Stages of policy support for robust green hydrogen ecosystem development in India

India – Investment Environment

There is tremendous potential for low-cost, low-carbon production of H2 in India and the Government along with industry identifies the same.

There is tremendous potential for low-cost, low-carbon production of hydrogen in India, which can enable broad adoption of hydrogen across sectors. Currently in India, hydrogen mainly serve as feedstock in ammonia and methanol production and in refineries. In transportation it is catching up but is in very nascent stages in the country. It is anticipated that good numbers of FCEVs and buses shall come into play in the big cities for public transport in the country. Also, under the mining segment also it is anticipated to evolve as an alternative source.

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.

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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.