Making Green Hydrogen Cost Competitive: Central Transmission Fee Waiver is a Good First Step to Enable Green Hydrogen in India

According to an analysis by the Council for Energy, Environment and Water (CEEW), the cost of producing green hydrogen could drop by 17% in a state like Uttar Pradesh (UP) due to the abolition of central transmission costs for States importing renewable energy. Power.

By Hemant Mallya & Deepak Yadav

India is betting heavily on green hydrogen to move away from fossil fuels. Recently, the Ministry of Electricity took the first step with the notification of a policy on green hydrogen using renewable energy sources. One of the main highlights is the waiver of central interstate transmission charges for a period of 25 years for green hydrogen production projects commissioned before June 30, 2025. The cost of electricity represents between 50 % and 70% of the total cost. of green hydrogen depending on the place of production and the source of renewable energy, whether wind or solar. Open access charges are in turn a significant part of the cost of electricity. According to an analysis by the Council for Energy, Environment and Water (CEEW), the cost of producing green hydrogen could drop by 17% in a state like Uttar Pradesh (UP) due to the abolition of central transmission costs for States importing renewable energy. Power. However, if India were to become a global leader in green hydrogen, production costs would need to drop further and the following steps would help achieve this goal.

First, states should either reduce or eliminate intrastate transmission fees as a complement to central policy. This would not only reduce hydrogen production costs, but also reduce the significant disparity in intrastate transportation costs between states. As an example, for solar energy consumption, UP, Gujarat and Maharashtra have intra-state transmission charges of Rs 0.25, 0.90 and 2.3 per kWh, respectively. This disparity would significantly distort the market for green hydrogen and affect the competitiveness of producers in states with high intrastate charges. Based on our previous example, removing intrastate charges in UP would reduce the cost of producing green hydrogen by an additional 5%. The story is slightly different when renewable energy is produced in the same state as green hydrogen production. Interstate transmission charges would not apply in such cases. For example, according to CEEW analysis, if in-state charges were removed in Gujarat and electricity was also brought in from within the state, the cost of producing green hydrogen would fall by 12%. .

Second, green hydrogen projects should be given a higher Renewable Purchase Obligation (RPO) credit than the equivalent renewable energy consumed for production. Under RPO mandates, specific end users are required to purchase a minimum level of renewable energy out of their total energy consumption, which differs by end user type and state. The cost of green hydrogen is now at least twice that of fossil hydrogen. Also, unlike the implementation of RPO requirements in a mature renewable energy market, the hydrogen market is at a nascent stage of development. Therefore, producers and end users of green hydrogen should be incentivized to assume the risk of their investment. Therefore, for projects commissioned before 2025, generators or end users could be incentivized by a higher multiple of the RPO credit, such as a multiple of 1.5, relative to the amount of energy consumed for produce green hydrogen.

Third, the Center should allow for a significant bank of RE in the initial phase of the mission without any monetary implications. Renewable energy storage is done by supplying excess electricity to the grid during peak generation periods and then removing it during off-peak generation periods. The cost of green hydrogen depends on the level of use of the electrolyser. Electrolyzers are devices used to separate water into its constituents, hydrogen and oxygen, using renewable energy. With solar-only power generation operation, the electrolyser is only used 33% of the time per year. However, the costs of producing green hydrogen could be reduced by up to 40% if solar energy is put in reserve and the electrolyser is used 95% of the time per year.

Fourth, the interstate transmission fee waiver should be extended for projects established through 2030. Current policy allows waivers for projects established before June 2025. The national hydrogen mission should be published during the year. A core part of this mission should be additional standards for blending green hydrogen into current fossil hydrogen streams and gas pipelines. These blending standards can at best be implemented from 2023 and play an important role in creating a market for green hydrogen. However, as this is a gradual blend, the early years would see lower cumulative volumes compared to higher blending requirements after 2025 which would reach 5 million tonnes per year by 2030. many projects would materialize after 2025 to meet this need. rising demand. Therefore, the interstate transmission fee exemption should be extended beyond 2025 and into 2030, after which green hydrogen would become commercially viable due to the scale of production, advances in production and the falling cost of renewable energy.

Adoption of these recommendations would make green hydrogen production significantly competitive in both domestic and export markets. Moreover, a vibrant green hydrogen economy could really make India atmanirbhar in its energy supply.

Respectively, Senior Program Manager and Program Associate, Council on Energy, Environment and Water (CEEW)

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