The Green Hydrogen Hype: A Reality Check for India

 Green hydrogen is often hailed as the "fuel of the future," promising a cleaner, greener energy source to combat climate change. However, a closer look reveals significant challenges, especially for a developing country like India, where energy security, affordability and efficiency are paramount. While green hydrogen may have a role in the future, its current limitations position it lower on the priority list for energy investments. 

As can be well described by the Gartner's Hype Cycle, green hydrogen is positioned between the Peak of Inflated Expectations and the Trough of Disillusionment, indicating that while there is significant enthusiasm around its potential, practical challenges such as cost, inefficiency, and logistical issues are tempering expectations. It suggests that green hydrogen is still in the experimental and speculative phase, requiring further technological and economic advancements to move toward widespread adoption.

                                                                                    TIME

Here’s why India needs to tread cautiously:

1. High Production Costs

Indian refineries and fertilizer plants currently rely on grey hydrogen, produced from natural gas via steam methane reforming, at a cost of approximately $1-2 per kilogram depending on natural gas prices. Transitioning to renewable energy sources for green hydrogen production is projected to raise costs to $3.6-$4.0 per kilogram, making green hydrogen prohibitively expensive for widespread adoption. The U.S. Inflation Reduction Act provides subsidies of up to $3 per kilogram to make green hydrogen competitive, highlighting that production costs are expected to remain above this threshold in the near term. Even at $3 per kilogram, the shift to green hydrogen would result in a 50-200% increase in hydrogen costs, significantly impacting operational expenses for industries such as refineries, fertilizers, and steel, thereby reducing their competitiveness. Higher operational costs in these sectors would translate into increased prices for products like fuels, fertilizers, and steel, placing an additional subsidy burden on the government to mitigate inflationary pressures. For India, where affordable energy is vital for economic growth and poverty alleviation, such elevated costs pose a substantial challenge to the adoption of green hydrogen.

2. Renewable Energy Costs Are No Longer Falling Rapidly

One of the key assumptions driving the green hydrogen narrative is the continued decline in renewable energy costs which constitutes around 70% of the Green H2 production cost. However, the cost of renewables in India has plateaued in recent years due to factors like supply chain disruptions, increasing raw material costs, and land-use constraints. This stagnation makes it increasingly challenging to produce green hydrogen at a competitive price, particularly when renewable electricity itself is in high demand.

3. Inefficient Conversion Process

Producing green hydrogen involves splitting water into hydrogen and oxygen using electricity in a process called electrolysis. However, even the most advanced electrolyzers are only about 75% efficient, meaning that 25% of the renewable energy used is effectively wasted. In a country like India, where per capita electricity consumption remains among the lowest globally, diverting precious renewable energy to an inefficient process while spending resources on loss reduction schemes like RDSS etc raises serious questions about priorities. That wasted 25% could otherwise power homes, schools, and businesses.

4. Challenges in onsite production, storage and transport

Industrial use of green hydrogen necessitates an on-site renewable energy (RE) generation facility to avoid additional costs associated with transmission charges and energy losses from off-site solar or wind generation. Producing green hydrogen directly at the factory site not only eliminates the need for costly hydrogen storage and transportation but also requires a battery energy storage system to enable round-the-clock electrolysis. This ensures better utilization of the electrolyzer capacity, enhancing overall efficiency and cost-effectiveness.

Item	Without Battery Storage (Batch Production)	With Battery Storage (24x7 Production)
Electrolyzer Utilization	Low (only operates during solar hours)	High (operates continuously, maximizing capacity utilization)
Energy Source	Direct solar energy	Solar energy stored in batteries
Capital Cost (Electrolyzer)	Lower (smaller electrolyzer capacity due to limited operational hours)	Higher (larger electrolyzer capacity for continuous production)
Electrolyzer Cost	Lower, as smaller electrolyzer systems are sufficient for limited hours	Higher, due to larger systems needed for continuous operation
Battery Cost	None	High (cost of batteries and related infrastructure)
Energy Efficiency	High (no storage losses)	Lower (battery efficiency losses of 10%)
Operational Cost	Lower (no battery maintenance or replacement costs)	Higher (battery maintenance, replacement, and efficiency losses)
Hydrogen Cost per kg	Moderate	Higher (increased due to battery costs and energy losses)
Reliability of Supply	Intermittent (only during solar hours)	Continuous (24x7 hydrogen availability)
Suitability	Ideal for flexible or intermittent hydrogen demand	Necessary for industries with continuous hydrogen requirements

The logistics of storing and transporting green hydrogen are major hurdles:

• Storage: Hydrogen has a low density even in its liquid state (~70 kg/m³), requiring energy-intensive cooling and high-pressure tanks for containment, which further drive up costs.
• Transport: Shipping green hydrogen requires 3–4 times the volume of LNG, significantly inflating transportation costs and making long-distance exports impractical.

These inefficiencies make the idea of exporting green hydrogen a costly and unrealistic ambition.

