A new CareEdge Ratings report said that cost viability for green ammonia needs a 35%-40% price drop.
The green hydrogen (GH2) demand in India is influenced by factors such as electrolyzer cost, efficiency, and renewable energy tariffs.
CareEdge Ratings has identified various scenarios for Levelized Cost Of Hydrogen (LCOH) based on electrolyzer capital expenditure and efficiency.
As of CY23, LCOH was estimated at $3.74 per kg. To achieve a targeted levelized cost of $2.1/kg, reduction in electrolyzer cost and efficiency improvement are necessary, according to the report.
The Government of India’s PLI incentives, such as a direct production incentive of up to $0.50/kg of GH2 production for the first two years and an electrolyzer capex incentive of $54/Kw, are welcome, the report said.
Economies of scale, manufacturing automation advancement, use of less expensive materials, and scaling up stack sizes are key drivers for reducing electrolyzer costs. Refineries currently have a high market share in hydrogen demand, making them a potential user for green hydrogen. Cost parity with existing alternatives and incentivizing demand are necessary for strengthening green hydrogen adoption in ammonia production.
Green ammonia could lead to a potential demand of 3.75-4.25 MMT of GH2 over FY27-FY30, with a third of demand coming from non-urea segments. Green hydrogen for methanol is less economically viable due to lower costs. However, it can be explored in heavy-duty vehicles and the steel sector, partially replacing coking coal and natural gas.
| Key Points |
| The estimated levelized cost of GH2 is 1.75 times higher than grey and brown hydrogen, despite waiver of interstate transmission charges |
| Green Hydrogen (GH2) is gaining momentum in India due to lower renewable energy costs and decarbonization goals. |
| However, high levelized cost of GH2 (LCOH) is a significant barrier to its adoption. |
| Effective storage and transportation solutions are essential for GH2’s wide-scale adoption. |
Green hydrogen demand is driven by reducing carbon emissions. GH2’s low energy density raises storage and transportation costs, hindering adoption. Developing manufacturing clusters near consumption centers and lower transportation costs in India could benefit port-based green ammonia export facilities.
“Cost parity of green hydrogen (GH2) with alternatives is essential for its wide-scale adoption. A higher capex outlay of around Rs.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 electrolyzer costs by 35-40%, improvement in efficiency by 12-14% and continued policy support are critical for achieving cost viability of GH2 to around $2.1 per kg. Technological advancement in the electrolzser manufacturing ecosystem, cost reduction in stack material and economies of scale shall be key drivers for cost reduction of electrolyzers in future,” said Maulesh Desai, Director, CareEdge Ratings.
“From the demand perspective, the absence of 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 tonne (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 1/3rd demand may be from non-urea sector. Besides, green ammonia also holds significant export potential due to competitive renewable energy cost in India if the issue w.r.to its storage and transportation is adequately managed, “said Hardik Shah, Director, CareEdge Ratings.
