, Europe and Australia in August 2020. These projects require a capex of $84 billion, electrolyser capacity of 13 GW and hydrogen capacity of 4 million tonnes per annum. Of these 60 projects, only 20 had started construction while the remaining were at a preliminary stage. In February 2021, McKinsey & Co. reported a capex of $300 billion for 228 projects, of which 17 have gigawatt-scale ambitions while 38 projects have moved to the final investment decision stage or beyond.

In the global space, the European Union (EU) has proposed investments of Euro 430 billion by 2030 to develop a green hydrogen economy. EU multilateral development banks are ready to finance green hydrogen, but they do not have any commercial deals at present. For India to compete, a significant investment is required. Finance Minister Nirmala Sitharaman announced the National Hydrogen Mission for India in the 2021 budget. This is in line with the Make in India and 450 GW renewables by 2030 ambitions. While another hydrogen mission for India was launched in 2006, it showed little progress. The new Hydrogen Energy Mission launched in 2021-22 has renewed hope.

An Indian coalition is required for collaboration, research and development across the green hydrogen value chain in the country. The initial pilot projects will help facilitate learning, establish supply chains and evaluate safety risks. Apart from securing private sector project finance, India could finance green hydrogen projects by leveraging the corporate balance sheets of state-owned enterprises such as NTPC, and industrial conglomerates such as Tata, Reliance and Adani, to equity finance joint ventures, and provide a structure for power purchase agreements and product offtake.

Demand for hydrogen

Green hydrogen demand sources include current applications of refineries, ammonia and methanol manufacturing units, power plants, steel manufacturing units, glass manufacturing facilities, pharmaceuticals and food processing industries. High fuel consumption and industry familiarity with hydrogen will drive hydrogen offtake in the coming decade. There is also latent or future demand present in the transport and power sectors.

Hydrogen demand in India is expected to grow at a CAGR of about 7 per cent to reach 12 million tonnes by 2030. Hydrogen demand is expected to be concentrated in three key segments. The bulk demand, which is nearly 99 per cent of the current total demand, is driven by refineries, and ammonia (fertilisers) and petrochemical industries, where hydrogen is used as feedstock. Distributed demand for hydrogen can come up in the chemicals segment for hydrogen peroxide, food processing, specialty chemicals, pharmaceuticals and float glass, among others. This accounts for less than 1 per cent of the demand. There is upcoming latent demand in the mobility and power sectors expected to start growing from 2025.

Technology and cost trends

Currently, more than 90 per cent of the hydrogen supply comes from steam methane reforming (SMR) and is used to meet captive demand. The majority of the SMR production at present comes from SMR units and pet coke gasification units across refineries and fertiliser plants. Nearly half of the hydrogen produced in chlor-alkali plants is available for use in downstream manufacturing and for merchant sales. Meanwhile, small-scale in-house plants and industrial gas manufacturing plants serve medium- to small-scale demand for chemicals, power, food processing, and glass industries.

The cost to set up and produce hydrogen plants varies by technology. The current production cost of hydrogen through SMR and carbon capture technology is $3-$3.2 per kg, while the production cost of green hydrogen through polymer electrolyte membrane (PEM) is almost double at $6-$6.5 per kg. This can be attributed to the high technology cost of PEM. With the decline in renewable energy prices and greater technology experience, the production cost of green hydrogen is also expected to reduce. The economics of hydrogen adoption is projected to come close to parity by 2030. There are many business models that are emerging for hydrogen production, including direct sales, franchise networks, high volume contracts and recurring subscriptions.

The efficiency of green hydrogen is very low at present, but the technology is expected to become commercially viable in this decade. Pilot projects should be undertaken to improve the viability of green hydrogen and create an enabling infrastructure. The cost of hydrogen reflects the cost of electrolysers, the utilisation rate, the price of renewable energy and the rate of deflation. As per the IEEFA, $1.5 per kg will be feasible by 2030 in key regions owing to the falling rates of renewable energy.

A progressive reduction is expected in electrolyser costs. The largest electrolyser in the world, introduced in 2015, was of 5 MW capacity, whereas in 2020, the largest electrolyser was of 10 MW in Fukushima, Japan. In January 2021, Air Liquide commissioned a 20 MW capacity PEM unit, doubling the capacity of the largest plant a year ago. In January 2021, Vattenfall along with Mitsubishi Heavy Industries and Shell announced a 100 MW PEM unit, which is expected to be commissioned in Hamburg by 2025. With the current trend of doubling the scale every year for five years, it is safe to forecast a 50 per cent reduction in the per unit cost over the next five years.


Locational factors such as access to renewable energy resources and affordability play an important role in the development of hydrogen technologies. Further, on-site application is preferred since there are high costs and risks associated with the transportation of hydrogen. With large-scale renewable energy deployment, states like Gujarat, Rajasthan and Tamil Nadu are particularly well placed to provide renewable energy at a low cost.

Hydrogen should be targeted at the sectors where direct electrification is not feasible. The transport sector has the highest latent potential for hydrogen use. However, hydrogen will have to compete with battery electric vehicles. Hydrogen can also be a cost-effective means of providing inter-seasonal storage in high variable renewable electricity systems. States like Rajasthan and Gujarat can use solar spill in the daytime to make green ammonia to replace imports and strengthen energy security. This will enhance energy security by reducing the reliance on imported fossil fuels, including imported fossil ammonia. Given the current pace, hydrogen is expected to become one of the dominant sources of energy in a time frame of about 30 years. n

Based on presentations by Tim Buckley, Director, Energy Finance Studies, Australia/South Asia, IEEFA; and Manas Majumdar, Partner, KPMG, at Renewable Watch’s conference on “Green Hydrogen”


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