Create SECI-like entity for efficient long-term procurement of green hydrogen: TERI

Emphasising on the criticality of developing a competitive market for procurement of green hydrogen in India, The Energy & Resources Institute (TERI) has suggested creating an entity on lines of the Solar Energy Corporation of India (SECI), which will procure green hydrogen for all industries through long term contracts.

The noted policy think tank in the energy sector in its report on leveraging green hydrogen for decarbonising the industry pointed out that currently there is no market for green hydrogen in India.

TERI argues in favour of competitively procuring green hydrogen from a prospective date for meeting downstream demand for different projects across different industries such as steel and fertilzsers, whose development is underway. This will help in creating competitive production capacities for the commodity.

Creating a market

The reality is that as of now there is no market in the country for green hydrogen, which is a consequence of there being no market for goods and services that would use the commodity to replace carbon emitting fossil fuels.

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Conventional support mechanisms such as the SIGHT Programme or the PLIs scheme may not deliver the desired outcomes in the absence of a market for green hydrogen and products made from it, it opined.

The report stresses on understanding an investor’s perspective.

“He needs to see sufficient sustained demand in a price range where he can get adequate returns on his investment. On this basis, he has to raise equity and debt whose providers will do their own due diligence.

“Contractual long-term purchase agreement at a price, L1 bid price, which generates reasonable returns gives full confidence to financial markets for both equity and debt. This has been seen in the solar mission where all the capacity has been created by the private sector and where financing has not been a constraint,” it added.

Procurement of green hydrogen from a prospective date for meeting downstream demand for different projects whose development is underway would create competitive production capacities, it argues.

Bidding for supply of hydrogen for each downstream project would facilitate movement down the cost curve and nurture a competitive industry structure, TERI explained in the report.

Competitive procurement of green hydrogen for different downstream pilot projects in the quantities and from the dates of the commissioning of these plants is being suggested to create the market for green hydrogen through individual long term procurement contracts.

“This could be done more efficiently by creating a special purpose vehicle (SPV) for such procurement. This SPV could be set up along the lines of SECI, which through competitive procurement over the years enabled India to have the cheapest solar power. This can be repeated for all the downstream green carbon free goods and services in the hard to abate sectors,” the report stressed.

SPVs for downstream projects

The TERI report also recommended creating an SPV for each industrial segment for development of pilot plants. These SPVs may be promoted by the Ministries dealing with the industries chosen for developing pilot projects.

Where the technology for such a plant is mature, with at least one plant in successful operation, the best way to proceed would be through a long-term procurement contract. This would derisk the investment decision for putting up the plant.

The supply of green hydrogen should be assured along with its price. Supply of competitively procured green hydrogen will lower the cost of downstream production.

Further, it could also reduce the risks of potential bidders as they would only need to set up the plant, run it and not have to ensure the supply of green hydrogen for their plant.

“The bid parameter should be the processing cost of conversion of the green hydrogen which would be provided along with other raw materials and inputs which the bidder would have to arrange. Price indexation would be provided as is the practice in all such long-term contracts,” the report said.