State-run refiners want the government to set moderate green hydrogen purchase targets as they fear steep obligations could leave their recently-built grey hydrogen-producing facilities partly redundant and hurt their monetisation plan, according to people familiar with the matter.
The government is currently discussing a slew of steps, including imposing green hydrogen purchase obligations on several sectors including refining, fertilizer, city gas, steel, and power in phases. A government proposal requires green hydrogen to make up 10% of the overall hydrogen requirements of refiners in three years, increasing to 25% by the end of the decade.
State-run refiners want green hydrogen obligation to rise to no more than 10% by 2030, as per industry executives and officials. Companies have told the petroleum ministry that accelerated adoption of green hydrogen would cut utilisation of their existing grey hydrogen-producing facilities, leading to the destruction of economic value. Grey hydrogen is produced by splitting natural gas, which also results in carbon emissions while green hydrogen is produced by splitting water using renewable energy and leaves no unwanted emission.
State oil companies have spent thousands of crores of rupees in the last few years on setting up grey hydrogen plants in their refineries as part of the government mandate to upgrade fuels to match BS-VI specifications, which required sharply lower sulphur content in petrol and diesel compared to BS-IV standards. Hydrogen is used to suck sulphur from fuels at refineries. The obligation to switch to green hydrogen would cut return on refiners’ past investments and saddle them with new investment obligations, an official said. A 10% green hydrogen obligation would boost prices of petrol and diesel by about 50 paise a litre, an official said, citing a ballpark industry estimate.
Declining capacity utilisation would also impede
’s plan to sell some of its hydrogen-producing units, an industry executive said. “The prospect of fading revenues would naturally hurt investor sentiment,” an executive said.
State-run oil companies also do not have adequate land at each refinery to build green hydrogen plants and so want an overall purchase obligation for the company and not a site-specific mandate, the people cited above said.
The ministry of new and renewable energy (MNRE), which is leading the green hydrogen policy effort in the country, Niti Aayog and some other arms of the government are hoping that a big push by India can sharply cut green hydrogen production costs and contribute to the reduction in imports of oil, gas and ammonia.
For the fertilizer sector, switching to green ammonia isn’t going to be as hard as refiners since the government provides subsidies on fertilizers.
The government hopes to create a substantial market for green hydrogen in the country so that purchase obligations can be ended after some years. To help build a robust green hydrogen value chain, the government aims to intervene at multiple levels, including offering production-linked incentives to electrolyser manufacturing, and viability gap funding for use of green hydrogen in heavy mobility.