Expensive and explosive green hydrogen production: a brake for SMEs

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India is rapidly approaching its net zero targets, spurring the deployment of green hydrogen as a clean energy solution in mobility, industry and energy. Meanwhile, NITI Aayog has launched a report highlighting the importance of green hydrogen, outlining a pathway to accelerate the emergence of a green hydrogen economy, which is essential for India to achieve its ambitions of net zero by 2070.

Petroleum and Natural Gas Minister Hardeep Puri, describing green hydrogen as the fuel of the future, emphasized accelerated timelines for the sector. According to him, green hydrogen will overcome the challenges faced by the fossil fuel industry. And it will give impetus to India’s journey towards energy independence by 2047. “We are spending Rs. 12 lakh crores to import energy. We must therefore push green hydrogen as an alternative energy source. India has a huge advantage in the production of green hydrogen, due to its favorable geographical conditions and the presence of abundant natural elements.

However, deploying green hydrogen is not as simple as it seems. Moreover, the participation of MSMEs as stakeholders in this initiative seems far-fetched. SME Futures spoke with Gaurav Kumar Kedia, Chairman of the Indian Biogas Association, to better understand the sector, its current state and challenges, while trying to understand why MSMEs are lagging behind in this sector.

Edited excerpts:

Tell us about the current scenario of the Indian green hydrogen technology sector?

India currently produces about 6.7 MT of hydrogen, mainly from the steam reforming of natural gas. With the launch of the National Hydrogen Mission on our 75th Independence Day by Honorable Prime Minister Shri Narendra Modi, India announced an ambitious target of producing 5 MMT of hydrogen per year. The MNRE has also announced a series of lucrative policies to achieve this goal.

Read also : PM Modi to launch several programs to accelerate MSME sector

India is strongly encouraged by the government to become a leader in green hydrogen. It will eliminate interstate transportation charges for renewable energy used to produce green hydrogen and provide free storage for its excess production for up to 30 days. In addition, producers will be allowed to build bunkers near ports for storage and export. The government is also considering producer subsidies in the second phase of the policy, as well as requirements for refineries and fertilizer plants to use green hydrogen.

What is the current investment scenario in this sector following the government’s announcement on the green hydrogen policy and the objectives of COP26?

The investment scenario is still unclear, but companies like Reliance, Adani, L&T, TATA and others have plans in place to develop renewable energy and produce green hydrogen. IOC, BPCL, GAIL, HPCL and OIL are setting up green hydrogen plants to meet the country’s clean energy needs.

Do you think these goals are achievable in the time frame given? What are the government and the private sector doing and what more can be done?

Targets are aggressive and should be dealt with a lot of investment. For starters, it’s expensive to produce green hydrogen. Although electrolysis is simple to perform in the laboratory setting, it requires a substantial investment to produce industrial quantities of green hydrogen. The International Energy Agency estimates that the current cost of creating one kilogram of green hydrogen ranges between $3 and $7. With natural gas, the cost of creating the same amount of hydrogen ranges from US$0.7 to US$1.6, and coal can cost up to US$2.5 per kilogram. The US$2 threshold is seen as a turning point for the global adoption of green hydrogen. By 2030, Mukesh Ambani promises to deliver it for 1 US dollar per kg. Only production costs are included here. The lightest gas, hydrogen must be compressed, combined with natural gas or turned into a liquid before being transported. This will drive up the prices. In addition, many expenses are related to the use of green hydrogen in manufacturing processes.

Read also : Green Hydrogen: Key to Reaching India’s Net Zero Emissions Targets by 2070

Across Indian industry, there are tremendous efforts being made to establish a hydrogen economy in India, especially the work being led by Indian Oil. Despite these positive steps by government and industry, current activity in this regard is still an order of magnitude less than it needs to be to take full advantage of a transition to hydrogen technologies. , with manufacturing centered in India. In terms of investment required, if India were to deploy green hydrogen as a clean energy solution for key sectors such as transport, industry and power by 2050, it would require significant investment in electrolysers. Beyond that, further investment in renewable electricity would be needed, at a time when other electricity demands in India will continue to grow rapidly. This would clearly be a challenge, so India needs to start now to step up activity on this.

What are the challenges facing the green hydrogen sector?

Currently, electrolysers (battery-like devices that split water into hydrogen and oxygen using electricity) consume about 40-50 units of electricity to produce hydrogen equivalent to 30-35 units. Therefore, the process consumes more energy than it produces. Additionally, electrolysers are quite expensive, which increases overall project and product costs. With companies like RIL moving into the manufacture of electrolyzers, we can expect cost reductions in the years to come.

Lowering the cost of producing green hydrogen is not the only challenge facing the green hydrogen industry, but arguably the most important today. Green hydrogen will have to find applications even if cost parity is reached. Not all use cases will succeed either. According to several reports, many industries that now use hydrogen, such as the fertilizer, oil refining and petrochemical industries, will rapidly migrate because there is no other option. Since there are cheaper alternatives such as biogas, its success in the long-distance transport sector will remain limited. Another interesting use case is the production of steel and cement, two of the main sources of emissions. However, there has not been much evidence of harnessing green hydrogen to produce them in the real world.

Why are SMEs reluctant to enter this sector? Are there any government incentives or subsidies for this sector? Also, can we expect a PLI regime for this sector?

The high cost of capital is the reason why SMEs are not stakeholders in this sector.

Although the hydrogen plant is not so expensive, the renewable energy needed to produce green hydrogen is not cheap and the project can only be feasible if the renewable energy is prepared by the developer of the project itself. This greatly increases the cost of hydrogen production, as plants of the required capacity will be expensive. This is a major obstacle for SMEs when they want to enter this market. Additionally, as hydrogen is explosive in nature, it will require various safety measures, which will make it difficult for an SME to meet all safety standards due to financial constraints.

What is the future of the green hydrogen sector in India and what should it do?

For India to secure its technology leadership role in the next phase of the energy transition, it will need to significantly increase its activity in the public and private sectors to develop a hydrogen economy. India should focus public funds on R&D and technology development to try to be at the global frontier in every part of the green hydrogen value chain, with the aim of reducing costs and increasing the deployment. This requires a coordinated push on the supply side, with increased investment and R&D commitments from government and industry, as well as demand-side support in the form of secured markets, made possible through public procurement, subsidy programs or fossil fuel regulations/standards. alternatives. To ensure success, strong commitments to a national mission, as well as effective public-private partnerships, are needed; there would be little point in a sub-optimal effort that does not mobilize enough resources.

This is an opportunity for India to expand the successes it has achieved in the defense and pharmaceutical sectors, and to commit strategic resources to achieve breakthroughs in hydrogen technologies, bringing significant benefits to the Indian economy. While it is important for India to continue developing and manufacturing hydrogen technologies domestically, it will also be important for other countries to follow suit. It is only through mass manufacturing and large-scale deployment of hydrogen technologies that we will see cost reductions where hydrogen can begin to replace significant amounts of fossil fuels, without any government subsidy.

Read also : Gadkari launches hydrogen-powered green fuel cell electric vehicle pilot project

However, it is possible that these costs will reach parity in the future, with green hydrogen being lower than gray hydrogen in favorable regions. This is made more possible in India, where renewable electricity tariffs are already among the lowest in the world and natural gas supplies are limited and expensive. Along with electricity prices, the other important factor in reducing the cost of green hydrogen is the capital cost of electrolyzers. These are expected to continue to decline with increased deployment, as most electrolysers today are manufactured on a relatively small scale (BNEF, 2019).

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