Green hydrogen has become a critical tool as nations and corporations race to decarbonise and meet their global commitments. In India, the government is taking bold steps to make this fuel cost-competitive. As the nation strives to achieve the goal of producing 5 million tonne of the fuel per year by 2030, the key challenge is in reducing production costs. The recent steps taken by the government are testimony to the importance of cost cutting in achieving this ambitious target, and positioning India as a global leader in clean hydrogen exports.
The fuel, produced through the electrolysis of water using renewable energy, is significantly cleaner than grey hydrogen, which is derived from natural gas through carbon-intensive processes. However, the cost disparity is staggering. Currently, producing clean hydrogen in India costs between $4 and $5 per kg, roughly twice the price of grey hydrogen. This price gap is a significant barrier to adoption, especially in industries like steel manufacturing and refining, where cost competitiveness is crucial.
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Reducing the production cost of the fuel is essential to accelerating its use in hard-to-abate sectors. To meet the cost-parity goal, production costs need to drop to $2 per kg or less, says a joint report by the World Economic Forum and Bain & Company. Achieving this will require a complex approach, addressing the costs associated with renewable electricity, electrolysers, and infrastructure.
Government’s green hydrogen initiatives
The Union government has recognised the need for bold interventions to make clean hydrogen affordable. One of the most significant steps is the exemption granted in May 2024 by the ministry of new and renewable energy (MNRE) to export-oriented green hydrogen projects from its Approved List of Models and Manufacturers (ALMM). This move allows green hydrogen producers to source cheaper imported solar modules, significantly reducing the cost of renewable energy needed to power electrolysers. Domestic solar modules in India are currently priced at nearly twice the cost of imported modules, making this exemption a crucial step in lowering the overall production costs.
Green hydrogen projects in special economic zones or export-oriented units are set to benefit from this exemption until 2030. This regulatory flexibility is expected to boost the global competitiveness of India’s green hydrogen industry, particularly as demand surges from international markets.
Renewable energy costs and electrolyser technology
One of the most significant cost components of green hydrogen is renewable electricity, which accounts for 50-70% of the total production cost. The government’s strategic focus on scaling up renewable energy capacity is crucial to reducing these costs. By 2030, India looks to install 500 GW of renewable energy capacity, up from the current 84 GW of solar capacity. Expanding this capacity will ensure the availability of low-cost, round-the-clock renewable energy for green hydrogen production.
Reducing the cost of electrolysers — devices that split water into hydrogen and oxygen using electricity — is also key to producing affordable green hydrogen. Currently, India offers a subsidy of $54 per kW for electrolyser manufacturing under the National Green Hydrogen Mission. However, experts argue that this subsidy is insufficient to meet the target of 5 MMT of green hydrogen production by 2030. The World Economic Forum report recommends significantly increasing this subsidy to encourage early adopters and reduce reliance on imported electrolysers. Developing indigenous electrolyser technology could further reduce costs and create a robust supply chain for green hydrogen production.
Infrastructure and transportation challenges
While green hydrogen holds immense potential for decarbonising industries, its transportation and storage pose significant challenges. Hydrogen, being a light element, is difficult to transport efficiently. As a result, it is often converted into green ammonia for easier shipping. However, this adds to the cost and complexity of the supply chain.
The government is exploring more cost-effective solutions to address these challenges. The Central Electricity Authority, in collaboration with state-owned companies like GAIL and NTPC, is conducting feasibility studies on establishing a dedicated pipeline network to transport green hydrogen from production hubs to ports. Initial studies have shown that pipelines could be a cheaper alternative to building extensive transmission lines for renewable electricity, particularly for transporting green hydrogen from Rajasthan’s renewable energy zones to ports like Paradip.
By investing in a national pipeline network and creating green hydrogen production clusters, where hydrogen can be produced and used locally, India could significantly reduce transportation and storage costs. These efforts are aligned with international best practices, such as Europe’s Hydrogen Backbone project, which uses existing gas networks to transport hydrogen across borders.
Strategic push for exports
India’s focus on lowering green hydrogen costs is not just about meeting domestic demand. There is a growing recognition that India could become a major player in the global green hydrogen market. As countries around the world accelerate their efforts to decarbonise, demand for green hydrogen and its derivatives, such as ammonia and methanol, is expected to skyrocket. By positioning itself as a low-cost producer, India can tap into these global markets and boost its export potential.
Already, the MNRE has announced green hydrogen projects totalling 7.5 MMT, surpassing the government’s 5 MMT production target. However, most industry players remain in a ‘wait-and-watch’ phase, with large-scale production expected to take off after 2027. To maintain momentum, India will need to continue providing incentives, supporting pilot projects in key sectors like steel and mobility, and developing international trade standards for green hydrogen.
Reducing the cost of green hydrogen production in India is critical for meeting both domestic and international demand, decarbonising hard-to-abate sectors, and positioning India as a global leader in green hydrogen exports. The government’s recent measures—ranging from regulatory exemptions and infrastructure investments to subsidies for electrolysers—reflect a clear commitment to making green hydrogen affordable and scalable.
However, to achieve cost parity with grey hydrogen, continued efforts are needed to reduce renewable energy costs, advance electrolyser technology, and build a robust transportation network. With the right policies and investments, India can not only meet its green hydrogen production targets but also help drive the global energy transition.