Abstract
In the face of escalating climate change, countries worldwide are intensifying their efforts towards adopting sustainable energy practices, especially by trying to find long-term and sustainable alternatives to fossil fuels. India is acknowledging the growing need to adopt good energy practices and, in this vein, is focusing its attention on enhancing the production and consumption of renewable energy to reduce carbon emission intensity. To bolster India’s renewable energy capacity and reduce its reliance on fossil fuel imports, various missions, rules, and policies have been adopted, notably the National Green Hydrogen Mission (Mission). The Mission aims to leverage green hydrogen as an important form of renewable energy that can help India to become self-reliant in the sphere of energy production and to reduce and replace its reliance on imported fossil fuels. The Mission also believes that India has the potential of becoming the fastest-growing renewable energy capacity in the world and green hydrogen can achieve this potential across sectors through strategic planning and investment. However, while India’s commitment to green energy transition is evident, challenges persist, ranging from lack of codification of the Mission and other policies into actual law to associated high production costs of green hydrogen. Addressing these challenges requires concerted efforts, encompassing technological innovation, regulatory frameworks, and inter-state collaboration. By overcoming these hurdles, India can make more headway in using green hydrogen as a long-term and sustainable alternative to fossil fuels.
Introduction
With climate change becoming the norm of modern-day living, countries and communities around the world are grappling to find innovative methods of sustainable living. Conversations around green energy and sustainability are taking centre stage. The fact that 196 countries adopted the Paris Agreement is a step towards enhancing collective global conscience to mitigate the effects of climate change.
As per the United Nations, Climate Action, generating electricity and heat by burning fossil fuels is the largest contributor to climate change, and since most electricity is still generated by burning fossil fuels, over 75 percent of global greenhouse gas emissions and nearly 90 percent of all carbon dioxide emission is caused by burning fossil fuels. Therefore, the global conversations should now focus on using renewable energy for power generation as a long-term sustainable alternative to using fossil fuels for power generation.
India is attempting to become a key player in the production and consumption of renewable energy and to reduce its reliance on imported fossil fuels. India is committed towards using renewable energy to reduce carbon emission intensity and achieve about 50 per cent cumulative electric power installed capacity from renewable energy-based resources by 2030. To achieve these targets, various missions, rules, and policies have been adopted.
India’s Green Initiatives
National Green Hydrogen Mission
The National Green Hydrogen Mission (Mission) was formulated in January 2023 and identified several sectors, like mobility and industrial production, wherein India is highly dependent on imported fossil fuel. The Mission identified that green hydrogen is an important form of renewable energy that can help India to become self-reliant in the sphere of energy production and reduce and replace its reliance on imported fossil fuels. The Mission also believes that India has the potential of becoming the fastest-growing renewable energy capacity in the world and green hydrogen can achieve this potential across sectors by supplying clean energies to remote geographies and islands in a sustainable manner.
As part of the Mission, the government intends to develop at least five MMT (Million Metric Tonnes) of hydrogen production capacity per year with associated renewable energy capacity of 125 GW, create over six lakh jobs, replace 50 MMT of carbon dioxide emissions per year with renewal energy and attract investments of INR eight lakh crores in the renewable energy sector.
For this, the Mission supports and facilitates the building of necessary infrastructure for the storage and delivery of green hydrogen and its derivatives. However, it is important to note that the Mission essentially encapsulates what the government intends to do and does not lay down any concrete and enforceable rules or regulations. The Mission has not yet translated into law that can be implemented and only articulates the government’s aims and intentions.
As per the Mission, in order to develop green hydrogen production, there will be two stages – Phase I (2022-2023 to 2025-2026) and Phase II (2026-2027 to 2029-2030) wherein in Phase I, policies relating to increasing production will be developed to create a sustained demand to support new investments in green hydrogen production and pilot projects will be undertaken for initiating green transition in steel production, long-haul heavy-duty mobility and shipping. Parallelly, work will commence on establishing a framework of regulations and standards to facilitate the growth of the sector and enable harmonisation and engagement with international norms.
