Green Hydrogen Financing

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Financing challenges threaten India's ambitious green hydrogen goals despite its potential to lead in the emerging sector.

India aims to produce 5 million metric tonnes of green hydrogen annually by 2030 to decarbonize its industrial sectors, but only 10% of this target is likely to be met. The significant cost disparity between green hydrogen ($5.30-$6.70/kg) and traditional grey/blue hydrogen ($1.9-$2.4/kg) hinders offtake and private investments, requiring economies of scale to achieve viability.

The key barriers are the high cost of electricity and electrolyzers, which increase the levelized cost of hydrogen production. A high weighted average cost of capital (WACC) in emerging markets like India further raises investment costs. A WACC increase from 10% to 20% leads to a 73% rise in production costs, compounding financing challenges.

To overcome these barriers, India must de-risk investments by adopting innovative financial mechanisms, policy frameworks, and modular project financing that allow phased facility scaling. Global examples, like the U.K.'s Low Carbon Hydrogen Standard and strategic hubs in Japan and Australia, highlight successful approaches. Localized industrial clusters tied to renewable energy sources could attract investments.

India also needs regulatory sandbox initiatives to experiment with novel business models. Collaboration with international partners is essential to standardize carbon intensity and build trust. Early hydrogen projects in industrial hubs, such as Odisha and Gujarat, will demonstrate viable models. Success in green hydrogen will depend on efficient project execution, access to low-cost capital, and strategic innovation to lower costs and scale production.