India’s green hydrogen ambition, a critical component of its strategy to achieve net-zero emissions by 2070, faces an uphill battle due to economic and financing challenges. The country has set an ambitious target of producing 5 million metric tonnes (MMT) of green hydrogen annually by 2030. However, a recent analysis by BloombergNEF indicates India is on track to meet just 10% of this goal. The steep costs of green hydrogen compared to conventional alternatives, coupled with financing hurdles, pose significant risks to the country’s vision of becoming a global leader in this emerging energy sector.

The Cost Conundrum

Green hydrogen, produced by splitting water using renewable energy, is an environmentally clean alternative. However, its production cost in India currently stands at $5.30–$6.70 per kg, much higher than the $1.9–$2.4 per kg cost of producing grey and blue hydrogen, which rely on fossil fuels. This price difference creates a market deadlock: costs will only reduce with large-scale production, but achieving such scale demands significant investments, which remain elusive due to unviable economics.

The production of green hydrogen hinges on two primary factors:

1. Levelised Cost of Electricity (LCOE): The average cost of producing electricity over the life of a project, heavily influenced by borrowing costs.
2. Electrolyzer Costs: Electrolyzers, which split water into hydrogen and oxygen, remain expensive, with prices ranging between $500–$1,800 per kW.

For emerging economies like India, where borrowing costs are high due to perceived financial risks, the Weighted Average Cost of Capital (WACC) can significantly drive up production costs. Studies show that raising WACC from 10% to 20% can increase the cost of hydrogen by as much as 73%, even if other variables remain constant.

Learning from Global Models: Lessons for India’s Green Hydrogen Sector

As India sets ambitious targets to develop its green hydrogen sector, it can look to successful examples from countries like the U.K., U.S., Japan, and Australia. These nations have adopted innovative strategies to build confidence, attract investments, and create a robust ecosystem for green hydrogen. Let’s break this down and explain what India can learn:

The U.K. Model: Building Trust through Certification

The U.K.’s Low Carbon Hydrogen Standard is a critical initiative that sets strict rules for what qualifies as low-carbon hydrogen. It provides certification to producers who meet specific emission limits during hydrogen production. This ensures that hydrogen being marketed as “green” or “low carbon” is truly aligned with climate goals.

• Why is this important? Certification builds trust in the market, reassuring buyers, investors, and policymakers that the hydrogen being produced genuinely helps reduce emissions. It also establishes transparency, which is essential for a new sector like green hydrogen.
• How can India replicate this? India can create similar certification standards to monitor and validate green hydrogen production. This will attract investments and open doors to exports in international markets, where certified low-carbon hydrogen is increasingly in demand.

Hydrogen Hubs: Integrated Approach in the U.S. and Japan

Countries like the U.S. and Japan have focused on creating hydrogen hubs, where infrastructure, production, and consumption are developed simultaneously in a single region. These hubs integrate renewable energy sources (like solar and wind) with hydrogen production facilities, storage systems, and end-users such as industries or transportation systems.

• Why is this effective? A hydrogen hub ensures demand certainty because production and consumption are built together. This reduces risks for investors and makes large-scale projects financially viable.
• Example: The U.S. government has announced funding for hydrogen hubs as part of its clean energy strategy, encouraging industries to adopt hydrogen fuel within these integrated ecosystems.
• How can India apply this? India can establish localized hydrogen corridors in states like Odisha, Gujarat, and Maharashtra, which already have strong industrial bases and abundant renewable energy potential. By linking renewable power plants to hydrogen production and industrial consumption, these hubs can become self-sustaining and attract long-term investments.

The Financing Challenge: Overcoming Barriers

Despite the opportunities green hydrogen offers, financing remains a major hurdle. Green hydrogen projects require substantial upfront capital, and high costs make it difficult to attract private investments. Addressing this challenge requires a combination of policy support and innovative financial solutions.

1. Policy and Incentives

The government must go beyond simple subsidies and create a comprehensive policy framework to reduce investment risks. Key strategies include:

• Long-term hydrogen purchase agreements: These are contracts where buyers commit to purchasing hydrogen at agreed prices over an extended period. This ensures stable revenues for producers, making projects attractive for investors.
• Partial loan guarantees: The government can back loans for hydrogen projects, reducing risks for banks and encouraging lending.
• Regulatory sandboxes: These are frameworks that allow companies to test innovative business models in a controlled environment with relaxed rules. Similar sandboxes have helped accelerate fintech innovation in India.

By creating such frameworks, the government can reduce investor uncertainty and drive large-scale private sector participation.

2. Innovative Financing Models

India’s financial institutions must rethink traditional financing approaches to accommodate the unique challenges of green hydrogen, such as long development timelines, uncertain demand, and complex value chains.

• Modular Financing: Projects can be built and financed in smaller phases, reducing upfront capital requirements. For example, instead of constructing a massive facility at once, smaller units can be added as demand grows.
• Anchor-Plus Model: In this approach, a reliable industrial buyer (like a large steel or chemical company) guarantees the purchase of an initial amount of hydrogen. This “anchor” demand allows additional capacity to be financed using flexible instruments as the market develops.
• Equipment Leasing: Electrolyzers, critical for green hydrogen production, are expensive to purchase upfront. Leasing them, similar to how solar and wind energy projects operate, can transform these costs into manageable operational expenses.

These models can unlock private capital and make green hydrogen projects financially viable.

3. International Collaboration

India must move beyond signing symbolic agreements with other countries and focus on practical market-making strategies. This includes:

• Standardizing Certification: Establish global standards for hydrogen origin and carbon intensity to boost investor trust and facilitate exports. Buyers, especially in Europe and the U.S., are keen to purchase clean hydrogen that meets specific environmental standards.
• Cross-Border Partnerships: Collaborations like the Australia-Japan Hydrogen Energy Supply Chain demonstrate how international agreements can provide demand certainty and financing for large-scale projects. For example, Australia produces hydrogen using its renewable resources, while Japan ensures consistent demand.

By building similar partnerships, India can secure export markets and attract foreign investments.

The Way Forward

India’s green hydrogen journey will hinge on its ability to balance policy innovation, financial structuring, and global partnerships. Industrial hubs in states like Gujarat and Odisha must lead the way, serving as proof-of-concept for integrated green hydrogen ecosystems.

To achieve its ambitious goals, India must:

• Develop clear policies to reduce investment risks.
• Introduce flexible financing models like modular and anchor-plus approaches.
• Strengthen international collaborations to create export opportunities and demand certainty.

By learning from successful global models and tailoring strategies to its unique challenges, India can not only decarbonise its industries but also establish itself as a leader in the global green hydrogen revolution.