In Phase II, existing and proposed pilot projects will be scaled up, and commercial green hydrogen-based projects in the steel, mobility, and shipping sectors will be explored. At the same time, it is proposed to undertake pilot projects in other potential sectors like railways and aviation. Research and development activities will be scaled up. The second phase of activities would enhance penetration across all potential sectors to drive deep decarbonisation of the economy.
States and state governments are to establish themselves as front runners through project development, manufacturing, setting up renewable energy capacity, and promoting the export of green hydrogen derivatives. For this, the states will be requested to put in place fair and rational policies for the provision of land and water, suitable tax and duty structures, and other measures to facilitate the establishment of green hydrogen projects. However, apart from Andhra Pradesh, Maharashtra and Rajasthan, no other state has come out with green hydrogen policies.
As part of the Mission, various Ministries are to adopt requisite regulations to implement the objectives of the mission. However, very few Ministries have adopted such regulations. Only the Ministry of Ports, Shipping and Waterways has adopted “Harit Sagar” green port guidelines, which mention that future procurements of port vehicles and cargo handling should be compatible with low carbon and greener fuel like hydrogen fuel and ports should retrofit port crafts for propulsion on cleaner fuels like green ammonia and hydrogen. Further, the government sought for bids to be submitted for incentives provided for under the Mission, and 34 bids were submitted by large conglomerates towards receiving incentives to produce green hydrogen and electrolyser manufacturing.
Green hydrogen-based production and plants are already being set up and ready for operation. In March 2024, the Jindal Stainless Steel hydrogen plant in Hisar was inaugurated, that aims to reduce carbon emissions by 54,000 tonnes over the next 20 years and is projected to be a crucial step towards promoting sustainable production in the manufacturing sector, especially in manufacturing steel.
Green Hydrogen Policy
The Green Hydrogen Policy (Policy) is an important framework released on 17 February 2022 that governs the production and consumption of green hydrogen in India and contains broad regulations relating to green ammonia. The Policy contains provisions that enable a transition from fossil fuel/fossil fuel-based feedstocks to green hydrogen / green ammonia. As per the Policy, green ammonia/hydrogen has been defined as hydrogen, which is produced by electrolysis of water using renewable energy and produced from biomass. Open access for sourcing renewable energy will be granted to green hydrogen/ammonia developers using renewable energy from co-located renewable energy plants.
Renewable Purchase Obligation
However, even before the Mission and Policy were enacted, legislation that aimed toward increasing renewable energy consumption was already in place. The Electricity Act, 2003 (Electricity Act) mandates the concept of Renewable Purchase Obligation (‘RPO’) – wherein a ‘State Commission’ is to be set up which promotes cogeneration and generation of electricity from renewable sources of energy by providing suitable measures for connectivity with the grid and sale of electricity to any person and by also fixing the minimum RPO rate.
This mandate has been followed by several states. For example, Kerala has designated the ANERT as the State Agency for implementing RPOs and Renewable Energy Certificates. Kerala has notified a total RPO of 3% in 2010. Delhi has enacted the Delhi Electricity Regulatory Commission (Renewable Purchase Obligation and Renewable Energy Certificate Framework Implementation) Regulations, 2011 (DERC), which mandates that every obligated entity shall purchase electricity (in kWh) from renewable sources based on a defined minimum percentage of the total consumption mentioned in various provisions in the DERC.
The Electricity (Transmission system planning, development, and recovery of inter-state transmission charges) Rules, 2021 (Open Access Rules), which was formulated on 6 July 2022 and amended on 27 January 2023 (Amended Rules), are crucial to India’s development of renewable resources and attempts to increasing green hydrogen production.
