ARTICLE
6 October 2023

Indian Regulatory Landscape - Green Hydrogen

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Phoenix Legal

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Focus, in India, towards Green Hydrogen started with the budget of 2021 and later that year on our Independence Day, the Prime Minister of our country launched the National Hydrogen...
India Energy and Natural Resources

Focus, in India, towards Green Hydrogen started with the budget of 2021 and later that year on our Independence Day, the Prime Minister of our country launched the National Hydrogen Mission ("Mission"). The Mission was launched with an aim to meet India's climate targets and to make it the global hub for manufacturing of, and largest exporter of, green hydrogen. Subsequent to the launch of the Mission, the Government of India ("GoI") issued the Green Hydrogen Policy on February 17, 2022 ("Policy").

The Policy defined green hydrogen/green ammonia as hydrogen/ammonia produced by way of electrolysis of water using renewable energy; including renewable energy which has been banked and the hydrogen/ammonia produced from biomass.

Unfortunately, the Policy only provided generic/broad framework which was devoid of the details expected. Key features of the Policy were:

  1. waiver of inter-state transmission system ("ISTS") charges for a period of 25 years to the producers of green hydrogen and green ammonia for projects commissioned before June 30, 2025;
  2. banking of renewable energy to be permitted for 30 days for manufacture of green hydrogen and green ammonia;
  3. connectivity at the power generation end and manufacturing facility end, to be granted on priority basis;
  4. grant of open access to green hydrogen and green ammonia plants for the purposes of sourcing renewable energy within 15 days of receipt of an application;
  5. fast track grant of permits and clearances for green hydrogen projects; and
  6. renewable energy consumed for the production of green hydrogen and green ammonia would count towards the renewable purchase obligation ("RPO") of the consuming entity. And, the renewable energy consumed beyond the obligation of the producer would count towards the RPO of the discom in whose area the project is located.

As the Policy provided limited information, the GoI planned to issue a National Hydrogen Energy Mission which would provide for all details required for green hydrogen manufacturing and its demand creation.

Post much deliberations, we understand that, in January, 2023 finally the Ministry of New and Renewable Energy ("MNRE") notified the National Green Hydrogen Mission ("Green Hydrogen Mission"). The Green Hydrogen Mission document was a significant step towards India's decarbonization and net zero emission targets. It did touch upon each of the aspects required for starting and scaling up green hydrogen production.

The expected outcomes till 2030 as set out under the Green Hydrogen Mission are:

  • India would develop green hydrogen production capacity of at least 5 MMT (million metric tonne) per annum with an associated renewable energy capacity addition of about 125 GW;
  • investment of over INR 8 lakh crore;
  • creation of over 6 lakh jobs;
  • cumulative reduction in fossil fuel imports over INR 1 lakh crore; and
  • abatement of nearly 50 MMT of annual greenhouse gas emissions.

Considering the nascent status of this sector and the rapidly evolving profile of the country, the Green Hydrogen Mission is proposed to be implemented in a phased manner:

  • Phase I (from 2022-23 to 2025-26) – the focus would be on deployment of green hydrogen in sectors that are already using hydrogen, and evolving an ecosystem for research and development, regulations and pilot projects.
  • Phase II (from 2026-27 to 2029-30) – the second phase would be built on the foundational activities undertaken in Phase I and at the same time, pilot projects would be undertaken in other potential sectors such as shipping, aviation etc.

One of the concerns of stakeholders looking to invest in this sector is that, for such capital-intensive long gestation projects, policy commitments only for 5/7 years are being offered. Issuance of policy framework and incentives for the useful life of the project (15/25 years) may be an approach to consider.

Relevantly, to support cost reduction, the Green Hydrogen Mission is approved with an initial outlay of INR 19,744 crore including an outlay of INR 17,490 crore for the Strategic Interventions for Green Hydrogen Transition ("SIGHT") programme (a programme focused on addressing supply side constraints in green hydrogen production channels), INR 1,466 crore for pilot projects, INR 400 crore for R&D, and INR 388 crore towards other Green Hydrogen Mission components.

