Hydrogen at Scale: Economic & Policy (H2 Hubs, Fundings & Policy)

Without a steady pipeline of H2 projects that have achieved FID, India's ambition to build a green H2 economy and market will remain unfulfilled. There are five key challenges a) Lack of aggregated H2 demand and demand-side incentives for industrial offtakers b) Lack of a forward H2 market, pricing mechanism and exchange to signal and match indicative future demand and supplies c) Lack of Contracts-For-Difference (CfD) incentives to encourage project developers and offtakers to work on commercial viability d) Lack of H2 transition funding that allows for retiring old technology and replacing it with new Green H2 Equipment and capex, at state and central level e) Lack of adequate number of H2 Hubs being planned in the key states.

Public procurement of Green H2 by PSUs, in refinery, steel, fertilizers and chemical sectors, should be aggregated and a central H2 transition plan rolled out for all large PSU's in the sector. This alone addresses the challenge of volume risk, and when combined with gauranteed, long-term offtake contracts, with CfD funding mechanisms, will make many H2 projects commercially viable. The govt, as majority equity owner in state-owned enterprises, is the biggest institutional offtaker and demand creator. If public procurement of Green H2, with model offtake contracts and CfD funding mechanisms, are standardized and finalized, hydrogen commercialisation and project development will accelerate.

National and state-level coordination for project development is a critical need. IH2A has proposed for the creation of a National Green Hydrogen Project Development Corporation that can anchor, plan and coordinate with H2 developers and investors. Such an entity could aggregate demand, act as a proxy for market-signals (though auctions, till a hydrogen market emerges), and support project development at scale with equity participation in larger projects/hubs as well. State governments could also form similar State Hydrogen Dev Corporations to accelerate project development in the respective states.

IH2A's assessment is that combined public finance and multi-lateral organisation allocations for green hydrogen commercialisation in India are achieving parity with H2 public finance spending in some of the developed markets. The key difference is that most of this allocation is towards project development and demand-side incentives in the developed markets, while India has to start with taking initial steps on building supply chain capabilities. IH2A's view is that India should move with a clear emphasis on building H2 projects and scale and provide demand side incentives for early offtakers, in the next seven years 2024-2030.

IH2A recommends creation of a USD 5 bn National Hydrogen Transition Fund, with co-funding partnerships with sovereigns, multi-lateral agencies, and clean energy funds similar to European Hydrogen Bank. The ambition should be to create an investible pool of at least USD 5 bn with deployments directed towards national hydrogen projects of a certain scale, supported by fiscal and non-fiscal incentives and available to large project consortiums who invest in building hydrogen supply chains in India. Other funding mechanism could include debt structures and project financing models by multi-lateral lending agencies.

Large commercial-scale Green Hydrogen Hub, built through Special Purpose Vehicles (SPVs) and public-private collaboration, with co-located production and consumption (in multiple use cases) will be key to showcase green hydrogen commercialization at scale. This is akin to the EU H2 Valleys or IRA-funded H2 Hubs in the US. IH2A has shared a development plan for five commercially Green Hydrogen Hubs to be built from 2024-2030 with the Govt of India, State Governments, and the Industry. IH2A is also working with individual state governments to help develop Green H2 Hubs in the states with industry participants and H2 investors.

NOTE: On technology choices, IH2A believes that technology choices and risks should be taken/borne by project developers. IH2A does not have a stated position on technology pathways.