Recently, two Indian big businesses sounded the alarm on the high production costs inhibiting the scalability of green hydrogen as a clean fuel.

In a blog post for the World Economic Forum (WEF), Gautam Adani, the head of Adani Group, said the cost of green hydrogen must significantly decrease from the current $3-$5 per kg to $1 per kg for widespread adoption.

Similarly, Reliance Industries Ltd (RIL) chairman and managing director Mukesh Ambani, has outlined his company's vision to bring down the cost of hydrogen to less than $1 for 1 kg in 10 years — the '1-1-1 target' for GH2 (green hydrogen).

Green hydrogen is the hydrogen produced via electrolysis, the splitting of water into hydrogen and oxygen with electricity generated from renewable energy sources, such as solar or wind.

It is essential for decarbonisation: to replace fossil fuels in steelmaking, ammonia production for fertilisers and possibly shipping and trucking — processes which are difficult to electrify.

Producing green hydrogen is expensive as it entails considerable capital cost in terms of the manufacture of electrolysers, the amount of fresh water and electricity, which makes up 60-70 per cent of green hydrogen's cost.

Yet, for green hydrogen to fulfil these roles, its production cost must decline similarly to renewables. As an illustration, the cost of electricity generated from solar panels in 2011 stood at Rs 15 per kilowatt-hour and has now plummeted to Rs 1.99 per unit — the lowest in the world.

India Strategy

Adani and Ambani are among the handful of big names dipping their toes into the green hydrogen, supported by the National Green Hydrogen Mission (GHM) — a central scheme providing incentives for green hydrogen production and domestic electrolyser manufacturing.

According to a Nuvama Research report, RIL is getting closer to its target of GH2 cost of $1-$1.5 per kg, benefiting from multiple incentives under the GHM.

Although the report notes that RIL has received a $0.5 per kg incentive, covering 13 per cent of its manufacturing cost, there is limited information available on the specific strategies employed to attain this milestone.

Vertical Integration

The current cost of producing 1 kg of green hydrogen is between $5.5 and $6 — far too expensive for large scale manufacturing.

However, as renewable energy costs decrease significantly, the production costs of green hydrogen are expected to follow suit. Additionally, capital costs may decrease with the anticipated reduction in electrolyser expenses as new projects emerge. Technological advancements could further cut capital expenditures by half from current levels.

Yet, reducing costs to around $1-$2 per kg demands an unwavering focus on vertical integration at scale — a point emphasised by Adani in his blog.

Vertical integration involves giga-scale manufacturing of solar modules and their ancillaries, wind turbines, electrolysers, in-house engineering, procurement and construction capabilities and the production of green hydrogen and its derivatives — all in a single location.

An upcoming project in Saudi Arabia serves as a case study, suggesting that an integrated hydrogen production system using solar and wind sources could cost as low as $1.26 per kg.

Back home, the Adani Group has spent $2.5 billion so far in developing a backward integrated value chain for its green hydrogen project in Mundra, Gujarat. The project is progressing as planned, with the first phase set to be operational by FY27, boasting an annual capacity of 1 million tons.

Despite its potential, vertical integration poses challenges, including high capital-intensity and technology-related risks. However, it also promises the greatest acceleration towards the coveted mark.

In the context of India, green hydrogen represents a home-grown opportunity. As the $1 per kg target comes within reach, the government would be wise to actively contribute to its realisation.

Green Hydrogen Cost

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