The MNRE is designated as the nodal agency for the overall coordination of the Green Hydrogen Mission. And, other ministries and departments would undertake focused steps to ensure achievement of the objectives of the Green Hydrogen Mission. The Mission Secretariat headquartered in MNRE would formulate schemes and programmes for financial incentives to support production, utilization and export of green hydrogen and its derivatives.

We now discuss some of the recent steps undertaken post the issuance of the Green Hydrogen Mission to promote the development of Green Hydrogen in the country.

I. SIGHT Programme

The MNRE on June 28, 2023 issued the following two scheme guidelines for implementation of SIGHT programme for the period from financial year 2025-26 to 2029-30:

  • Component I- Incentive scheme for electrolyzers manufacturing with an outlay of INR 4,440 crore ("Scheme 1"); and
  • Component II- Incentive scheme for green hydrogen production (under mode 1) with an outlay of INR 13,050 crore (for all modes) ("Scheme 2").

Solar Energy Corporation of India Limited ("SECI") is designated as the implementing agency for the implementation of both these schemes.

Component I: Incentive scheme for electrolyzers manufacturing

The main objectives of Scheme 1 are to (i) maximize the indigenous electrolyzer manufacturing capacity; (ii) achieving lower levelized cost of hydrogen production; (iii) ensuring globally competitive performance and quality of products; (iv) progressive enhancement of domestic value addition; and (v) supporting established and promising technologies.

In addition, key features of Scheme 1 are:

  1. support would be provided for electrolyzer manufacturing in terms of INR/kW corresponding to the manufacturing capacity;
  2. base incentive would start with INR 4440/kW in the first year and would gradually taper down on an annual basis;
  3. selection of bidder on competitive bidding. Relevantly, the bidder has to quote the following:
    • annual manufacturing capacity for which incentive is sought;
    • committed specific energy consumption (SEC) for the electrolyzer produced each year for the 5-year period; and
    • committed local value addition on an annual basis for 5 years.
  4. incentives would be calculated based on the sales volume, performance multiplier and domestic value addition. And, incentive payout is subject to the manufacturer ensuring that 50% sales are to Indian projects; and
  5. the incentives proposed under the said scheme would be provided for 5 years from the date of commencement of manufacturing of electrolyzers.

Pursuant to these Scheme 1 guidelines, SECI on July 7, 2023 issued a request for selection ("RfS") document for selection of electrolyzer manufacturers for setting up manufacturing capacities for electrolyzers in India under SIGHT scheme (Tranche-I). The bids are invited under two buckets:

  • electrolyzer manufacturing capacity based on any stack (1200 MW); and
  • electrolyzer manufacturing capacity based on indigenously developed stack technology (300 MW).

Component II: Incentive scheme for green hydrogen production (under mode 1)

The Scheme 2 identifies two modes for granting incentives for green hydrogen production; mode 1- where bidding would be conducted through a competitive process on the least incentive demanded for a period of 3 years; and mode 2 – where the implementing agency would aggregate demand and invite bids on competitive bid process for procurement of green hydrogen and its derivatives at the lowest cost.

While, the industry was waiting for the incentive scheme under mode-2; the Scheme 2 provides for only the framework for incentive to be granted for green hydrogen production under mode 1. 

The aim of Scheme 2 is (i) maximizing production of green hydrogen and its derivatives in India; (ii) enhancing cost-competitiveness of green hydrogen and its derivatives against fossil-based alternatives; and (iii) encouraging large scale utilization of green hydrogen and its derivatives.

Further, the Scheme 2 provide that a direct incentive in terms of INR/kg of green hydrogen production would be provided for a period of 3 years from the date of commencement of green hydrogen production. Such incentives are capped at INR 50/kg in the first year of production, INR 40/kg during the second year of production and INR 30/kg during the third year of production. And, grant of these incentives would be subject to green hydrogen production being in accordance with MNRE's National Green Hydrogen Standards.

