But there is a fundamental problem. Green hydrogen is significantly more expensive than conventional hydrogen. The success of India’s green hydrogen ambitions will therefore depend on whether the country can bring down the cost of renewable power and electrolysers while creating enough demand to achieve scale.
What is green hydrogen?
Green hydrogen is produced by using renewable electricity to split water into hydrogen and oxygen through a process called electrolysis.
Unlike grey hydrogen, which is produced using fossil fuels and generates significant carbon emissions, green hydrogen is produced with substantially lower emissions when the electricity used comes from renewable sources.
For India, however, the case for green hydrogen is no longer limited to climate goals.
According to Derek Shah, Managing Director and CEO of L&T Energy GreenTech, geopolitical developments have made energy security an equally important reason for the country to build a domestic green hydrogen ecosystem.
“When green hydrogen was being spoken about two to three years back, it was more to do with decarbonisation, net zero and all that. Now, apart from the fact that these green hydrogen and green molecules will help to decarbonise, geopolitical events are making us conscious of the need to look at energy security for our own country,” Shah said told CNBC-TV18 on its special show “Market Forum – The Energy Trade”.
Why does green hydrogen matter for India’s energy security?
India imports a significant share of the energy and raw materials required by its industrial economy. This leaves the country exposed to fluctuations in global prices, supply disruptions and geopolitical events.
Green hydrogen could help reduce some of this dependence by enabling India to produce more of the industrial molecules it currently relies on fossil fuels or imports to make.
The immediate opportunity is in sectors that already consume large quantities of hydrogen.
India consumes around 6 million tonnes of hydrogen annually, according to Sumit Kishore, Managing Director of Power & Infrastructure at Axis Capital. Refineries account for roughly half of this consumption, while fertiliser plants account for the other half.
This creates an existing market for green hydrogen. The challenge is to replace conventional hydrogen with a cleaner alternative without making industrial production uncompetitive.
In this context, energy security does not mean that green hydrogen will replace all of India’s imported oil and gas. Instead, it can help reduce dependence on imported fuels and industrial molecules in sectors where domestic production is technically and economically feasible.
The energy-security argument has become more important as geopolitical disruptions have exposed the vulnerability of global energy supply chains.
“These molecules, both from the decarbonisation part of it as well as from the energy security part, are going to play a very, very significant role in the days to come,” Shah said.
The biggest problem: green hydrogen is still expensive
The central challenge for green hydrogen is its cost.
Grey hydrogen remains significantly cheaper than green hydrogen. Kishore said the average price of grey hydrogen is around ₹150-200 per kg, although it can be volatile depending on global gas prices.
By comparison, the lowest commercial price discovered in India for green hydrogen was around ₹279 per kg, and that included government incentives.
The economics explain the gap.
In theory, producing 1 kg of green hydrogen requires around 39.4 units of electricity if an electrolyser operates at complete efficiency. In practice, electrolyser efficiency is around 75-80%, which means the actual electricity requirement is closer to 50 units.
At a round-the-clock renewable power cost of around ₹5 per unit, the electricity alone would cost roughly ₹250 to produce 1 kg of green hydrogen.
This is a simplified calculation and does not include the cost of the electrolyser, financing, water treatment, storage and other operating expenses.
Once these costs are added, the final production cost rises further.
Kishore said that even with highly efficient electrolysers, the cost of green hydrogen currently goes above ₹300 per kg.
This is the core economic problem: India has existing demand for hydrogen, but the clean alternative remains substantially more expensive than conventional hydrogen.
“Without any subsidy, broad-based adoption is going to be difficult,” Kishore said.
Why renewable power is central to the economics
Green hydrogen is an electricity-intensive fuel. This means the cost and availability of renewable power directly affect the cost of producing hydrogen.
Even if the cost of electrolysers falls, expensive electricity can continue to make green hydrogen uncompetitive.
This is why India’s green hydrogen transition is also a power-sector challenge. The country will need more solar and wind capacity, as well as storage and transmission infrastructure, to supply the large amounts of reliable renewable electricity required for electrolysis.
India added around 51 GW of renewable energy capacity last year, including approximately 45 GW of solar and 6 GW of wind capacity, according to Kishore.
Power demand also grew by around 9% during the current fiscal year.
The country may need to add more than 50 GW of renewable capacity every year for the next decade to meet its energy and decarbonisation goals.
The broader clean-energy transition could therefore create opportunities across the power sector. However, the companies benefiting from rising renewable capacity are not necessarily the same companies with direct exposure to green hydrogen.
Kishore said investors should distinguish between businesses directly involved in green hydrogen and those benefiting from the wider clean-energy transition.
Why exports could become attractive before domestic adoption
At first glance, it may seem counterintuitive that India could export green hydrogen or green ammonia while domestic industries are still struggling with the economics of green hydrogen.
The reason is that the economics of the global market are different.
