Green hydrogen is produced by the electrolysis of water using renewable or green electricity. In our analysis, we link green hydrogen production costs with the cost and availability of renewable energy (RE) generation, which is measured by its capacity utilisation factors (CUFs). We also calculate the premium, if any, of using green hydrogen compared to energy-basis equivalent costs of fossil fuels for a range of applications.
Green hydrogen is an emerging technology globally, and India plans to increase its domestic production from a few kilo-tonnes at present to five million tonnes per annum (Mtpa) by 2030. Currently, India produces about six Mtpa of hydrogen from fossil fuels (mostly by steam reforming of natural gas, i.e., grey hydrogen), which is used primarily for fertiliser production and oil refining. While the cost of green hydrogen is expected to decline in the coming years from its current range of four to six $/kg, it is unlikely to reach the oft-stated target of one $/kg by 2030 in India.
Based on forward-looking assumptions about electrolyser efficiency, we estimate that the input cost of RE for green hydrogen production alone would be at least 1.4 $/kg in 2030 (even after factoring in rupee depreciation), which would be about two-thirds of the total production cost.
Other costs include electrolyser capital expenditure (capex) and operation and maintenance (O&M) costs, including those of pure water supply. Incentives, such as a waiver of inter-state RE transmission charges and capital subsidies of up to 0.55 $/kg for green hydrogen production, under the National Green Hydrogen Mission of the Government of India, could potentially help bring the total costs under two $/kg.