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Move over electric vehicles, green ydrogen is here!

The environment friendly gas has recently caught the fancy of some of the largest firms and governments around the world as they try to pivot to a more sustainable source of energy.

Why, you might ask?

As one of the cleanest forms of energy in the world, green hydrogen is one of the ultimate solutions to achieve net-zero emissions.

The gas is produced with the help of electrolysis through electricity generated from renewable sources of energy such as solar and wind.

With electrolysis, all you need to produce large amounts of hydrogen is water, a big electrolyser, and electricity.

An electric current then splits the water into hydrogen and oxygen.

This ensures no greenhouse gas emissions as the only by product of this process is oxygen, making it a great replacement for carbon emitting fuels.

At present, the country’s entire production of hydrogen comes from fossil fuels. However, by 2050, three-fourth of all hydrogen is projected to be green.

The US has invested $150 m in hydrogen fuel infrastructure and development every year since 2017. Governmental bodies in Europe and Asia are also investing more than $2 bn annually in hydrogen fuel production.

In fact, China has committed over US$217 bn of investment in hydrogen-powered transportation until 2023.

The Indian government is not far behind.

As green power takes precedence in the global scheme of things, the Indian government has already kick-started its green hydrogen journey.

On 15 August 2021, Prime Minister Narendra Modi, flagged the launch of a National Hydrogen Mission and announced his decision to transform India into a global hub for green hydrogen production and export.

As a result, companies in India have started making the switch. 

Here are 5 companies that are leading this revolution.

#1 Reliance Industries

Reliance Industries Ltd (RIL), the largest private sector oil and gas company in the country, plans to go green.

The company recently announced its plans to become a net carbon-zero firm by 2035. It aims to replace transportation fuels with clean electricity and hydrogen.

The conglomerate said it will invest 750 bn over the next three years in renewable energy.

Out of this, it will invest 600 bn in a 5,000-acre, green energy integrated complex called Dhirubhai Ambani Green Energy Giga Complex in Jamnagar, Gujarat.

The complex will include manufacturing units for solar cells and modules, a battery unit for energy storage, a fuel cell-making factory, and an electrolyser plant to produce green hydrogen.

The company is also seeking partners to bring new and advanced technology to India.

Reliance (RIL) recently partnered with Danish company Stiesdal A/S through its subsidiary Reliance New Energy Solar (RNESL) to develop and manufacture hydrogen electrolysers.

Through this agreement, RNESL and Stiesdal will combine their strengths and collaborate to further advance the technology development of hydrogen electrolysers.

Analysts have estimated that RIL will build a 2.5-gigawatt (GW) electrolyser manufacturing unit.

The electrolyser gigafactory will manufacture modular electrolysers for the production of green hydrogen for domestic use as well as for international sales.

While this will be expensive (the cost of green hydrogen is around US$3.6-5.8/kg), the company’s chairman, Mukesh Ambani, aims to produce hydrogen at ‘under US$1/kg within a decade’.

#2 GAIL

State-owned GAIL (India) also has ambitious plans with respect to green hydrogen. 

The PSU plans to build India's largest green hydrogen plant as it looks to supplement ‎its natural gas business with carbon-free fuel.

At a recent event, GAIL chairman and managing director, Manoj Jain, said the company has floated a global tender to procure an electrolyser.

He added that the company has finalised 2-3 sites for the unit including one at Vijaipur in Madhya Pradesh. It will take 12-14 months to set up the plant. The plant planned will have a capacity of 10 MW, the largest announced so far in the country.

GAIL has already started mixing hydrogen in natural gas in one of the cities, on a pilot basis. The company is testing the mix percentage before it scales it up.

The hydrogen that GAIL plans to produce can be sold to fertiliser units which as per government mandate are required to use hydrogen as fuel.

#3 NTPC

Just like GAIL, NTPC plans to produce green hydrogen on a commercial scale.

The company plans to do that from its upcoming 4,750 MW renewable energy park at the Rann of Kutch. The capacity of the plant will be 5 MW (megawatts).

Currently, NTPC is running a pilot project in its Vindhyanchal unit, where the cost of hydrogen is estimated to be around US$2.8-3/kg. 

This is expected to fall going forward through economies of scale.