Countries such as Japan, South Korea and those in Europe have ambitious decarbonisation targets but do not have the same combination of renewable energy potential, sunlight and available land that India can potentially offer.
This creates an opportunity for India to produce green molecules for export.
Green hydrogen can also be converted into derivatives such as green ammonia and green methanol. These derivatives can be easier to transport and can be used directly in industries such as fertiliser production, shipping and power generation.
Green ammonia, for instance, can be transported by ship and used directly in applications where hydrogen itself may be difficult to transport.
Japan is exploring the use of ammonia in coal-fired power plants as part of its decarbonisation strategy.
“These countries are not blessed with the kind of weather, sunlight or even large wastelands available to them. Yet, they are also consumers of this molecule,” Shah said.
This creates the possibility that exports could become an important early market for Indian producers.
Overseas buyers may be willing to pay a premium for low-carbon fuels and industrial molecules to meet their own emissions targets and regulatory requirements.
The opportunity, therefore, is not simply to export hydrogen. It is to build a broader green-molecule economy around hydrogen, ammonia and methanol.
How large is the emerging opportunity in India?
The opportunity is not limited to future demand from new industries. Existing industrial consumers are already beginning to create demand through tenders and procurement requirements.
Shah said oil marketing companies have been asked to come out with tenders for green hydrogen. The overall requirement could eventually reach around 200 kilotonnes per annum (KTPA), although only a portion of that has so far been tendered.
The fertiliser sector is also emerging as a major source of demand for green ammonia.
According to Shah, fertiliser companies have already come out with requirements of around 739 KTPA of green ammonia, with another tranche of around 730 KTPA expected.
In addition, a new tender for around 500 KTPA of green methanol is being drafted.
These requirements indicate that the market is beginning to move beyond policy announcements towards actual procurement.
However, the size of the potential market does not automatically solve the cost problem. Producers still need to make projects commercially viable, while buyers need to absorb the premium for cleaner fuels and molecules.
How industry is trying to bring down costs
The cost challenge is pushing companies to invest across the green hydrogen value chain rather than focus only on hydrogen production.
Larsen & Toubro has emerged as one of the leading Indian companies building capabilities across the ecosystem through its clean energy arm, L&T Energy GreenTech.
The company is targeting technology, electrolyser manufacturing, project execution and the development of green hydrogen and ammonia assets.
L&T has committed close to ₹15,000 crore of capital outlay towards its green hydrogen and green ammonia ambitions.
A key part of the strategy is to reduce dependence on imported technology.
L&T initially evaluated electrolyser technology from across the world, including Europe, before moving towards developing and localising the technology in India.
Shah said around 85-90% of the complete electrolyser technology is now indigenous and developed or manufactured in India. The membrane remains the main component that needs to be imported.
L&T has established electrolyser manufacturing capacity at its Hazira facility in Gujarat. The plant currently has a manufacturing capacity of 400 MW.
The company is producing 4 MW electrolyser stacks, which can be configured into 16 MW modules.
The localisation of technology is important because electrolysers are a key component of the overall cost of green hydrogen.
“We are very close to the Chinese numbers, and we believe that in the days to come, we will possibly be the most competitive across the globe,” Shah said.
The broader industry strategy is similar: lower the cost of equipment, increase manufacturing scale and use cheaper renewable electricity to bring down the final cost of hydrogen.
What is holding green hydrogen back?
India has made significant progress in building the policy and industrial framework for green hydrogen.
The National Green Hydrogen Mission, launched in 2023, aims to establish India as a major global hub for the production, use and export of green hydrogen.
The government has also announced financial incentives to support production and manufacturing.
But three challenges remain central.
First, the cost gap. Green hydrogen remains significantly more expensive than grey hydrogen.
Second, the cost and availability of renewable electricity. The more expensive the electricity used for electrolysis, the more difficult it becomes for green hydrogen to compete.
Third, the need for sustained policy support. Incentives may remain necessary until economies of scale, technology improvements and cheaper renewable power bring production costs down.
The emerging global market could help India overcome some of these challenges. Countries such as Japan, South Korea and those in Europe are looking for reliable sources of low-carbon fuels and industrial molecules.
Indian companies are increasingly positioning themselves to supply these markets, with major partnerships and investments involving companies such as Reliance Industries and L&T, particularly in Japan.
The strategic case is clear. The economic case is still being built.
India’s green hydrogen opportunity rests on several pillars: building domestic production capability, reducing dependence on imported energy and industrial molecules, creating an export industry and using the country’s renewable energy potential to become a global supplier.
But green hydrogen is not yet a commercially competitive replacement for grey hydrogen across the board.
The strategic case for green hydrogen is becoming stronger. The economic case, however, is still being built.
Until the cost of renewable power and electrolysers falls further, and government support helps bridge the price gap, India’s green hydrogen ambitions will continue to depend on a delicate balance between energy security, industrial demand, exports and the economics of clean energy.