Open Access Rules
As per the Open Access Rules, a uniform RPO shall be in place on all “obligated entities” like distribution licensees, and any entity – regardless of obligation, can generate, purchase, or consume renewable energy and can set up their own electricity generation from renewable sources as there is no longer any capacity limit for installation of power plants from renewable energy sources by entities who generate electricity through renewable sources. Further, the obligated entities can meet their renewable purchase obligations by purchasing green hydrogen/green ammonia, which shall be counted towards the RPO compliance of the “obligated entities”. The Power System Operation Corporation (POSOCO) is the Central Nodal Agency that serves all consumers through a single-window green energy open access system for renewable energy.
Further, the Amended Rules state that any consumer may purchase green energy either up to a certain percentage of their consumption or for their entire consumption, and for this, they may place a requisition with their distribution licensee, who is obligated to procure and supply such quantity of green energy to the consumer. For this, there is a reduction in the limit from one megawatt to a hundred kilowatts, which enables small consumers to purchase renewable energy. This reduction in the limit has effectively opened up access to green energy to several potential consumers and has also eliminated the limit for obligated entities.
The Open Access Rules have also streamlined the overall approval process for granting open access by having a time-bound process for approvals where approvals are to be granted in 15 days or else it will be deemed to have been granted, and connectivity to set up renewable energy capacity shall be granted on priority.
The Open Access Rules, the Electricity Act, and other regulations are steady attempts to increase India’s production of renewable energy by allowing access to renewable energy to a broader range of consumers, particularly small and medium-sized enterprises, and by giving incentives to consumers to make green energy their primary form of energy consumption. The hope is that this change is expected to lead to smaller businesses that may be driven by factors such as sustainability practices, cost savings, and market demands for greener supply chains to use renewable energy as their primary form of consumption.
Power Grid Banking System
The grid banking system also helps towards increasing the production and consumption of green energy. The grid bank system applies when surplus power that is generated is put into the grid, and this “banked energy” is used or withdrawn at a later stage or during periods of low renewable energy generation. Various regulations are in place to help set up a grid banking system in India. However, the regulations have not yet been widely implemented.
As per the Mission, to facilitate renewable energy banking, the government is to undertake to build facilities for suitable banking of power, energy storage, and the associated power system and grid banking projects.
The Open Access Rules also contain provisions relating to “banking” by renewable energy companies. Since the Open Access Rules apply to green hydrogen/ammonia, therefore the provisions relating to “banking” may apply to green ammonia-related projects. As per the Open Access Rules, banking is permitted on at least a monthly basis, and the permitted quantum of banked energy by the green energy open access consumers shall be at least thirty percent of the total monthly consumption of electricity from the distribution licensee by the consumers. Further, the credit given to the distribution licensees as per the Open Access Rules cannot be carried forward to subsequent months and the credit of energy banked during the month can only be adjusted during the same month.
While the intent behind standardizing the rules relating to grid banking of energy is intended towards achieving the correct objectives of enhancing green hydrogen production, there are still several issues with its implementation, or lack thereof, because of which the renewable energy sector cannot utilise the grid banking system to its fullest potential. For instance, since electricity is a concurrent subject, implementing the grid banking system and charges differ from state to state, and not all states have a uniform grid banking system policy. States such as Andhra Pradesh and Tamil Nadu do not permit grid banking at all even though the Open Access Rules notified by the central government permits the same, and states such as Karnataka, Uttar Pradesh, Maharashtra, Rajasthan that do allow grid banking, the range of banking charges differs from each of these states and is within the range of 2%-10%.
Further, the fact that the credit of surplus energy cannot be carried forward to the next month does pose as a hindrance to smooth renewable energy production. For instance, sometimes, seasonal productivity of renewable energy cannot be fully harnessed because in states like Karnataka, where wind and solar energy production is at its peak in the months of May to September, if banking is allowed only on a monthly basis and credit cannot be carried forward to the next month, then the surplus energy generated during the peak periods cannot be used for consumption in peak demand season when production is significantly lesser than demand. There is also apprehension that the costs of renewable generation may increase to set off the unrecoverable costs of surplus energy, and renewable energy projects may be downsized to avoid surplus generation since the surplus energy may be wasted because of the monthly banking system.