5. Lower Volumetric Energy Density

Green hydrogen's low-density results in a lower volumetric energy density and makes it highly flammable compared to alternatives like LNG. These characteristics increase costs associated with shipping, insurance, and safety measures, making it less suitable for energy-intensive applications where space and weight are critical, such as long-haul shipping.

6. Misaligned Priorities for India

India faces unique energy challenges:

• Low Per Capita Electricity Consumption: India’s per capita electricity consumption is around 1/3^rd of global average. Diverting renewable energy toward green hydrogen production instead of addressing immediate electricity needs for millions of people is a questionable strategy.
• Need for Cost-Effective Solutions: With limited resources, India must prioritize energy investments that deliver the greatest benefit to the largest number of people. Green hydrogen, at its current stage, does not meet this criterion.

A Better Path Forward

Instead of placing disproportionate emphasis on green hydrogen, India should focus on more efficient and cost-effective solutions:

1. Nuclear Energy: A reliable, low-carbon baseload power source that complements renewable energy.
2. Renewable Power Expansion: Solar and wind energy can provide immediate, scalable benefits for decarbonizing the electricity grid.
3. Energy Efficiency: Modernizing the grid, improving energy storage technologies, and enhancing energy efficiency can yield higher returns and ensure a more equitable energy transition.
4. Hydrogen Research: India should invest modestly in research and pilot projects to improve electrolyzer efficiency and storage technologies while waiting for the production costs to decline. PLI scheme for electrolysers manufacturing under National Green Hydrogen Mission is a right step in that direction.

Conclusion

Green hydrogen undoubtedly holds long-term promise, particularly for decarbonizing hard-to-abate sectors like steel and cement. However, its current economic and logistical barriers, combined with the inefficiency of the production process, make it a poor choice for large-scale deployment in India in near future. Instead of pursuing green hydrogen aggressively, India should prioritize scalable, proven, and cost-effective solutions like nuclear and renewable energy to address its pressing energy and developmental needs. By adopting a realistic approach to green hydrogen, India can ensure that its energy investments align with national priorities and provide maximum benefits to its people. Green hydrogen can take its place when the time is right—once costs reduce to around $1 per kilogram, driven by advancements in electrolyzer and storage efficiencies, enabling it to fulfill its potential.

 

Optimal Electricity Generation Mix Report of CEA: Meeting INDCs but Perpetuating Energy Poverty

The Central Electricity Authority (CEA) has meticulously crafted an optimal electricity generation mix plan for 2029-30 that aligns with India's Intended Nationally Determined Contributions (INDC) under the Paris Agreement. This ambitious plan aims to balance the nation's energy demands with its commitment to reducing carbon emissions. However, a closer examination reveals a potential downside: while the plan supports the de-carbonization of selected industries through Green Hydrogen and EVs, it may inadvertently perpetuate energy poverty for the broader economy.

Meeting INDC Targets

India's INDC targets are ambitious, aiming to reduce the emissions intensity of its GDP by 33-35% by 2030 from 2005 levels and achieve about 40% cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030.  As per CEA, the total installed capacity as on 31^st March 2024 was 4,42,853 MW and generation in 23-24 was 1738.85 BU. With population of 1.428 billion, per capita annual electricity availability is 1217 KWh and assuming T&D losses of around 10%, it was around  1100 KWh or 92 KWh per month. Similarly, the share of electricity from non-fossil sources was 412 BU or 23.7%.

Source	Capacity (MW) March 2024	% Share in Installed Capacity	Generation (TWH) 2023-24	% Share in Generation
Coal, Lignite &Gas	242996	54.9%	1326.29	76.27%
Nuclear	8180	1.8%	47.94	2.76%
Large Hydro	46928	10.5%	134.05	7.71%
Small Hydro	5005	1.1%	9.49	0.55%
Wind	46161	10.42%	83.39	4.80%
Solar	82637	18.66%	115.98	6.67%
Biomass	10946	2.48%	16.99	0.98%
Import (Hydro)			4.72	0.27%
Total	442853		1738.83

(https://cea.nic.in/wp-content/uploads/resd/2024/03/Monthly_RE_Generation_report_March_2024-1.pdf)

The CEA's optimal generation mix plan for 2029-30 outlines a roadmap to meet these targets. It projects a total installed capacity of 817 GW, with non-fossil fuels (solar, wind, hydro, and nuclear) accounting for approximately 64% of this capacity and share of electricity generated from non-fossil sources is projected to be 1160 BU or 46%.

