How India can leverage its strengths in the new hydrogen economy
Companies are aggressively investing in this technology as a promising decarbonisation lever or to capture new opportunities in the emerging value chain
In the last few years, green hydrogen has emerged as one of the most promising green technologies which is on the “right” side of global energy transition. Many countries are on a race to implement policies to the existing green hydrogen market and push new applications such as mobility and energy storage. Companies are aggressively investing in this technology as a promising decarbonisation lever or to capture new opportunities in the emerging value chain.
India today is the world’s third largest greenhouse gas emitter and one of the largest consumers of CO2 intensive “grey hydrogen”. In addition to the role green hydrogen will play in decarbonising some of the hardest to abate sectors, it will also enhance India’s energy security, become an attractive off-taker of our growing renewables market, and potentially create a brand new “green-tech” manufacturing and engineering, procurement and construction (EPC) sector.
In order to deliver on this hefty promise, two unlocks are needed – low cost renewable power availability and water electrolysis technology at scale.
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Renewable technologies such as solar, wind and hydro are maturing rapidly and are already experiencing significant cost reduction and scale. Therefore, the attention is now turning towards the water electrolyser. Electrolysis is the process of breaking down water into hydrogen and oxygen and is almost a century-old technology. The current global race for low cost green hydrogen is generating renewed excitement (and investments) in this technology globally.
This global trend is creating three potential opportunities around green hydrogen technology:
Electrolyzer OEMs: Today this technology faces a massive supply-demand gap, creating an attractive opportunity for new entrants and capacity expansion by existing original equipment manufacturers (OEMs). Currently the average installation size is less than 10 MW, but going forward, there are over 20+ projects of GW scale which have been announced, adding a scale of 100+ GW between themselves. With an attractive market outlook and secure pipelines, the market has garnered significant mergers and acquisitions and investments recently, making some of the notable companies trade at 15-20x of revenue (E.g., Cummins’s absorption of Hydrogenics, Linde’s minority stake in ITM Power and EDF & TechnipFMC’s investments in McPhy)
Electrolyser components: This demand expansion of electrolyser will also create upstream opportunities for component manufacturers and upstream suppliers. The electrolyser stack (composed of electrodes, membrane and bi-polar plates) comprises the “heart” of the system; however, there are several additional components required for each unit, including for gas processing, water processing, power conditioning, most of which are often procured from local suppliers and vendors and will see a boost in demand from the growing electrolyser OEMs
Services opportunity: Integration of green hydrogen in applications such as refining, chemicals, steel etc. will require significant support from the EPC industry and other related services (design, operations, maintenance etc.)
This is an attractive, early stage opportunity for India to capitalise on the incoming growth in the need of hydrogen technology. With high global competition in other clean technologies such as solar PV, wind turbines and lithium ion batteries, the currently nascent stage of green hydrogen technologies provides a strategic opening for India to firmly establish its leadership, both domestically and as a regional and global supplier.
India is also well placed to create a win in this space given three key advantages.
The first is its strong potential for manufacturing cost completeness. With India’s capabilities as a low-cost manufacturing hub, it is estimated that 15-20% reduction in electrolyser costs can be achieved through localisation. This, coupled with India’s engineering talent, can help the technology achieve the critical breakthrough it requires to become viable in the near-term industrial use-cases and achieve rapid GW scale. In addition, unlike lithium-ion batteries, construction of alkaline and solid-oxide electrolyser is not dependent on availability of precious metals
The second advantage is the large, growing demand for hydrogen with access to APAC market. India’s existing domestic hydrogen market in industrial sector - if completely converted to green - can absorb 35-50 GW of electrolyser capacity, with the potential to add another 15-25 GW by 2030 in the form of capacity expansions. There is also the opportunity to export technology regionally (Asia-Pacific) and globally
And finally, a high degree of localisation is possible. 50-60% share of the overall system cost is driven by common equipments such as rectifiers, transformers etc., which could be locally procured. India, with its abundant engineering talent and mature players across industrial, chemicals and electronics sectors could also build strong advantages through technical innovation
However, this massive opportunity also brings with it the need for swift action. Electrolyser manufacturing is the next frontier of green technologies, and it is imperative that India acts with urgency. With China and Europe already kicking off the race to assert dominance in this space, we would need concerted and immediate efforts on both, manufacturing and research and development, to achieve the Prime Minister’s self-reliance vision. This will require programmatic effort from both industry and policymakers. Policies such as the approved high-performance solar module and proposed battery PLI scheme will be helpful to create the initial spark.
Kowthamraj VS is Director, India Energy Storage Alliance, and Technical Fellow, NITI Aayog, and Rajarshi Bhattacharyya is Principal, Energy Transition & Hydrogen, Boston Consulting Group
The views expressed are personal