Green hydrogen, produced using renewable energy, is pivotal for India’s decarbonization, aligning with its net-zero target by 2070. Recent initiatives, such as the National Green Hydrogen Mission (2023), emphasize the need for innovative financial strategies to ensure economic viability.

Green Hydrogen

• It is produced using renewable energy sources through a process called electrolysis, where water is split into hydrogen and oxygen using electricity generated from renewable sources such as solar, wind, or hydropower.
• It does not emit greenhouse gases, making it a sustainable and environmentally friendly alternative.
• India has set an ambitious target of producing 5 million metric tonnes (MMT) of green hydrogen annually by 2030.

Green Hydrogen Production Methods

Green hydrogen production involves water electrolysis, where water (H2O) is split into hydrogen (H2) and oxygen (O₂) using electricity from renewable sources. There are three main methods:

• Alkaline electrolysis: The most mature technology, uses an alkaline solution (KOH or NaOH) as the electrolyte. 
• Despite its high efficiency and low cost, it requires expensive materials like nickel and platinum as electrodes.
• Proton exchange membrane electrolysis: An advanced method using a solid polymer membrane as the electrolyte. 
• It offers higher efficiency and faster response times, but the high cost of the membrane and precious metal catalysts is a challenge.
• Solid oxide electrolysis: A high-temperature process (700°C to 1000°C) using a solid ceramic material as the electrolyte. 
• It offers high efficiency and the potential for co-electrolysis (simultaneous conversion of water and CO2 into H2 and CO), but the high temperatures and need for specialised materials make it more complex and expensive.

Green Hydrogen: A Promising Pathway for India’s Decarbonization Goals

• Crucial role in industrial decarbonization: Green hydrogen can decarbonize hard-to-abate sectors like steel, cement, and chemicals, aligning with India’s net-zero emissions target by 2070.
  For example: India aims to produce 5 MMT of green hydrogen annually by 2030, demonstrating its commitment to a sustainable energy future.
• Decarbonizing Hard-to-Abate Sectors: Green hydrogen offers a pathway to reduce emissions in industrial sectors like steel, cement, and fertilizers, which are otherwise challenging to decarbonize due to process-related emissions.
  For example: Green hydrogen can replace coking coal in steel production through the Direct Reduced Iron (DRI) method.
• Reducing Import Dependence: Green hydrogen can reduce India’s reliance on imported fuels like natural gas and crude oil, enhancing energy security.
  For example: Transitioning to green hydrogen in ammonia production could cut India’s natural gas imports for fertilizer manufacturing.
• Fostering Innovation and Employment: Development of green hydrogen technologies can create a robust domestic ecosystem of innovation, manufacturing, and skilled employment.
  For example: India’s National Green Hydrogen Mission is expected to generate over 6 lakh jobs by 2030.

Ways in which Financing poses a challenge for adoption Green Hydrogen

• High production costs: The cost of green hydrogen production in India ($5.30–$6.70/kg) which is 2 – 3.5 times current grey hydrogen prices.
  For example: BloombergNEF reports that India is on track to achieve only 10% of its stated green hydrogen target.
• Dependence on renewable energy: Green hydrogen production requires affordable renewable energy, yet high borrowing costs in India inflate the levelised cost of electricity (LCOE).
  For example: India’s borrowing costs for renewable projects are 10–12%, compared to 3–4% in Germany.
• Limited private investment: Investors face uncertainty due to high upfront costs, long gestation periods, and insufficient demand, creating a market deadlock.
• Policy gaps: Existing policies focus on production incentives without addressing financing barriers like loan guarantees or market development.
  For example: Unlike India, the UK has introduced a Low Carbon Hydrogen Standard Certification to build investor confidence.

Challenges for making green hydrogen economically viable in India

• High cost of electrolyzers: Electrolyzer costs remain prohibitive, ranging from $500–$1,800/kW, contributing to the overall production expense.
  For example: India imports most of its electrolyzer components, increasing costs compared to nations with domestic manufacturing capabilities.
• Uncertain domestic demand: Without assured offtake agreements, producers face risks of insufficient market demand, deterring investment.
  For example: India’s lack of long-term hydrogen purchase agreements contrasts with Japan’s demand-backed projects.
• Absence of robust financing models: Traditional financing structures fail to address hydrogen’s unique challenges, such as high risk and complex value chains.
  For example: Modular financing, successful in solar energy, has not yet been adopted for hydrogen in India.
• Lack of export-oriented certification: India lacks standardised carbon intensity and hydrogen origin certifications, hindering its ability to compete in global markets.
  For instance: The Australia-Japan Hydrogen Energy Supply Chain Project sets a precedent for international trade frameworks.
• Policy and regulatory inertia: Regulatory sandboxes and blended finance models are underutilised in the green hydrogen sector.
  For example: India has not implemented experimental frameworks similar to those used in its fintech sector to accelerate growth.
• Limited collaboration: India’s international partnerships remain aspirational rather than addressing practical investment de-risking needs.
  For example: Cross-border partnerships like those between Australia and Japan are lacking for India’s hydrogen sector.

Innovative Solutions to Make Green Hydrogen Viable

• Adopt Modular Project Financing: Break large projects into smaller, scalable phases to reduce initial capital requirements and risk.
  For example: Solar energy projects in Rajasthan used modular scaling, attracting private investments.
• Establish Anchor-Plus Financing Models: Use creditworthy industrial customers to underwrite base demand while additional capacity scales with flexible instruments.
  For example: A steel plant in Odisha could act as an anchor for nearby hydrogen production units.
• Create Regulatory Sandboxes: Allow rapid experimentation with new business models while maintaining safety standards.
  For example: India’s fintech sector successfully used sandboxes to scale UPI adoption.
• Leverage Equipment Leasing: Convert high upfront electrolyzer costs into manageable operational expenses by leasing equipment.
  For example: The wind energy sector’s leasing model helped reduce project risks and boosted deployment.
• Develop Strategic Hydrogen Hubs: Integrate local industrial clusters with renewable energy sources to create self-sustaining hydrogen corridors.
  For example: The Gujarat Renewable Energy Corridor could house hydrogen hubs.
• Introduce Long-Term Hydrogen Purchase Agreements: Provide demand assurance through guaranteed offtake contracts for industries adopting green hydrogen.
  For example: Similar agreements in the UK incentivized low-carbon hydrogen adoption.
• Enhance International Collaboration: Establish certification standards for carbon intensity and hydrogen origin to boost exports and trust.
  For example: The Australia-Japan hydrogen trade corridor uses such standards to secure demand.

For green hydrogen to become economically viable in India, leveraging initiatives like the SIGHT program and the SHIP framework under the National Green Hydrogen Mission is crucial. These programs aim to incentivize production and adoption while fostering infrastructure development. Combined with innovative financing mechanisms and public-private collaboration, they can accelerate India’s transition to a sustainable hydrogen economy, achieving its decarbonization goals.