India’s ability to compete with US incentives for green hydrogen will be critical: Bain & Company

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With the US offering lucrative incentives for green hydrogen, India will have to offer support to the fledgling industry in the country to ensure it is price competitive, Brian Murphy, Head of APAC Energy & Natural Resources practice at Bain & Company told Moneycontrol.

He said that the US has the advantage of the IRA (Inflation Reduction Act) provisions, which incentivise domestic manufacture of the components required for green hydrogen.

“The IRA, or Inflation Reduction Act, provisions are very generous to green hydrogen. They essentially bring forward to cost competitiveness green hydrogen in the US and they incentivise domestic manufacture of the componentry. So India’s ability to compete with that will be important; but I think there’s still plenty of opportunity both on the technology costs and the policy stimulus to help support that,” said Murphy.

Murphy, who has more than 20 years of management consulting experience, is the head of Bain’s Asia-Pacific Energy & Natural Resources practice, which includes Oil & Gas (O&G), mining, utilities and alternative energy, chemicals and agribusiness.

­­­­­­­­­He said what role India plays in the global supply chain of green hydrogen, including electrolyser manufacturing, and the broader supply chain, such as construct and install capabilities, and operate and maintain capabilities, would be important.

“Many countries and companies will be looking to make sure they’ve got diverse and secure supply along the hydrogen value chain and I think that’s a particularly important opportunity for India,” said Murphy.

In January, the Indian government kicked off the National Green Hydrogen Mission with an initial outlay of Rs 19,744 crore. Of this, Rs 17,490 crore (88.6 percent) has been earmarked solely to incentivise the production of green hydrogen and electrolysers, and Rs 400 crore has been earmarked for research and development.

Other than that, Rs 1,466 crore will be devoted to pilot projects and Rs 388 crore towards other mission components. The ministry of new and renewable energy (MNRE) will formulate the scheme guidelines for the implementation of the respective components.

Murphy said energy companies’ main competition for green hydrogen would be in the next few years. Companies need to lock in some of the key customer offtake arrangements, customer relationships and partner relationships, he added.

Green hydrogen is produced by electrolysis of water using renewable energy and thus, is carbon free. In India, companies such as Adani Group, Reliance Industries, Indian Oil, Renew, NTPC and some other energy giants are working on green hydrogen.

For incumbent or legacy energy companies, he said a new and emergent space like green hydrogen is less about incumbent scale and more about insurgent scale. Insurgent refers to a more entrepreneurial approach, while incumbent refers to established businesses.

The company’s ability to engage quickly with customers, think differently about commercial risk with customers, and attract talent, external capital and financing is all more like being a big start-up than being a big energy company, he added.

“What we’re seeing is that many of the energy companies that are starting to be successful in green hydrogen and other emerging energy spaces are adopting much more insurgent-like operating models, really looking to external talent and engaging very deeply with customers,” said Murphy.
Companies also need to work in an integrative way with technology and EPC partners, he emphasised.

India is pushing for the use of renewable sources of energy as the country has pledged to achieve a net-zero target by 2070. Other countries such as the US and China have also set net-zero targets.

Murphy pointed out that there are several challenges for countries in energy transition. He believes one of the challenges for India would be in its plans for the next few years, i.e., in the 2030s. Therefore India needs to accelerate energy transition as quickly as possible.

“It’s great to have a 2070 commitment, but it’s a long way out. Even 2050 commitments are a long way out,” he said.

“So we need acceleration of the energy transition as quickly as possible. By the same token, it’s a period where we really need to be setting ourselves up for that sort of 2030s acceleration of transition as well,” he added.
Murphy pointed out that there are several complex decisions required to replace an existing high carbon with a new low carbon part. Countries have to take difficult decisions, such as making tradeoffs in terms of cost, tradeoffs in terms of local community, and tradeoffs in terms of land use, he said.

He added that significant infrastructure buildouts would also be required.

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