Synopsis
- India’s decarbonisation objectives and reduced prices for renewable energy will propel the growth of green hydrogen (GH2) in the country.
- One major obstacle to the adoption of green hydrogen (LCOH) is its current levelized cost, which is approximately 1.75 times and 1.50 times more than that of brown and grey hydrogen, respectively.
- In addition to supporting legislation, a 35%–40% decrease in electrolyser prices and a 12%–14% increase in efficiency are necessary for Green Hydrogen to be economically viable.
- Green hydrogen is anticipated to be adopted early by refineries for ammonia manufacturing, with the possibility of exporting green ammonia. However, for green hydrogen and its derivatives to be widely adopted, efficient storage and transportation options would be necessary.
Green hydrogen’s cost dynamics in comparison to alternatives
Unlike brown hydrogen, which is made from coal, and grey hydrogen, which is made from natural gas, green hydrogen is created by electrolysing water, a process that uses renewable energy. used to remove CO2 emissions by splitting water into hydrogen and oxygen.
Green hydrogen has the potential to be extremely important in helping India meet its decarbonisation goals and lessen its reliance on fossil fuels. However, GH2’s anticipated levelized cost, which accounts for both capital and operating expenses, is now around 1.75 times that of of Grey Hydrogen and ~1.50 times that of Brown Hydrogen. This disparity persists despite the waiver of interstate transmission charges (ISTS) for renewable power, and it remains a key barrier to the viability and widespread adoption of GH2.
Additionally, according to CareEdge Ratings, producing one million metric tonnes (MMT) of GH2 requires a substantial capital expenditure of Rs. 2.40 lakh crore. The two main cost components, capital expenditures for electrolyser and renewable energy generation, are anticipated to account for 48% and 34% of the project’s total cost, respectively.
The cost and efficiency of the electrolyser as well as the renewable energy tariff have a significant impact on the economic feasibility of green hydrogen LCOH. CareEdge Ratings has presented a number of LCOH scenarios depending on the electrolysers’ efficiency, capital expenditure (capex), and
how much renewable energy costs. As seen below, the horizontal axis of the table represents the capital cost for electrolysers, while the vertical axis indicates renewable energy tariffs.
The chart suggests that LCOH is sensitive to improvements in electrolyser efficiency in addition to being impacted by decreases in electrolyser capital expenditure and renewable energy prices. As of CY23, the expected price of LCOH was USD 3.74 per kilogramme, taking into account the waiver of interstate transmission fees. Going forward, CareEgde Ratings believes that lowering the cost of the electrolyser and increasing its efficiency are necessary to reach the desired levelized cost of USD 2.1/kg. In order to assist reach the desired LCOH, the Government of India (GoI) has also introduced PLI incentives, such as an incentive on electrolyser capital of $54/Kw and a direct production incentive of up to $0.50/kg of GH2 output for the first two years.
Although a large capex cost reduction for renewable energy is improbable, according to CareEdge Ratings, there is sufficient headroom for an electrolyser cost decrease. The key will be economies of scale, improvements in manufacturing automation, using less expensive materials in the stack, and increasing stack sizes. factors influencing future electrolyser cost reductions.