Date: 30/03/2023

Relevance: GS-3: Climate Change, Green Energy, Hydrogen Mission.

Key Phrases: National Green Hydrogen Mission, Green Energy, Greenhouse Gas, Climate Change, Fossil Fuel, Renewable Energy.

Context:

• India has set its sight on becoming energy independent by 2047 and achieving Net Zero by 2070.
  • To achieve this target, increasing renewable energy use across all economic spheres is central to India's Energy Transition.
  • Green Hydrogen is considered a promising alternative for enabling this transition.
    • Hydrogen can be utilized for long-duration storage of renewable energy, replacement of fossil fuels in industry, clean transportation, and potentially also for decentralized power generation, aviation, and marine transport.
  • Therefore, the National Green Hydrogen Mission was launched with great ambitions last year.

Green Hydrogen Mission:

• Green hydrogen is a potential substitute for fossil fuels and can be used for transport (cars, trucks, trains, ships and aircraft), for production of ammonia, fertilizers, chemicals and steel, and for generating electricity.
• The National Green Hydrogen Mission was approved last year, with the intended objectives of:
  • Making India a leading producer and supplier of Green Hydrogen in the world
  • Creation of export opportunities for Green Hydrogen and its derivatives
  • Reduction in dependence on imported fossil fuels and feedstock
  • Development of indigenous manufacturing capabilities
  • Attracting investment and business opportunities for the industry
  • Creating opportunities for employment and economic development
  • Supporting R&D projects
• The mission outcomes projected by 2030 are:
  • Development of 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 in the country
  • Over Rs. Eight lakh crore in total investments
  • Creation of over Six lakh jobs
  • Cumulative reduction in fossil fuel imports over Rs. One lakh crore
  • Abatement of nearly 50 MMT of annual greenhouse gas emissions

Challenges in Green Hydrogen:

• Cost :
  • The cost of green hydrogen is considerably higher than that of the fossil fuel it can replace.
• Different stages of development :
  • Downstream uses are at different stages of development in the world.
• Creation of Demand :
  • Governments in the advanced industrial economies are putting in money for the development of a green hydrogen economy which can make the transition to net zero feasible.
    • At the same time this would also help their firms gain competitive advantage.
    • India has joined the advanced economies in attempting this.
  • As the production of green hydrogen begins, ensuring that demand for downstream uses is created to match production would be essential.
  • In comparison to designing a Production Linked Incentive Scheme for a mature product in an existing market, the task here is more complicated as domestic demand for green hydrogen must be created.

Competitive procurement as a solution:

• Going for competitive procurement can be a possible solution.
• It creates a competitive industry structure so that movement down the cost curve is accelerated through successive bids enabling India to also get the full benefit of the global decline in prices that is likely.
  • For example, this approach gave us exceptionally good results in the National Solar Mission when the price of solar power was initially about four times the price of thermal power and has now become clearly much cheaper.
• For the Hydrogen Mission, the minimum size of plants for least cost production would need to be determined for the production of green hydrogen and its downstream uses at the outset.
  • To illustrate, the minimum size of a new fertilizer plant, a green ammonia manufacturing unit, and a green hydrogen producing plant may be determined.
  • Then working backwards from the fertilizer plant, supply and demand of green ammonia and green hydrogen would have to be matched for the supply chain.
• Competitive bids may be invited to get the least cost of production of green hydrogen.
  • With this green hydrogen cost, the price of green ammonia may be competitively determined.
  • This input price would then become the basis for inviting bids for production of green fertilizer.
• Subsidy from the Budget for each tonne of green fertilizer produced may then be given to bridge the gap between the market determined price of green fertilizer and the price fixed by the government for sale to farmers.
  • This subsidy would naturally be far higher than the subsidy being given per tonne for normal fertilizer production.
  • However, no subsidy would be needed for the intermediate stages.
• Similarly, the government could enter into a long-term procurement contract for the entire production of a green steel plant.
  • As this would be one of the first green steel plants in the world, our major steel producers should be persuaded to form a consortium and set up the plant so that they all learn the new technology.
  • The purchase price would then have to be on a cost plus basis.
  • This more expensive steel may be used by the government in all its own construction projects as well as by its agencies.
  • The impact on the final cost per square meter would be marginal and could be easily absorbed by the budgets of the construction projects.
    • No direct subsidy would be needed.
• For shipping, the supply chain up to green ammonia would be the same as for fertilizer production.
  • Competitive procurement of green shipping services from a reasonable future date could be done through a long-term contract indicating the price at which green ammonia would be supplied.
  • This would completely de-risk the investment in building a cargo ship that would use green ammonia.
  • The higher cost of the shipping service can easily be absorbed by the Indian user as freight costs are a fairly small portion of his total cost.
    • In this case again, subsidy would not be needed.

Need of Hour:

• The Government and Multilateral Development Banks (MDBs), and Domestic Development Banks (DDBs) can support the green energy sector through a credit enhancement mechanism.
• For the market-based competitive chemical, pharma and other industries, use of green hydrogen could be promoted by making its cost comparable to the fuel it would substitute and this could be done by a combination of a lower GST rate, and/or a direct subsidy per kg of green hydrogen used.
  • This would also need to be done for the use of green ammonia for electricity generation for meeting seasonal spikes in electricity demand.
    • However, storage and transport of hydrogen have high costs.
• Provision of public money for technology development as well as cost reduction would be essential if India is to reach the technology frontier, not just as a user but also as an innovator.
  • The potential for this is high due to the abundance of young talent.
• Financing the private sector in partnerships with our research institutions to work to develop scalable outcomes would be the challenge needing leadership.
• Public institutions can nudge the private players by innovative financing models and policies to fund the much-needed green energy sector.

Conclusion:

• Given the advantages it offers, the incentives that the government is providing to the development of green energy infrastructure and the growing demand by environment-conscious consumers, the future for the green energy sector seems very bright.

Source: The Hindu BL

Mains Question:

Q. What is the Green Hydrogen Mission? What are the associated challenges and possible solutions? (250 Words).