May 20, 2022

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How India can build a hydrogen fuel economy

4 min read

In his Independence Day speech, the Prime Minister announced five key initiatives, the first being Mission Hydrogen. He outlined a vision of becoming a global leader and enabling a substantial domestic hydrogen economy. Hydrogen has the promise of transforming India from an energy-deficient to an energy-rich country. It can even make India a net exporter of energy. Hydrogen is considered one of the most sustainable fuels of the future. When you burn it, you get water vapour, with no residue or climate-harming impact. Its promise has been known for decades. But recent developments make it possible to go from hype to hope. This has to do with a confluence of factors like declining costs, breakthroughs in technology and carbon taxes, as happened for other renewables. The challenge has been to make “green hydrogen”, which was the thrust of the Prime Minister’s proclamation. For it, a lot of energy for the electrolysis of water is needed. Unless this electricity is produced with a zero-carbon footprint (i.e. with solar or wind), it defeats the key aspect of ‘green’ hydrogen. All other modes that do not use electrolysis to break a molecule of water are methods where hydrogen is produced as a by-product, or through a carbon-burning process. Thankfully, India is blessed with all-year sunshine. Solar-to-hydrogen also solves an intermittence problem, as hydrogen substitutes the need for battery storage. The current global production of hydrogen of about 80 million metric tonnes, and is almost wholly produced through fossil fuels. It uses 6% of global natural gas and 2% of coal, and contributes a whopping 830 million tonnes of carbon dioxide. Thus, this route to hydrogen is a non-starter. Things are changing as a major energy transition takes place worldwide toward renewables. This will be aided by emerging high carbon taxes, of which a major ‘adjustment import tax’ has already been announced by the European Union (EU). In the coming years, there may very well be an inflexion phenomenon that will catapult hydrogen from fringe to mainstream status. It is not as if such dramatic transformations have not been witnessed in India. As India’s pre-eminent scientist Raghunath Mashelkar points out, the roll-out of Jan Dhan Yojana no-frills bank accounts reached 400 million in just a few years. In data usage, India has leapfrogged from the bottom to top global ranking in a short time. In LED usage, India’s market grew by 130 times in five years, from annual sales of 5 million LED bulbs in 2014 to 670 million in 2018. The exponential scale effect in these examples has had a significant influence on bringing down unit costs. For instance, the price of an LED bulb dropped by nearly 85% in five years. India’s dramatic drop in data prices is also well known. So a similar snowball phenomenon in hydrogen is possible. The main route seems to be through electrolyzers (although there are several competing technologies). As per a McKinsey report, in the past two years, 70 gigawatts of electrolyzer capacity projects have been announced. This represents a 20-fold rise. This kind of momentum and scale would mean that capital costs per kilowatt for electrolyzers could drop by 65%. The drop in capital expenditure for hydrogen-based fuel cells could be even more dramatic. The cost of producing green hydrogen could drop below $2 per kg in 10 years, if accompanied by scale, both in production and consumption. Reliance Industries Ltd has recently announced plans to build large-scale, low-cost and high-efficiency electrolyzers as part of its $10 billion renewables push.

Investment dollars are flowing into hydrogen all over the world. It is expected to play a key role in decarbonization efforts, and has application in a variety of industries such as transportation, including trucks, buses, cars and rail, as feedstock for fertilizers, chemicals and refineries, in decarbonizing buildings and decarbonizing high-heat industries such as steel-making. Hydrogen fuel cells will be a crucial complement to batteries in this decarbonization journey. For a country like India, which spends $160 billion importing fossil fuel products such as crude oil, liquified natural gas, coal and fertilizer, hydrogen has the potential to significantly reduce import dependence. For instance, using green hydrogen to produce ammonia, which is feedstock for urea, eliminates the need for natural gas. Similarly, blending hydrogen with natural gas in city gas pipelines reduces the import of natural gas. Of course, if there are major new discoveries of gas basins, the economics of it can tilt, but costs will keep going down. The global push for hydrogen is snowballing. Thirty-one countries have already announced strategies. Many in the EU have scaled up investments in electrolyzers, as also China. More than 75 countries have a net-zero carbon ambition for which hydrogen is indispensable. Hence, it is possible that 22% of the global energy need by 2050 could be hydrogen-based.

However, the realization of this vision for India requires several things. First, an enabling policy framework; second, a nudge to increase demand; third, infrastructure development, such as of pipeline networks and last-mile connectivity. This can be accelerated through proven business models like Master Limited Partnerships, which are common in the West and allow private capital to participate in the scaling-up effort. Building a hydrogen economy and freeing India of foreign dependence for energy and fertilizer feedstock would be the ultimate symbol of Atmanirbhar Bharat.

Ajit Ranade is chief economist at Aditya Birla Group.

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