By Santosh Kamath, Managing Director, Alvarez and Marsal
As India accelerates its journey towards embracing inexperienced hydrogen as a sustainable vitality supply, important questions have surfaced in regards to the urgency of this transition. Are we shifting too quick into the inexperienced hydrogen period? Is it merely a speculative bubble? Ought to we look ahead to developed international locations to drive down expertise prices earlier than we begin making important investments? These questions are indeed legitimate; nonetheless, it’s important to start by addressing the elemental query of “why” earlier than delving into the “how”.
The “why” behind inexperienced hydrogen
The Worldwide Vitality Company estimates that hydrogen will contribute greater than 10 per cent to the world vitality combine by 2050 in a net-zero situation. That’s substantial, amounting to almost $0.5 trillion of worth globally. Hydrogen is essential for decarbonising hard-to-abate sectors corresponding to metal, heavy-duty transport, chemical substances and sure manufacturing processes. Thus, there’s a consensus that investing in hydrogen is a strategic transfer in the proper path. The following query is of India’s aggressive positioning within the international context whereas we deal with the problem of timing.
India’s aggressive edge
As India boldly enters the inexperienced hydrogen area, a vital query arises: when is the proper time to grab this chance? To reply that, we must always first examine India’s aggressive standing on the worldwide stage.
India is prone to be within the lowest quartile by way of price of manufacturing of inexperienced hydrogen globally. There are three causes for this.
- Good high quality of renewable vitality resources, together with ample photo voltaic and wind potential, together with a mature ecosystem for renewables.
- An unlimited and well-developed nationwide transmission grid that permits renewable energy to be tapped at optimum places, delivering cost-efficient electrical energy to hydrogen electrolysers.
- A powerful expertise pool in manufacturing, engineering and development, providing each functionality and value competitiveness in constructing these initiatives.
Few nations can boast of such a trifecta of aggressive benefits. Nevertheless, one space the place India faces a slight drawback is the price of capital, which is a vital issue for inexperienced hydrogen growth.
The timing dilemma
The consensus is that competitively, India is properly positioned, however the central query revolves round timing. Ought to the nation undertake inexperienced hydrogen expertise early or look ahead to additional reductions in expertise prices? Two compelling causes assist early motion:
- World commerce alternatives: Early entrants have the chance to ascertain themselves as important gamers within the nascent international hydrogen commerce, securing substantial market shares and forming long-lasting commerce partnerships. Estimates by Alvarez and Marsal counsel a world commerce quantity of $24 billion-$36 billion by 2030, which is prone to develop to $150 billion-$330 billion by 2050.
- Home business decarbonisation: Embracing inexperienced hydrogen early will facilitate the early decarbonisation of the home downstream business. There is little question that international locations and firms which are higher ready for decarbonisation will achieve long-term competitiveness within the international financial system. This includes sectors corresponding to metal, automotive and chemical substances, the place India has a big, well-established industrial base. Furtherextra, the competitiveness of those sectors in a world market can be in danger if they don’t put together for a decarbonising world prematurely.
Hydrogen may also help these industries in reaching this aim, supplied now we have a hydrogen ecosystem. It’s no shock that the US and China, the 2 largest economies, have centered their total hydrogen programme on home demand to get their downstream industries prepared for the long run! The rationale for early motion is evident – to safe a bigger share of the worldwide commerce and put together the home downstream business for decarbonisation.
The “how” of inexperienced hydrogen implementation
The simplest technique at this juncture entails creating demand for hydrogen in downstream sectors. This method not solely fuels investments in upstream areas but additionally fosters supportive ecosystems and prepares downstream industries for the hydrogen transition.
The Indian authorities has already taken important strides by introducing the generation-based incentive (GBI) scheme for hydrogen manufacturing and the production-linked incentive (PLI) scheme for electrolyser manufacturing. Transferring ahead, what India wants is a complete programme designed to stimulate demand.
