Strategy for Downstream Use of Green Hydrogen

Learning from India’s successful Solar Mission’s strategy of reducing risks to attract private capital for investment in solar power projects through a long term supply contract through the PPA, the TERI Paper suggests applying this approach to the production of green hydrogen and its use to get downstream zero-carbon green products and services.

January 16, 2025. By News Bureau

Tags:

articles

TERI

Green hydrogen

The Energy and Resources Institute

Green Hydrogen is the only means to achieving net zero in hard-to-abate sectors. Creation of net zero downstream globally competitive production capacities through the National Hydrogen Mission is essential for India’s difficult journey to net zero. Our The Energy and Resources Institute (TERI) Paper suggests a strategy for achieving this. Creating a competitive industry structure is desirable. The development of sector specific pilot projects is the first and most critical milestone.

Learning from India’s successful Solar Mission’s strategy of reducing risks to attract private capital for investment in solar power projects through a long term supply contract through the Power Purchase Agreement (PPA), our paper suggests applying this approach to the production of green hydrogen and its use to get downstream zero-carbon green products and services. This is best done through two long-term procurement contracts, one for green hydrogen and the other for the downstream green product from the same date the two new plants are commissioned by the successful L1 bidders. This eliminates market risk as sale of the entire production from the new plants are assured before the investment and at a remunerative price. Adoption of competitive bidding for procurement of green hydrogen creates a competitive market for the production of green hydrogen. The supply of this green hydrogen for downstream use reduces the production risk of the downstream plant and should result in a lower price.

The creation of one Special Purpose Vehicle (SPV) under the Ministry of New and Renewable Energy (MNRE) for procurement and supply of green hydrogen for different downstream pilot projects is suggested. The quantum to be procured and the time of commencing supply should be derived from the demand of a particular downstream use. A series of bids and procurement without providing any subsidy has been proposed. In addition to bids for green hydrogen produced through electrolysis, distinct bids for green hydrogen from biowaste is also suggested. Biowaste is a renewable source of energy and deployment of the technology of making green hydrogen from this in a commercial scale plant would be desirable. Creating sector specific SPVs by the concerned Ministries for getting the first pilot projects developed would lead to speedier outcomes. The approach would need to be sector specific.

The building of a one million tons per annum green steel pilot plant, which would be among the first in the world, is proposed. Given the risks, the government should be willing to provide full funding if need be. A government decision to buy the entire output for use in its own projects at a cost-plus basis would completely de-risk the investment. The plant would be built and run by a SPV involving major Indian steel companies with some modest equity contribution. The private firms would have experienced ‘learning by doing’ and would thereafter have the capacity to build green steel plants on their own. There would be no subsidy requirement.

A pilot plant to produce green urea is recommended. The SPV would undertake to supply green hydrogen and carbon dioxide, captured from cement production for production of green urea. The cost of converting these inputs into green urea would be the bid parameter for the tender for setting up this plant. The fertiliser produced from the plant would be sold to farmers at the same price as urea from other plants and the government would pay a higher subsidy for this urea as its cost would be higher. The learning would come from the first carbon capture and use process installation in a cement plant and then the first use of green hydrogen and captured carbon for urea production.

Pilot projects for the use of hydrogen heavy duty trucks may be implemented on a few busy routes. The SPV for this would need to take a different approach. It would need to competitively procure green hydrogen trucks and then lease these to operators at reduced rates. Hydrogen filling stations would have to be created to supply subsidised green hydrogen. This is suitable for procuring green hydrogen from biowaste. The project should be of the minimum size to get a competitive response from the market for supply of hydrogen trucks, supply of green hydrogen and setting up of filling stations. The subsidy in the leasing price of the truck and the supply of hydrogen should be so large that the truck operator sees a higher margin than from his diesel truck operation for him to take the risk of trying something new.

Setting up of the pilot zero-carbon plants should give us globally competitive capacities and discovery of the actual higher cost of a zero-carbon product. Then a rational discussion on choosing inter-sectoral priorities and the trajectory of scaling up would be feasible. Market participants can also then choose the extent to which they would like to buy green products for potential export markets and only then would the market create a supply to meet demand.

- Ajay Shankar, Distinguished Fellow; Meenu Saini, Associate Fellow, TERI