Pursuant to the Scheme 2 guidelines, SECI on July 10, 2023 issued a RfS document for selection of green hydrogen producers for setting up production facilities for green hydrogen in India under SIGHT scheme (Mode-1-Tranche-I). The bids are invited under two buckets:

  • technology agnostic pathways (410,000 MT/annum of green hydrogen); and
  • biomass based pathways (40,000 MT/annum of green hydrogen).

Bidding requirements

Both the RfS documents released for Scheme 1 and Scheme 2 mainly provide for:

  • eligibility criteria;
  • maximum and minimum capacity for bidding;
  • bidding parameters;
  • bid evaluation/selection process;
  • incentive determination and disbursement of incentive mechanism;
  • timeline for commissioning and delay liquidated damages;
  • earnest money deposit/performance bank guarantee;
  • change in control restrictions;
  • construction plan and monitoring; and
  • commissioning process.

II. Green Hydrogen Standards in India

Recently, on August 18, 2023, MNRE issued the Green Hydrogen Standard for India.

The said standard defined green hydrogen as, Hydrogen produced using renewable energy, including, but not limited to, production through electrolysis or conversion of biomass. Renewable energy also includes electricity generated from renewable sources which is stored in an energy storage system or banked with the grid in accordance with applicable regulations. The scope of the definition encompasses both electrolysis-based and biomass-based hydrogen production methods.

Relevantly, these standards provide that the non-biogenic greenhouse gas emissions arising from:

  1. water treatment, electrolysis, gas purification and drying and compression of hydrogen; and
  2. biomass processing, heat/steam generation, conversion of biomass to hydrogen, gas purification and drying and compression of hydrogen,

shall not be greater than 2kg of carbon dioxide equivalent per kg of hydrogen, taken as an average over last 12-month period.

It appears these standards are for well-to-gate emissions (and cover scope 1 and scope 2 emissions, though not the scope 3 emissions). Importantly, the notification specifies that a detailed methodology for measurement, reporting, monitoring, on-site verification, and certification of green hydrogen and its derivatives would be specified by the MNRE. And, Bureau of Energy Efficiency would be the nodal authority for accreditation of agencies for the monitoring, verification and certification for green hydrogen production projects.

III. Draft R&D Roadmap on Green Hydrogen Ecosystem in India

The MNRE has issued a draft roadmap for the R&D of green hydrogen ecosystem in India on July 5, 2023 for stakeholder comments. The roadmap aims to address the challenges of cost of manufacturing technologies like electrolyzers and to ascertain performance levels of upcoming technologies promising lower cost and developing innovative solutions to overcome this.

IV. Energy Conservation Act Amendment

The Energy Conservation (Amendment) Act, 2022 amends the Energy Conservation Act, 2001 ("ECA") to incorporate therein means for efficient energy transition with a special focus on promoting the Green Hydrogen Mission.

Relevantly for green hydrogen, the amendment proposed is in Section 14 of the ECA and mainly empowers the Central Government to issue a notification, in consultation with the Bureau of Energy Efficiency, specifying minimum share of consumption of non-fossil sources by designated consumers as energy or feedstock. Further, it may specify different share of consumption for different types of non-fossil sources for different designated consumers.

V. ISTS Charges Waiver

The Ministry of Power ("MoP") had granted waiver of ISTS charges under the Policy and waived ISTS charges levied on the producer of green hydrogen and green ammonia for the projects commissioned by June 30, 2025. Thereafter, pursuant to an office memorandum dated May 29, 2023, MoP waived ISTS charges levied on renewable energy used for green hydrogen and its derivatives for units commissioned up to December 31, 2030. This waiver would be provided for a period of 25 years from the date of commissioning of such plants.

This initiative would, most likely, improve the economic viability of green hydrogen production.