 

Fuel Type	Likely Capacity (MW) in 2029-30	Percentage Share (%) in Capacity	Likely Generation (TWH) in 2029-30	Percentage Share in Generation
Hydro	60,977	7.46%	206.6	8%
PSP	10,151	1.24%	4.4
Small Hydro	5,000	0.61%	2.2
Coal &Lignite	2,66,911	32.66%	1357.7	54%
Gas	25,080	3.07%	35.4	2%
Nuclear	18,980	2.32%	113	5%
Solar	2,80,155	34.28%	484.2	19%
Wind	1,40,000	17.13%	309.1	12%
Biomass	10,000	1.22%	5
Total	8,17,254		2518

(https://cea.nic.in/old/reports/others/planning/irp/Optimal_mix_report_2029-30_FINAL.pdf)

The aggressive frontloading of renewable energy capacity to 64%, well beyond the INDC target of 40%, seems driven more by the politically ambitious target of 500 GW of renewable capacity by 2030 and not by engineering or economics. This approach has significant implications and consequences that need to be carefully considered. While this shift towards renewable energy sources is crucial for reducing carbon emissions but has implications for economic development. The installed capacity of fossil fuel sources (coal, lignite, and gas) is projected to increase from approximately 243 GW to 291 GW by March 2030. However, their share in the total energy mix is expected to decrease from 58.6% in March 2024 to 36% by March 2030. Not only will their share decrease, but the Plant Load Factor (PLF) is also projected to drop to 58%. This low projected PLF indicates that thermal power plants will need to make space for renewables, leading to stranded assets for distribution companies (DISCOMs) equivalent to 27% of the fixed charges (85% - 58%). In essence, this will be a double whammy for DISCOMs and consumers, who will not only bear the additional costs of stranded thermal capacity but also towards extra transmission, storage, and balancing charges for accommodating the oversized renewable share.

The Green Hydrogen and EV Push

The plan includes significant provisions for the integration of Green Hydrogen and electric vehicles (EVs) into the energy mix. For Green Hydrogen production, an additional 250 BU (Billion Units or TWh) of electricity is allocated to produce 5 million metric tons of Green Hydrogen by 2030, as envisaged in the National Green Hydrogen Mission. Similarly, for electric vehicles, the impact on all-India demand by 2029-30 is projected to be 3 GW in peak demand and 15 BU in energy requirements. It may be noted that Green H2 is primarily a feedstock which is used in selected industries like fertilizers, steel, Petro-chemicals etc. but is receiving substantial concessions from power sector in form of free ISTS implying that electricity consumers will pay for transmission charges to selected industries thereby cross-subsidizing their input cost.

The Impact on Per Capita Electricity Consumption

A key component of the strategic plan is the projected per capita electricity consumption. Excluding the allocations for Green Hydrogen and Electric Vehicles (EVs), the net electricity availability is calculated as follows:

Total Generation - Green Hydrogen Requirement - EV Requirement = 2518 TWh - 250 TWh - 15 TWh = 2253 TWh.

Based on the World Bank's data, with an annual population growth rate of 0.85%, the population is expected to increase from 1.428 billion in 2023 to 1.514 billion by 2030.

Thus, the per capita electricity availability in 2030 is projected to be:

Total Electricity / Population = 2518 TWh / 1.514 billion = 1663.15 kWh.

After accounting for Green Hydrogen and EV allocations, this availability decreases to 2253 TWh / 1.514 billion = 1488.11 kWh.

Considering a Transmission and Distribution (T&D) loss of 8%, the projected per capita electricity consumptions in 2030 are:

1663.15 kWh * (1 - 0.08) = 1530 kWh including all uses.

1488.11 kWh * (1 - 0.08) = 1369 kWh excluding Green Hydrogen and EVs.

This adjustment translates to a Compound Annual Growth Rate (CAGR) of approximately 4.6% from the 2023 per capita consumption of 1100 kWh. Excluding electricity for Green Hydrogen and EVs, the CAGR is 2.95%.

Perpetuating Energy Poverty & delaying national ambition of Viksit Bharat

We aspire to become a "Viksit Bharat" by 2047, aiming to meet the economic indicators of developed nations. Developed economies have a per capita electricity consumption exceeding 6000 kWh, and to achieve this by 2047, we need a CAGR of around 7.5% in per capita electricity consumption. However, despite the projected increase in per capita electricity consumption in 2029-30, the growth remains relatively modest, especially in the broader economic context.

Prioritizing the production of Green Hydrogen for selected industries might lead to an uneven distribution of resources, potentially limiting electricity availability for other sectors and the wider population. This approach could favor the emerging class of industrial Green Hydrogen consumers at the expense of existing ones. While the shift towards renewable energy and Green Hydrogen is essential for sustainable development and fulfilling international climate commitments, it is crucial that this transition is inclusive and fair. The current focus on industrial decarbonization is important, but it should not detract from the broader goals of economic growth and enhanced living standards for all.

Additionally, aiming for a significantly higher share of renewable capacity (64%) than our Intended Nationally Determined Contribution (INDC) target of 40% by 2030 might hinder economic goals by making electricity more costly, thus diminishing the competitiveness of industries and the economy. Frontloading renewable capacity addition could also mean missing out on future technological advancements and efficiencies that emerge over time, potentially saddling us with outdated technologies for an extended period.

Balancing decarbonization with economic growth is essential. To maintain this balance, the Central Electricity Authority (CEA) and policymakers need to reassess the allocation of electricity generation resources to ensure fair distribution across all sectors and avoid excessive focus on renewable capacity at the expense of economic growth. By taking a comprehensive approach, India can meet its INDC targets while promoting economic development and addressing energy poverty, moving towards a more developed nation status.

(edited: 26 May 2024 at 7:25am)