India's Green Hydrogen Policy to benefit RIL, Tata Power the most: Analysts

India's first Hydrogen Policy has the potential to morph India into a green hydrogen export hub from being an energy importer, believe analysts, as the policy would not only make merchant green hydrogen highly viable, but also potentially make India the cheapest producer globally.

"India is already the third-largest producer and consumer of grey hydrogen from coal, gas and petroleum products. Refineries account for 54 per cent of consumption and fertilisers largely the balance. Given India's very low renewable energy cost advantage, the cost of green hydrogen in the country is poised to fall to about one–fourth of global levels of green as well as grey H2 to less than $1 per kg, potentially making the country the lowest-cost producer in the world,” said a note by Edelweiss Securities.

Last week, Centre launched the country’s first green hydrogen policy as part of its energy transition plan. The objective is to reduce fossil fuel usage and increase penetration of green fuels, and follows Prime Minister Narendra Modi’s National Hydrogen Mission, proposed on Independence Day 2021.

The new policy provides several incentives for manufacturers, consumers of green hydrogen and green ammonia. READ ABOUT IT HERE

Policy benefits

The latest policy defines green hydrogen (GH) / green ammonia (GA) as those produced by using renewable energy (RE) including solar/wind/hydro/biomass either from co-located or far away RE sources or even using a banking arrangement (through traders).

According to analysts at JM Financial, the policy sets the contours of GH sourcing and potential aggregation of demand by government agencies which will enable bidders to get firm contracts. RE demand, they say, will get a big boost as demand for green hydrogen/ammonia implies 125GW of new RE tenders with firm Power Sale Agreements.

Elara Capital estimates green hydrogen demand in India to touch a minimum of 1.84 million tonnes by 2030 and 33-44 million tonnes by 2050 from nil at present. This would create a demand for 13GW of electrolyser capacity by 2030, and catalyzing further into over 200GW electrolyser capacity addition by 2050.

"We believe, the green hydrogen production ecosystem in India could proliferate to $322-427 billion by calendar year 2050, excluding ambient investments on storage, transport, refueling infrastructure and RE to produce green hydrogen," the brokerage said.

On the cost front, Goldman Sachs highlights that India’s competitive electricity tariffs can act as a competitive advantage in driving a lower cost curve for hydrogen production medium term.

"India, with one of the lowest costs of renewable tariffs also can make green hydrogen at extremely competitive prices relative to alternative fuels like coal and gas. We estimate, as scale reaches an inflection point, green hydrogen prices can decline by half by mid-decade and compete with blue hydrogen and gas," added Morgan Stanley.

That said, analysts say more policy support is needed from the government to give a fillip to the green hydrogen industry, which is still in its nascent stage.

Goldman Sachs expects the next round of hydrogen policy to focus on demand creation with likely phased purchase obligations for key industries such as refining and fertilizer production, and supply creation from a PLI scheme for electrolyzer and fuel cell manufacturing.

"We note that given the higher cost to produce hydrogen currently, the government will likely provide some viability gap funding to consuming sectors in the initial phases," it said.

Morgan Stanley says next policy steps will focus on cement, steel and hydrogen blending with gas – all which will help achieve scale for a green hydrogen ecosystem.

Investment strategy

Against the backdrop, Elara Capital says capital goods players should seize the day, with electrolyser capex requirement alone estimated at $85 billion by 2050.
 

"We find this a positive for all RE players like NTPC, Tata Power, JSW Energy as well as for L&T. We also find this new RE demand implying need for more transmission capex for solar connectivity, which is positive for PowerGrid Corporation," said JM Financial.

Meanwhile, Goldman Sachs highlights RIL has already spent $1.4 billion to acquire technologies across the solar battery and hydrogen ecosystems. “We see significant expansion in TAM for solar, battery and hydrogen manufacturing globally as well as in India and expect RIL to generate EBITDA of $3.6/12.2 billion in our base case by FY30/FY40,” it said.

Morgan Stanley is positive on oil marketing companies like Hindustan Petroleum, Indian Oil, and Bharat Petroleum as they have varied investments in GH projects.

Nomura is bullish on L&T, Siemens, ABB India, Cummins India, Aegis, and VA Tech Wabag as they either have investments in the field or have technological support from parent companies abroad.