Policy support indexation for development of India as a hydrogen economy

Hydrogen use across various end uses. However, due to previous focus on land transport uses for hydrogen, about two-thirds of the policies targeted the transport sector.

Most countries include FCEVs with battery electric vehicles in their zero emission vehicle policies. This gives FCEVs the opportunity to benefit from incentives given to zero emission vehicles in general, without the need for policies that specifically promote hydrogen use.

The past two years, however, represented a game-changing moment for green hydrogen policies, with interest rising around the world. Many countries (including Austria, Australia, Canada, Chile, France, Germany, Italy, Morocco, the Netherlands, Norway, Portugal and Spain, along with the European Union) announced, drafted or published national hydrogen strategies and post-COVID-19 recovery packages that included support measures for clean hydrogen. Further, India’s ambitious drive for green hydrogen involves a ₹ 15,000-crore PLI scheme for electrolyser production. The aim of the government is to bring down the cost of green hydrogen to $1 per kg.

The change is not just quantitative (with pledges in the order of the billions of USD), but also qualitative: the emphasis of these new strategies has shifted to industry and product differentiation and future competitiveness, away from the previous focus on hydrogen use in transport. It is important to prioritise the sectors where its use can add the most value to avoid diluting efforts or putting hydrogen in competition with more immediate decarbonisation solutions, such as battery electric vehicles.

Historically, every part of the energy system has enjoyed some form of policy support. This has been and is still true for fossil fuels (which are supported with both direct and indirect subsidies) and for renewable energy sources, across all sectors – power, heating and cooling, and transport. The hydrogen sector has also received some attention from policy makers with dedicated policies. But more dedicated policy support is needed at each stage of technology readiness, market penetration and market growth.

Status of policy support for hydrogen

By 2019, hydrogen was being promoted in at least 15 countries and the European Union with supporting policies (other than standardization processes or national strategies). These policies directly or indirectly promoted.

Regulatory structure - from ambiguity to clarity

As the penetration of green hydrogen technologies increases and costs come down, policies will have to evolve accordingly. The briefs following this report use the concept of policy stages to reflect the evolution of policy needs with the increased deployment of green hydrogen. Here are the three basic steps and the overall milestones for each:

Step 1: Technology Readiness - At this stage, hydrogen is a niche technology with little use except in demonstration projects; it is mostly produced on-site with limited infrastructure development. The largest barrier to greater use is cost. The main role of policy makers is to encourage and accelerate further deployment of electrolysers. This can be done in part through long-term signals, such as a commitment to net zero emissions, which offer certainty to the private sector and improve the business case for hydrogen especially green hydrogen for India.

As important, however, are shorter-term policies that help to close the investment and operational cost gaps. These include research and development (R&D) funding, risk mitigation policies and co-funding of large prototypes and demonstration projects to decrease the cost of capital. In addition, end uses still at the demonstration stage may need dedicated mission-driven innovation programmes with clear timelines and collaboration with the private sector to accelerate their commercialisation. Supportive governance systems and guidelines should also be put in place at this stage, ensuring that the growth of green hydrogen is sustainable.

Step 2: Market Penetration - At this stage, some applications are operational and able to prove what green hydrogen can do and at what cost. Scaling up these technologies and developing experience through learning-by-doing reduces costs and helps close the profitability gap. This stage also begins to see benefits from synergies between applications, increasing hydrogen demand and realising economies of scale for production and infrastructure. These synergies can take place in industrial clusters, hydrogen valleys (e.g. cities) or hubs (e.g. ports).

Industrial users can drive the development of dedicated “green hydrogen corridors” that connect regions generating low-cost renewable energy with demand centres. Most of this infrastructure is not developed from scratch, but is repurposed from existing natural gas networks and power grids.

Step 3: Market Growth - At this stage, hydrogen becomes a well-known and widely used energy carrier and is close to reaching its full potential. It has become competitive both on the supply side and in its end uses. Direct incentives are no longer needed for most applications and private capital has replaced public support in driving hydrogen growth. There is full flexibility in converting hydrogen to other energy carriers, making it possible to use the most convenient alternative depending on the specific conditions in each region. The power system has been decarbonised and only green hydrogen is being deployed. Most natural gas infrastructure has been repurposed to transport pure hydrogen.

Currently, green hydrogen is at the first stage for most sectors. Some regions may be more advanced in specific sectors or uses, while still being immature in others. For instance, California is ahead in FCEV deployment, but has no large-scale electrolysis industry, while Germany has focused on converting natural gas infrastructure to hydrogen. On other hand, India’s hydrogen market is currently in the nascent stages of development. This is because, at current production costs, green hydrogen is twice as expensive as grey and brown/black hydrogen – the dominant forms of hydrogen. In addition, there are no demand-side mandates to support its uptake.