Green Hydrogen Policy – An ambitious effort to achieve net-zero carbon emission target

The much-awaited Green Hydrogen Policy (‘Policy’) has been unveiled by Ministry of Power (‘MoP’), Government of India on 17.02.2022. The Policy codifies the binding norms governing the manufacturing process of Green Hydrogen/Ammonia i.e., through electrolysis using Renewable Energy (‘RE’) sources; and provides for incentives to the stakeholders involved in the process i.e., RE generators and Green Hydrogen/Ammonia manufacturers. MoP’s Policy is an urgent need and ambitious effort to achieve India’s Nationally Determined Contribution (‘NDC’) commitment viz. reducing dependence on fossil fuel by expanding use of RE resources and may be seen as implementation of obligations under ‘Article 253’ (Legislation for giving effect to international agreements) and ‘Article 51(c)’ (foster respect for international law and treaty obligations) of the Constitution of India, 1950.  

Poonam Verma, Partner, JSA, Advocates and Solicitors

Hydrogen has been commended as a fuel of the future and has been playing a significant role in shipping and transportation sectors (i.e., aircraft, trains, and all sorts of automobiles). It is also an essential element for steel, cement, and chemical manufacturing industries which are critical industries. In the power sector, Ammonia and Hydrogen are used for the storage and carriage of energy. It is also used in thermal plants for mitigating carbon emissions. Therefore, considering the significance of Hydrogen, Green Hydrogen is seen as an efficacious environmentally friendly alternative to Grey Hydrogen. 

The Policy is crafted to achieve a two-fold objective. Firstly, the Policy furthers the National Hydrogen Mission launched by the Prime Minister and aims to streamline India’s approach to meet the climate targets and to make India a Green Hydrogen hub. Secondly, the Policy intends to make India self-reliant through domestic Green Hydrogen/Ammonia manufacturing and enhance Foreign Exchange through exports. Recognizing that it is hard to abate polluting sectors such as steel, cement, and chemical manufacturing industries cannot be closed, the Policy aims to resolve climate change crisis by mitigating carbon emissions by transitioning to Green Hydrogen/Ammonia.  

For effective implementation, a slew of incentives has been provided in the Policy which can be seen as an invitation for private players to venture into the manufacturing of Green Hydrogen/Ammonia. New RE plants set-up before July 2025 to supply power for Green Hydrogen production will be exempted from inter-state transmission charges for 25 years. The connectivity to the grid for such RE plants will be given on a priority basis. Green Hydrogen manufacturers may procure RE from Discoms at concessional rates including only (a) cost of procurement, (b) wheeling charges, and (c) a small margin as determined by Appropriate Commission. A single window clearances/approvals portal will be provided and banking of RE for producing Green Hydrogen will be permitted for up to 30 days.  

The Policy also aims to create more avenues for meeting Renewable Power Purchase Obligations (‘RPO’) by obligated entities (Discoms, Open Access customers, Captive Plants etc.). RPO is a mechanism by which the Appropriate Commissions oblige entities to purchase a certain percentage of power from RE sources. The Policy provides that RE consumed for production of Green Hydrogen will count towards RPO compliance of the consuming entity. This gives obligated entities an additional means to achieve their RPO. The Policy also provides that RE consumed beyond obligation of Green Hydrogen manufacturer will count towards RPO compliance of the concerned Discom. This incentivizes the Discom against its obligation to procure and supply RE to Green Hydrogen manufacturers at concessional rates. 

Policy provides for Green Hydrogen plants to operate in an Open Access regime. To promote transparency and to ensure competitive pricing, it is proposed that the Ministry of New and Renewable Energy (‘MNRE’) may aggregate demands from different sectors seeking to utilize Green Hydrogen and then can have consolidated bids. It may be interesting to observe the Competitive Bidding Guidelines to be issued by MNRE to comprehend the exact mechanism for bidding. 

While the Policy is a step in the right direction, there are a few shortcomings which may be addressed. As per the Policy, MoP proposes setting up manufacturing zones, however, it does not provide for a period within which such zones may be set up. Further, the effective implementation and coordination with the Central and respective State Government agencies may pose a challenge to the developers. Delay on the part of the government instrumentalities may dissuade the players from investing in this sector. With respect to the creation of a single window for all necessary permits, licenses, clearances, etc., MoP has emphasized the grant of such approvals in a time-bound manner by requesting the concerned authorities to grant the approvals within 30 days. From the language of the policy, such a timeline is recommendatory in nature. The ground reality in the power sector with respect to disputes between the contractors and authorities regarding the delay in getting approvals indicate that there is a likelihood of similar disputes between Hydrogen manufacturers and the Government authorities. To tackle these issues in an effective manner, MNRE may step in to monitor through appropriate nodal agencies to put in place a check and balance system to ensure timely compliances and implementation of the Policy. 

Even prior to the Policy, several leading players had announced their ambitious Green Hydrogen manufacturing targets. For instance, Reliance Industries unveiled its plan to use 3 GW solar energy to produce 4,00,000 Tonnes of Green Hydrogen, Indian Oil Corporation (‘IOC’) also declared to build a green Hydrogen plant at its 160,000 BPD Mathura refinery. Several automotive sector decisions have also been taken from time to time such as Hydrogen Fuel Bus and Car Project in Delhi, Hydrogen Fuel Cell Train Project by Indian Railways, etc. Now, with the Policy being unveiled, developers are welcoming the same with open arms. For instance, IOC has hailed the policy as it provides for incentives which may bring down the cost of production of Green Hydrogen by 40-50%.  

Climate change is a scientific certainty and poses imminent risk to the entire biodiversity. There is an obligation erga omnes (duty towards all) of all states to take concrete steps to mitigate climate change. Green Hydrogen possesses prodigious potential in solving the global problem of climate change by reducing carbon emissions. The Policy looks immensely promising on paper and is likely to draw a lot of investors to this sector. However, to achieve the objective set out in the policy i.e., to become a Green Hydrogen hub, the Government needs to ensure that the implementation of the policy at the ground level is free from any hindrances. 

The authors are Poonam Verma, Partner, Saunak Kumar Rajguru, Associate, and Ankitesh Ojha, Associate, at JSA, Advocates and Solicitors.

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members

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