Why hydrogen policy needs to slash cost, create demand

The first part of the National Hydrogen Mission policy on green hydrogen and green ammonia, notified by the Ministry of Power on February 17, requires more clarity and strong policy incentives to kickstart a green hydrogen revolution in the country, feel experts. They cite the announced policy framework lacks the right fillip to bring down costs, measures to create demand and improve implementation measures.

The policy targets production of 5 million tonnes of green hydrogen by 2030 and the related development of renewable energy capacity. Some of the measures announced in the policy to bring down costs and improve ease of implementation of green hydrogen and green ammonia projects are waiver of inter-state transmission systems (ISTS) charges for 25 years, open access to transmission within 30 days, priority access, banking of unconsumed renewable power with discoms for one month, single portal clearances etc. Experts say the measures will help improve the ease and bring down the cost of transfer of electrons from RE rich states to demand centers for production of green hydrogen and green ammonia. The move towards single portal clearances with time bound addressal as well as allotment of land in RE parks for production of green hydrogen and green ammonia are also welcome steps.

However, the policy needs to address a few key areas - clarity on demand creation measures such as hydrogen purchase obligations and bringing down cost of production, cite experts. There is no clarity as yet on measures to facilitate localisation of electrolyzer manufacturing and there is no mention of derivatives of green hydrogen other than green ammonia, such as methanol. Refineries and fertiliser units were expected to have minimum production obligation, but there was no announcement on this in the policy. However, the related ministries are working on it and require cabinet approval. Power Minister RK Singh has said that this is the first phase of policy rollout and more announcements will follow, say sources.

Though discom-based supply is spoken about, the entire emphasis is on open access, they cite. Transmission charges waiver till 2025 is open ended in terms of capacity, notes Anish De, national head – Energy, Natural Resources and Chemicals of KPMG in India. "It can be a double edged sword, if a lot of capacity comes in it will be policy success but at the cost of other transmission users and ratepayers. There is already a lot of noise on high transmission charges."

He also notes that though the policy talks of inter-state transmission, the role of state regulators is not clear. Now states are not obliged by law to comply on charges or even renewable power obligation (RPO) mandates. Similarly, cross subsidy surcharge implications need to be understood especially for third party developers. The policy talks of own or third party development in the same breath, but the law sees it differently, cites the expert.

Another area where more clarity is required is banking of green power for 30 days. The experts say the ISTS is a flow mechanism and banking is not a natural phenomenon for ISTS connected facilities. For discom connected facilities, the computation formula needs to be understood mathematically for implications. At the minimum, it has to be dynamic in nature depending on exchange prices from month to month, say experts. "Implementation of banking provisions will also require consent from the State utilities, where we may see some resistance by State Regulatory Commissions", says Anvesha Thakker, partner and lead, Renewable Energy, KPMG in India.