Green Hydrogen: Gaining Traction for India's Energy Transition Amid Challenges

India’s push for green hydrogen (GH2) as a cornerstone of its decarbonisation strategy faces critical cost and infrastructure challenges, according to a report by CareEdge Ratings.

The report says that while the declining cost of renewable energy and national climate goals are set to drive momentum, achieving cost parity with traditional hydrogen alternatives remains a significant barrier to widespread adoption.

Currently, the levelized cost of green hydrogen (LCOH) is approximately 1.75 times higher than grey hydrogen (produced using natural gas) and 1.50 times higher than brown hydrogen (derived from coal gasification). This disparity underlines the need for urgent cost reductions in the production process. CareEdge emphasises that achieving economic viability will require a 35-40 percent drop in electrolyser prices, a 12-14 percent improvement in efficiency, and continued government policy support.

Refineries and ammonia production are expected to lead the early adoption of green hydrogen. Refineries alone could generate a demand of 2.70 to 3.00 million metric tonnes (MMT) of GH2 between FY27 and FY30. Similarly, ammonia production, especially green ammonia, could see demand reach 3.75 to 4.25 MMT over the same period. Approximately one-third of this demand could emerge from the non-urea sector.

The export potential for green ammonia is another significant opportunity, bolstered by India’s competitive renewable energy costs. However, challenges related to the storage and transportation of green hydrogen and its derivatives remain critical obstacles to realising this potential.

CareEdge notes that developing a one million metric tonne green hydrogen plant would require a capital expenditure of approximately INR 2.4 lakh crore. With limited scope for further reductions in renewable energy infrastructure costs, achieving cost parity will largely depend on technological advancements in electrolyser manufacturing and economies of scale.

Maulesh Desai, Director at CareEdge Ratings, highlights that reducing the cost of electrolyser stack materials and improving the manufacturing ecosystem will be pivotal. “Cost parity of green hydrogen (GH2) with alternatives is essential for its wide-scale adoption. A higher capex outlay of around INR 2.4 lakh crore for one million metric tonnes of GH2 plant is also one major constraint. Given the limited headroom for reduction in renewable energy capex cost, lowering of electrolyser costs by 35-40 percent, improvement in efficiency by 12-14 percent, and continued policy support are critical for achieving cost viability of GH2 to around USD 2.1 per kg. Technological advancement in the electrolyser manufacturing ecosystem, cost reduction in stack material, and economies of scale shall be key drivers for cost reduction of electrolysers in the future,” says Maulesh Desai, Director, CareEdge Ratings.

From a demand perspective, the absence of long-term offtake arrangements for GH2 poses challenges for developers and financial backers. Incentivising downstream users, such as refineries and the ammonia sector, to migrate from conventional alternatives will be vital.

Hardik Shah, another Director at CareEdge Ratings, remarked on the role of policy in shaping demand, as he adds, “From the demand perspective, the absence of a long-term offtake arrangement of GH2 would be the key issue for developers and lenders. Hence, incentivising downstream users of GH2 over the use of other alternatives would be critical for gradual migration towards GH2. Refineries can be one of the early users of GH2 and can lead to a potential demand of 2.70-3.00 million metric tonnes (MMT) of GH2 over FY27-FY30. Ammonia can also be a probable early adopter for GH2, subject to the price parity of green ammonia with ammonia produced from natural gas. Adoption of green ammonia can lead to a potential demand of 3.75-4.25 MMT of GH2 over FY27-FY30, of which 1/3 of the demand may be from the non-urea sector. Besides, green ammonia also holds significant export potential due to competitive renewable energy costs in India if the issue with respect to its storage and transportation is adequately managed."

The report highlights the need for a concerted effort involving technological innovation, policy interventions, and financial support to scale green hydrogen and meet India’s ambitious energy transition targets.