India’s National Green Hydrogen Mission has outlined a plan to establish the country as a major producer and exporter of green hydrogen. Launched by the Union Cabinet on January 4, 2022, the mission targets a yearly output of 5mn tonnes of green hydrogen by 2030. Under this, the Ministry of New and Renewable Energy (MNRE) rolled out the SIGHT Programme – Component II, offering incentives for green ammonia production aimed at the fertiliser sector.

On June 22, 2024, MNRE increased the annual allocation for green ammonia from 550,000 tonnes to 750,000 tonnes, reflecting a response to increased demand and a step to support domestic consumption of green hydrogen and its derivatives. The mission also aims to add around 125 GW of renewable energy capacity by 2030.

Green hydrogen and green ammonia—produced using renewable power—are positioned to replace fossil fuels. The government is encouraging a transition from fossil-based inputs across sectors to cleaner alternatives. This transition could make use of India's renewable energy across regions and sectors including refining, steel, transport, and remote power access.

However, Crisil Ratings finds that the cost difference between green and grey hydrogen may delay mandated usage and increase project risk. The cost gap, currently at $2–2.5 per kg, may fall but is expected to remain between $1 and $1.5 per kg over the next three years.

Green hydrogen is produced through electrolysis powered by renewable energy. This process involves two key cost components: a renewable power plant with storage (almost two-thirds of the cost) and an electrolyser (one-third of the cost). Remaining costs include water and infrastructure.

To compete with grey hydrogen, which sells for $2–2.5 per kg, the levelised cost of green hydrogen must fall by over 50%, according to Crisil Ratings. This would require a 40–50% cost reduction in both renewable power and electrolyser components. Such a drop appears unlikely within the next two to three years. Electrolyser efficiency would also need to rise from the current 60–65% to over 80%, it added.

For the renewable energy component, the government has exempted Special Economic Zone-based projects from using more expensive domestic modules. Battery prices, which impact storage costs, have fallen 30–40% over two years and may fall further. Even with a 50% reduction in battery prices, the overall cost of storage-backed renewable projects would be reduced by only about 10%.

Electrolyser costs fell 42% between 2010 and 2020, but the pace slowed to around 20% between 2021 and 2024. Electrolysers still cost more than $1,000 per kW as of March 2024. Efficiency improvements have also stagnated, with minimal gains due to limited scale, technological barriers, and the steady cost of rare earth materials.

Crisil Ratings notes that industry participants expect a 30–35% reduction in electrolyser costs and a 5–10 percentage point increase in efficiency by 2030, driven by advances in technology, research efforts, and scale. Even if these expectations materialise, the cost gap between grey and green hydrogen will likely persist at $1–1.5 per kg over the next three years. Most global electrolyser projects remain in early stages, so significant cost reductions will depend on new capacities coming online.

The cost gap continues to limit long-term offtake commitments from buyers. Buyers are hesitant to lock in current prices with potential cost reductions looming, creating uncertainty around long-term deals.

According to Crisil Ratings, regulatory support through financial incentives and mandated offtake is essential to manage industry risk and sustain investment. The National Green Hydrogen Mission’s SIGHT scheme, with a budget of INR174.9bn ($2bn), provides short-term incentives of $0.4–0.5 per kg for three years. This incentive addresses roughly 25% of the cost gap but plays a key role in setting up early capacity. Given the slow pace of cost reduction, government support may need to continue beyond the planned period.

This ongoing support will also be important for enabling access to affordable long-term financing. Fully integrated green hydrogen production requires high capital investment—estimated at $16–18bn per mn tonnes per annum of capacity, according to Crisil Ratings.

Crisil Ratings further stated that focus on meeting the Sustainable Development Goals and fossil fuel targets - a key driver for adopting green hydrogen - as well as the evolving technological and regulatory landscape will need watching.