Big Plans: MNRE’s incentives for electrolyser manufacturing and hydrogen production

The green hydrogen space in India has finally received a concrete plan for electrolyser manufacturing and green hydrogen production incentives. The Indian government had previously ap­p­roved the National Green Hydrogen Mis­sion with a budget of Rs 197.44 billion till 2029-30. Of this, Rs 174.9 billion was ear­marked for the Strategic Interventions for Green Hydrogen Transi­tion (SIGHT) pro­­gramme. Two financial incentive me­cha­nisms have been proposed under the programme, for domestic manufacturing of electrolysers (Com­ponent I) and for prod­uction of green hydrogen (Compo­nent II). On June 28, 2023, the Ministry of New and Renewable Energy notified the sc­he­me guidelines for the implementation of both components.

Component I

Component I has a budget of Rs 44.4 billion. Under this, incentives will be provided in terms of Rs per kW. In the first year, the base incentive will be Rs 4,440 per kW, which will be annually reduced till it reaches Rs 1,480 per kW in the fifth year. The incentives will be provided for five years from the date of commencement of manufacturing. Just like the production-linked incentive scheme for solar components, this scheme aims to incentivise manufacturing of efficient and high quality electrolysers in India. The incentive will be calculated on the basis of specific energy consumption. Another key guideline is that, to be eligible for incentives, bidders will have to show a minimum local value addition for each year for different technologies. Furthermore, there will be a separate bucket for indigenously developed stack technology. The scheme will be im­plemented by the Solar Energy Corpo­ra­tion of India (SECI) through a transparent selection process.

Component II, Mode 1

Component II has two modes. Mode 1 covers the competitive selection process based on the least incentive demanded over three years, and Mode 2 covers co­mpetitive bids post aggregation of de­mand for green hydrogen and derivatives. The total budget outlay for both modes is Rs 130.5 billion, and they will be implemented from 2025-26 to 2029-30. So far, the government has only released guidelines for Mode 1. A direct incentive in ter­ms of Rs per kg of green hydrogen production will be paid under the scheme for a period of three years from the date of beginning of green hydrogen production. The capped incentives for the first, second and third years are Rs 50 per kg, Rs 40 per kg and Rs 30 per kg respectively. The bidder will be decided based on the simple average of incentive demanded over the three years.

Already, in July 2023, SECI has issued a tender for “Selection of Green Hydro­g­en Producers for Setting up Production Fa­cilities for Green Hydrogen in India un­der the SIGHT Scheme (Mode-1-Tranche-I)”. The total capacity to be allocated under this tender is 450,000 million tonnes per annum (mtpa) of green hydrogen, and this capacity is divided into two buckets: Bucket 1 – 410,000 mtpa under a technology-agnostic pathway, and Bu­cket 2 – 40,000 mt per annum under a biomass-based pathway. Bidders may quote capacities in multiples of 500 mt per annum only. The minimum and maximum bidding capacities under Bucket 1 are 10,000 mtpa and 90,000 mtpa, respectively. In the case of Bucket 2, the minimum and maximum bid capacity are 500 mtpa and 4,000 mtpa, respectively. The pre-bid meeting is set for July 28, 2023, and the bid opening date is September 11, 2023.

The way forward

By 2030, the government has a target of producing at least 5 mmt per annum of green hydrogen (scalable to 10 mtpa). According to the government’s calculations, the associated renewable energy and electrolyser capacity needed for this is 125 GW and 60-100 GW respectively. The total investment requirement is Rs 8 trillion, and it will lead to the creation of over 0.6 million jobs, as well as reduction in imports worth over Rs 1 trillion. Fur­ther­more, greenhouse gas reduction of nearly 50 mtpa is also being targeted.

According to the International Energy Agency, the global electrolyser capacity in 2023 is 21.5 GW per year. In 2030, it is expected to reach 61.3 GW per year. The current electrolyser manufacturing capacity in India is 0.5 GW per year, and is ex­pected to grow to just 2.5 GW per year by 2030, according to the IEA. However, ac­cording to Renewable Watch Research, at least 10.9 GW of electrolyser manufacturing capacity is at various stages of development. But even this manufacturing ca­pacity is insufficient to meet the domestic green hydrogen targets. Depen­dence on imports to meet domestic de­ma­nd may thus become an issue, going forward. The­refore, the recent incentives announ­ced by the government to promote domestic manufacturing of electrolysers and green hy­drogen production – supported by various incentives ann­ounced by different sta­tes – are a step in the right direction.

By Sarthak Takyar