Indian Oil Says New Policy to Cut Green H2 Cost by 40-50%

Largest Indian oil firm IOC will set up ‘green hydrogen’ plants at its Mathura and Panipat refineries by 2024 to replace carbon-emitting units as it sees the just announced green hydrogen policy as a watershed moment in the country’s energy transition that will help cut costs.

SSV Ramakumar, Director for Research and Development at Indian Oil Corporation (IOC), says the new policy will help cut the cost of manufacturing green hydrogen by 40-50 per cent.

“This (policy) is the single biggest enabler by the state for production of green hydrogen,” he told a news agency. Oil refineries, fertiliser plants and steel units use hydrogen as process fuel to produce finished products.

In refineries, hydrogen is used to remove excess sulphur from petrol and diesel. This hydrogen presently is produced from fossil fuels such as natural gas or naphtha and results in carbon emissions.

IOC plans to replace this ‘grey hydrogen’ with ‘green hydrogen‘ — also referred to as ‘clean hydrogen’ — by using electricity from renewable energy sources, such as solar or wind power, to split water into two hydrogen atoms and one oxygen atom through a process called electrolysis.

“The headline cost of renewable electricity at Rs 2 per kWh (or per unit) is actually the price at the generation site (say solar farm in Rajasthan or Ladakh). This becomes Rs 4 to 7 per unit after adding different levies during its transit through transmission lines in different states,” he said.

At a factory-gate cost of Rs 4 to 7 per unit, green hydrogen production costs come to Rs 500 per kg. This cost compares with the current grey hydrogen cost of Rs 150 per kg.

Under the green hydrogen policy announced on February 17, the renewable energy used for green hydrogen production will get open access without central surcharge and zero inter-state transmission charges for 25 years for projects commissioned before June 30, 2025.

“This will essentially bring the cost of green hydrogen production down by 40 to 50 per cent,” he said.

The cost will go down further if electrolyzers, used to split water into two hydrogen atoms and one oxygen atom, are indigenously manufactured instead of the present practice of importing them, he pointed out.

IOC plans to set up a 40 MW electrolyzer at Mathura refinery and a 15 MW unit at Panipat unit in Haryana, he said, adding the firm is targeting to produce 70,000 tonnes a year of green hydrogen by 2030, accounting for 10 per cent of its overall consumption by that time.

Across all refineries, the current hydrogen demand is about 1.4 million tonnes, which is projected to rise to 2.6 million tonnes by 2030. He said Indian Oil is also exploring manufacturing of electrolyzers or outsourcing the production of green hydrogen.

India is targeting 15 gigawatts (GW) of electrolyzer-making capacity and is considering production-linked incentives to encourage local manufacturing.

Ramakumar said the current cost estimates are based on alkaline water electrolysis, which consumes some 55 units to produce 1 kg of hydrogen.

The use of polymer electrolyte membrane (PEM) electrolysis would bring down the requirement of electricity by 10 units, thus further reducing cost.

The government on February 17 announced the first stage of policies to encourage green hydrogen/ ammonia development in the country, with plans to reach 5 million tonnes per annum of output by 2030.

The plan has significant flexibility and incentives for hydrogen producers in terms of sourcing/ development of renewable electricity — a key to green hydrogen and ammonia production.

It gives liberty to purchase or set up renewable capacity for green hydrogen anywhere by manufacturers themselves or with a developer. It also provides for giving open access approval to transmission systems within 15 days without central surcharge and zero inter-state transmission charges for 25 years for projects commissioned before June 30, 2025.

“We believe this to be an important first step to enable a hydrogen ecosystem,” he said. “Making the Ministry of New and Renewable Energy single point for all permissions and approvals cut to make it simpler to operate.”

The policy is a watershed moment in India’s energy transition, he added.