Another apprehension that has been noted is that certain states like Karnataka and Andhra Pradesh that have already met their RPO targets are not issuing new tenders on new renewable energy-related projects. Therefore, while the RPO targets are a good way to incentivise states to increase renewable energy production, there should be regulations that are intended towards sustaining energy production and consumption once the government-mandated targets have been met by the states.
Foreign Direct Investment Policy
The Foreign Direct Investment Policy (FDI Policy) is also aimed towards attracting foreign investments into the production of renewable energy and green hydrogen. The FDI policy permits up to 100% foreign direct investment under the automatic route – which means that foreign investment does not need an Indian vehicle to operate in the renewable energy sphere in India. This is an important step because foreign companies and investments can operate in the renewable energy sphere without going through bureaucratic processes, which can be very long and time-consuming and is itself enough to dissuade foreign investors from entering the Indian market.
While it is commendable that there are several policies in place to promote green hydrogen, several concerns and challenges remain to be addressed. The following are some potential concerns that can pose as potential hindrances to the green hydrogen sector:
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High production costs: Green hydrogen production is significantly more expensive than grey hydrogen. Additionally, end-use applications like fuel cell vehicles and synthetic fuels for aviation incur significant costs, further inhibiting adoption.
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Lack of dedicated infrastructure: The existing infrastructure for green hydrogen, including transmission pipelines and refuelling stations, is limited compared to the infrastructure in place for fossil fuels/natural gas. For consumers and producers, it would, therefore, be more attractive and cost-effective to continue using the infrastructure in place for natural gas rather than build and create infrastructure for green hydrogen production, and there would be no real incentive in terms of cost and efficiency to build new infrastructure for green hydrogen consumption and production.
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Energy Losses: Throughout the value chain, energy losses occur at various stages, from electrolysis to transportation and conversion. These losses can range from 30-35% during electrolysis to additional losses during transportation and conversion to other carriers, impacting the overall efficiency and cost-effectiveness of green hydrogen. This may deter producers and consumers from using green hydrogen.
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Lack of Value Recognition: Green hydrogen’s environmental benefits are not adequately recognized or valued, leading to a lack of differentiation between green and grey hydrogen in markets. Without incentives or targets to promote its use, demand remains limited, hindering market growth.
Conclusion
India is attempting to make good headway in their commitment towards reducing carbon emissions and increasing the production of renewable energy/green hydrogen by concretising these objectives in the form of the Mission and the Policy. However, no enforceable laws, regulations, and rules that pertain to the production of green hydrogen have been formulated yet, and only policies and mission statements are in force for now. With the codification of these policies into actual law, India’s commitment towards becoming self-reliant in terms of the production of renewable energy and reducing global carbon emissions would go a long way in replacing fossil fuels with renewable resources.
Furthermore, apart from a few states, most states have not enacted any legislation relating to the production and consumption of green hydrogen. More states should enact such legislation. This is so that there is cohesion in renewable energy production across the country, and it is not as though only some states are the forerunners in leading India’s commitment towards increasing renewable energy production and consumption while other states do not participate in helping India achieve its targets relating to self-reliance and green energy production.
Authors and Designation:
The Author is a corporate lawyer qualified to practice law in New York and Delhi. She holds a degree in Masters of Law from the University of Chicago. She is currently based in Delhi.
Disclaimer:
The views and opinions expressed by the Author is personal.
Editorial Team:
Managing Editor: Naman Anand Editor in Chief: Abeer Tiwari and Muskaan Singh Senior Editor: Kopal Kesarwani Associate Editor: Kaushiki Singh Junior Editor: Nalin Arora
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