To attain this, an method of mixing a mandate programme with a viability hole funding (VGF) scheme is proposed to incentivise the downstream industries to transition. On this context, precedence sectors corresponding to refineries, metal, fertilisers and heavy-duty transport could also be recognized in a calibrated vogue. For every of those sectors, a viability hole evaluation may be performed to find out the monetary assist required to transition to hydrogen in a phased method. The VGF may be primarily based on the present price of inexperienced hydrogen professionalduction and the price of adapting current industrial processes to hydrogen.
We will draw inspiration from international fashions such because the German H2Global initiative, which serves as a market facilitator, bridging the viability hole between sellers and consumers.
Unlocking the inexperienced hydrogen potential
As an instance the potential impression of such an method, let’s contemplate the aim of making a requirement for 1 million tonnes of hydrogen by 2027. Assuming a viability hole of $1 per kg of hydrogen, this interprets into an annual requirement of $1 billion in VGF.
In tandem with stimulating demand, the second vital lever helps the hydrogen business to scale back prices. Whereas the authorities has already introduced advantages within the type of interstate transmission price waivers (which probably save prices by 9-14 per cent) and banking of renewready energy, along with the GBI and PLI schemes, there are just a few further areas that deserve consideration.
- Reducing the price of financing by de-risking initiatives: A important side is de-risking initiatives by providing some degree of offtake ensures by means of take-or-pay arrangements. Initiating procurement fashions on behalf of procurers, much like the profitable SECI mannequin for photo voltaic and wind, can considerably scale back prices.
- CfD mannequin to allow RTC renewables: A singular contract for variations (CfD) mannequin may be designed to allow round-the-clock (RTC) renewables especially for interstate provide of energy to electrolysers. The temporal mismatches between renewable vitality era and electrolyser consumption are addressed by shopping for and promoting energy within the energy trade. The CfD will fund the distinction between the purchase value and the promote value, making certain a predictready steady price of renewable energy for the electrolyser. Given potential constraints in wind capacities obtainable for the hydrogen sector, this mannequin will enready larger use of solar energy within the combine, because the CfD permits its conversion into RTC energy within the energy trade. This idea requires some debate amongst stakeholders.
- Decreasing taxes on tools: There’s a want to handle the impression of oblique taxes on tools. Measures to scale back or refund the taxes may also help to avoid wasting 6-10 per cent within the remaining price of hydrogen.
The implementation of those price discount methods might result in a considerable discount of 43-46 per cent in inexperienced hydrogen manufacturing prices, enhancing its monetary viability. These measures, whereas expensive, could also be supplied to the primary 1 million tonnes of hydrogen capability, compensating early movers for the upper dangers and prices they incur in comparison with late movers in a decreasing price curve atmosphere.
Path to a sustainable future
Whereas these initiatives require important budgetary assist, it’s important to view them in context. Our estimate is that the full outlay required to assist this programme can be within the vary of $4 billion-$12 billion cumulatively until 2030. This funding is anticipated to bridge the viability hole in numerous sectors and assist price discount initiatives. Whereas this quantity might look massive, allow us to view this within the context of India’s financial system and vitality imports. Over the following seven years, India’s cumulative oil import invoice can be within the vary of a staggering $1 trillion-$1.4 trillion. India is uncovered to a major volatility of oil costs. In the course of the previous 10 years, our oil import invoice ranged from a low of $64 billion (in monetary yr 2016) to a excessive of $158 billion (in monetary yr 2023).
In the long run, hydrogen will assist mitigate this publicity for India. What we want is nearly 1 per cent of our annual crude oil import invoice to assist the hydrogen financial system. The payoffs are substantial: By 2030, hydrogen might present roughly $3 billion-$5 billion in export revenues, substitute imports of $7 billion-$16 billion (primarily LNG), and do way more within the a long time that comply with. A daring stance by the federal government would make a distinction, each by way of inspiring confidence in addition to bridging viability gaps. In essence, India stands at a crossroads: are we ready to take daring steps to show the hydrogen ambition right into a actuality?