VI. State Policies

Following the issuance of the Policy and the Green Hydrogen Mission, a number of states such as, Andhra Pradesh, Gujarat, Maharashtra, Goa, Kerela, Madhya Pradesh, Uttar Pradesh, Rajasthan and Odisha have either issued their green hydrogen policies or discussed means of promoting green hydrogen production in their respective renewable energy policies or budgets.

The framework of most state polices broadly contemplate the following incentives:

  • land allocation for the green hydrogen facility at pre-defined rates/concessional rates from circle rates;
  • exemptions/waivers for land conversion charges and stamp duty payable on the land purchased for setting up green hydrogen facility;
  • states goods and services tax (SGST) reimbursements;
  • electricity duty exemptions/concessions;
  • concessional transmission/wheeling charges;
  • CSS reimbursement;
  • grid connectivity on priority; and
  • RPO compliance.

Issues and Suggestions

To conclude, we set out below some of the main issues faced by this sector and related suggestions which may help with the growth of green hydrogen development in the country:

  1. Demand creation – while it has been talked about for a long time, no mandates for procurement of green hydrogen have been issued by the GoI. Until such push is provided, scaling the green hydrogen production and use would remain debatable.

Akin to RPO/RGO1 concept, the GoI, in order to create bulk demand and scale up the production of green hydrogen, may specify a minimum share of consumption of green hydrogen or its derivative products such as green ammonia, green methanol etc. by designated consumers as energy or feedstock.

  1. Cost of hydrogen – majority of the cost for production of green hydrogen comprises of the cost of electrolyzers and renewable energy. Bringing down the cost of these two components would be critical to ensure reduction of green hydrogen price and to make its use commercially viable.

In this regard, the GoI has issued certain incentive schemes (Scheme 1 and Scheme 2 discussed above), waiver of ISTS and intra-state transmission system charges, and concessions in open access charges. The implementation of these schemes and incentives would play an important role in cost reduction for manufacturing green hydrogen.

  1. Water availability – we understand that production of green hydrogen requires substantial amount of water (about 9 litres of water for 1 kg of production of hydrogen).

For this, the Green Hydrogen Mission envisages the optimization of water requirements by using industrial or municipal wastewater. For this, developers may be asked to set up desalination plants as part of the green hydrogen project to treat waste water and then use such water for electrolysis.

  1. Land allocation – acquiring land for project development has been a bane of infrastructure sector for decades in the country. As a positive step, most states have issued policies to support grant of land for the green hydrogen projects. However, timely implementation of these policies would be imperative for the growth of this sector.

Additionally, the GoI's support is required to come up with policies for the manner of storage and transportation of green hydrogen which are technologically feasible and cost competitive. It would be useful to consider if the existing natural gas pipelines can be used for transportation of green hydrogen with some modifications or new pipelines network needs to be developed or would using cryogenic tankers would be a better option. Once this broad policy framework is developed then, the regulations for the same should be issued (either as amendments of existing acts, regulations or new regulations or policies). 

  1. Financing/Bankability of projects – currently, green hydrogen production projects are not bankable and it would be important to address this to move forward.

Two main things that the lenders/investors considering funding these projects would usually like to see are: (i) policy certainty and government support; and (ii) committed offtake.

Bankable offtake contracts for projects of such a nature are long term contracts and typically would inter alia provide for:

  • offtake commitments (take or pay contracts);
  • specifications;
  • pricing (price review clauses);
  • risk allocation issues (delivery start date, commissioning date, consequent liquidated damages (both delay and performance), termination rights);
  • back-to-back/interface issues with other project contracts (power purchase agreements/water procurement); and
  • permitting collateral assignment.

The growth of green hydrogen is intrinsically depended on the GoI working along with all the other stakeholders to address these issues being faced by this sector (based on these suggestions and/or other ways). If we can address these issues, then Green Hydrogen in addition to assisting with our clean energy targets and numerous other benefits, may be an important tool in India's scheme to achieve energy security in the long run.

Footnote

1. Renewable generation obligations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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