India’s ambitious proposal to transition to green hydrogen as a clean energy fuel is running into stern roadblocks. In its latest report, CRISIL Ratings had expressed the view that the consumption of green hydrogen would be postponed because it would be kept at bay by an established cost gap with grey hydrogen made from fossil fuels. The cost gap exposes green hydrogen ventures to financial risk and may hold back the nation in its aim for renewable energy goals.
Understanding the Price Gap
Green hydrogen production entails the use of renewable energy sources to dissociate water molecules through electrolysis, which is also costlier than the production of grey hydrogen. CRISIL Ratings notes that the current price difference between green and grey hydrogen is approximately $2.0 to $2.5 per kilogram. While this gap is expected to narrow to $1.0 to $1.5 per kilogram over the next three fiscal years, it remains substantial enough to deter investment and delay the implementation of green hydrogen projects.
Cost Components and Challenges
The high cost of green hydrogen production is attributed to two main components:
- Renewable Energy Infrastructure: Approximately two-thirds of the cost is associated with setting up round-the-clock renewable energy plants equipped with storage capabilities.
- Electrolysers: The remaining one-third of the cost comes from the electrolysers used in the production process.
To achieve cost parity with grey hydrogen, CRISIL estimates that there needs to be a 40-50% reduction in the capital costs of both renewable energy plants and electrolysers. However, such a significant decrease is unlikely in the short term, given the current technological and economic constraints.
Technological and Market Dynamics
While there have been advancements in reducing battery prices and some government incentives for renewable projects, these measures have only marginally impacted the overall cost of green hydrogen production. Electrolyser costs have decreased by 42% between 2010 and 2020, but the rate of decline has slowed, with only a 20% reduction observed from 2021 to 2024. As of March 2024, electrolyser costs still exceed $1,000 per kilowatt, and efficiency levels have plateaued at 60-65%.
Ankit Hakhu, Director at CRISIL Ratings, anticipates a 30-35% reduction in electrolyser costs and a 5-10 percentage point improvement in efficiency by 2030. However, even with these developments, the price gap between green and grey hydrogen will likely persist, and this can be a barrier to mass adoption.
Implications for India’s Energy Transition
The sluggish uptake of green hydrogen has far-reaching consequences for India’s energy transition plans. India aspires to be a world green hydrogen producer and exporter, tapping into its gigantic renewable energy resources. Yet, the economic viability of green hydrogen projects is uncertain with the continuance of cost imbalances.
In response to these concerns, India might possibly introduce further policy interventions like subsidies, tax credits, and research and development incentives to help speed up cost savings and make investments in green hydrogen infrastructure.