NTPC also plans to set up its first green hydrogen fuelling station in Leh, Ladakh. It will ply 5 hydrogen buses, to start with.

This will put Leh as the first city in the country to implement a green hydrogen-based mobility project.

NTPC has been aggressively pushing for greening its portfolio and the green hydrogen project is another step towards achieving a low carbon footprint.

NTPC has also been promoting the usage of green hydrogen-based solutions in sectors like mobility, energy, chemical, fertiliser, steel etc.

The company has recently revised its target of achieving 60 GW renewables capacity by 2032, almost doubling the earlier target.

#4 Indian Oil Corp

Another PSU that plans to tap into the green hydrogen opportunity is Indian Oil.

The nation's largest fossil fuel retailer recently announced its plans to build a green hydrogen plant at its Mathura refinery in Uttar Pradesh. The unit is likely to have a capacity of around 160,000 barrels per day.

It will wheel the power from its wind power project in Rajasthan to its Mathura refinery to produce absolutely green hydrogen through electrolysis.

It also plans to come up with a stand-alone green hydrogen manufacturing unit in Kochi that will draw energy from the solar power facility of the Kochi International Airport.

Kochi is the world’s first fully solar-powered airport with a total capacity of 40 MW. The idea is to run hydrogen buses from Cochin airport to Thiruvananthapuram.

Indian Oil has set a target of converting at least 10% of its hydrogen consumption at refineries to green hydrogen soon.

As a first step towards this, 10% of the usage in the Mathura refinery will be converted to green sources by 2024.

#5 Larsen and Toubro (L&T)

Engineering major, L&T, also plans to foray into the green hydrogen space.

The company has announced that it will set up a green hydrogen plant at its Hazira complex, which is slated to be completed this financial year.

It also plans to put up a few more green hydrogen plants in its other manufacturing units.

Apart from this, it is currently evaluating the possibility of manufacturing electrolysers.

At the latest press conference, L&T’s Director and Senior Executive Vice President (Energy), Subramanian Sarma said that it was very much on the cards and that an announcement could come as soon as this financial year.

In its latest annual report, L&T said it aims to be net-zero emissions by 2040. 90% of this would come from switching over to initiatives such as renewable energy, green hydrogen and biodiesel while the other 10% would be offset by creating carbon sinks.

The company plans to spend between 10-50 bn on its green initiatives, spread over a number of years.

What are the challenges ahead for the adoption of green hydrogen?

While policy and power market regulations released by the government are expected to boost green hydrogen development in the country, the truth is that the industry has a number of challenges to overcome.

You see, hydrogen research in the country, in general, is underfunded.

In the NDA’s 2020-21 budget, only 250 m was allocated to the Ministry of New and Renewable Energy for hydrogen-related R&D.

In comparison, 700 million euros ( 61 bn) were offered by the German government to firms working on green hydrogen alone.

To add to this, producing green hydrogen is an expensive undertaking with the biggest cost being the electrolyser.  The membrane-electrode unit accounts for 60% to 70% of its cost while precious metals account for the rest.

Manufacturing at a greater scale could reduce these costs but since demand is limited, production capacities are yet low.

Hydrogen is also an expensive fuel to move. The gas needs to be cooled to -252°C before transportation. While it can be stored as ammonia, a more stable form, reconversion is expensive.

Should you include green hydrogen stocks in your portfolio?

Here are a few reasons why green hydrogen stocks offer a good opportunity to investors.

India’s current energy import bill is over $160 bn ( 12 tn) a year. The continued coal and oil dependency will increase this amount by 2-3 times.

To cut down expenses and reduce this dependency, sustainable sources of energy like green hydrogen will become more of a necessity than a choice in the near future. The government's nudge is another area that is creating an opportunity for the sector.

It recently announced a draft policy mandating that green hydrogen account for 10% of the overall hydrogen needs of refiners by 2023-24. For the fertiliser sector, the requirement is around 15%.

It also plans to increase its non-fossil energy capacity to 500 GW by 2030 and meet 50% of its energy requirements from renewable energy by 2030.

While the above-mentioned reasons are compelling, one must view green hydrogen stocks with the same amount of caution as one would view other stocks. Sustained research must not be compromised despite the positive odds.

(This article is syndicated from Equitymaster.com)

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