India | Publication | January 2025
This article was written in collaboration with Partner, Nayantara Nag and Counsel, Ipshita Ahuja of Trilegal
India is rapidly advancing in the field of green ammonia production, positioning itself as a global leader in sustainable energy solutions. Green ammonia, produced using renewable energy sources, is a key component in the transition to a low-carbon economy.
Given the high levelized cost of green hydrogen for domestic consumption in India, exports will play a crucial role in scaling up green hydrogen/green ammonia production in India.
Countries like Japan, Singapore, and South Korea are expected to be significant importers of green hydrogen and green ammonia, with innovative schemes such as the contracts for difference programmes and clean hydrogen auctions being open to importers.
An early indicator of the importance of these markets for India is the rapid development of green hydrogen and green ammonia production/handling facilities at ports located along the eastern and southern coast of India, such as Paradip Port, Odisha and V.O. Chidambaranar Port, Tamil Nadu, given their (relative) proximity and hence ease of exports to Japan, South Korea, and Singapore.
While the potential for green ammonia in India is immense, several challenges need to be addressed. These include the high initial capital costs, the need for technological advancements to improve efficiency, energy storage, and the development of robust infrastructure for production and distribution.
The Indian government has shown strong support for green ammonia through its National Green Hydrogen Mission, which includes substantial funding and policy initiatives to promote the production and use of green hydrogen and ammonia. This mission aims to establish India as a major global hub for green hydrogen and ammonia, with a target of producing five million tons of green hydrogen annually by 2030. India’s Strategic Interventions for Green Hydrogen Transition (SIGHT) program is a crucial component of the National Green Hydrogen Mission.
The SIGHT program aims to identify and develop regions capable of supporting large-scale production and utilization of green hydrogen (known as Green Hydrogen Hubs) and provides financial support for the development of the necessary infrastructure for these hubs. This is supplemented by waivers of interstate transmission charges for renewable energy used in green hydrogen production, exemptions from compliance with the Approved List of Models and Manufacturers (ALMM) and the Revised List of Models andManufacturers (RLMM) issued by India’s Ministry of New and Renewable Energy for renewable energy generation plants supplying green hydrogen (and its derivates) production plants located in special economic zones (SEZs) or export oriented units (EOUs), exemptions from obtaining environmental clearances for facilities producing green hydrogen/green ammonia through electrolysis, facilitation of renewable energy banking, and time-bound grant of open access and connectivity.
The Indian government is also focusing on developing transmission infrastructure to provide power to Green Hydrogen Hubs. As per India’s National Electricity Plan on transmission (published in October 2024 by the Central Electricity Authority), a transmission system is being planned to deliver power to green hydrogen/green ammonia manufacturing hubs in the states of Odisha, Gujarat, West Bengal, Andhra Pradesh, Tamil Nadu and Karnataka
Besides regulatory support, private sector market drivers would also play a role in encouraging making green hydrogen more mainstream – sustainability initiatives supported by key sponsors and an awareness of the inevitability of the adoption of low or zero carbon fuels. An active carbon offsets market may also help in mitigating capital costs in relation to green hydrogen and green ammonia projects.
The project structure of a green ammonia project can be broadly understood as having the following components:
The power for the green hydrogen manufacture would need 100% renewable electricity for the construction, commissioning, testing, operation and maintenance of the hydrogen production facility, which may be through a combination of solar and wind projects. This may be further supplemented by pumped hydro storage capacity or battery storage to address intermittency.
The project company would need to either co-locate the renewable energy generation facility with the green hydrogen/green ammonia production plant or enter into a long term PPA with the renewable energy generator or a state utility for supply of firm and dispatchable, round the clock green power. A long-term PPA would also be useful in complying with India’s green hydrogen certification scheme (as per the Office Memorandum dated 4 September 2024 issued by the Ministry of New and Renewable Energy (Hydrogen Division)). Although this scheme is still being finalized, it clarifies that green hydrogen producers may consider input electricity as fully renewable if the producer has concluded at least one PPA with an operator producing renewable energy in one (or more) installations, for an amount that is at least equivalent to the amount of electricity that is claimed by the green hydrogen producer as being fully renewable.
One item to consider in this regard is whether the above certification regime is sufficient to satisfy the guarantees of origin requirements of the export markets in relation to evidencing the use of renewable energy in the green ammonia production process.
The components of a green hydrogen production unit can be broadly split into three parts:
In this regard, a key feature of India’s SIGHT program is financial incentives for electrolyser manufacturing and green hydrogen production. The program provides financial incentives for the domestic manufacturing of electrolysers with a budgetary outlay of about US$1.76 billion in INR equivalent, and incentives aggregating to about US$1.59 billion in INR equivalent for the production of green hydrogen. The incentives are awarded through a competitive bidding process. For green hydrogen production, bidders quoting the least number of average incentives over a three-year period are prioritized. For electrolyser manufacturing, the focus is on energy efficiency and localization commitments over five years.
Like fuel cells, electrolysers consist of an anode and a cathode separated by an electrolyte. There are three main types of electrolysers - solid oxide electrolyser cells (SOECs); polymer electrolyte membrane cells (PEMs); and alkaline electrolysis cells (AECs). Of these, AECs and PEMs are the two main technologies available in the market.
AECs (which use nickel as a catalyst) have been cheaper in terms of investment but are less efficient. In an AEC, potassium hydroxide is used to form hydrogen at the cathode and oxygen at the anode. PEMs can be more efficient but are more expensive to produce as they use platinum-group metal catalysts. In a PEM electrolyser, the electrolyte is a solid specialty plastic material. The water reacts at the anode to form oxygen, electrons and the hydrogen ions (protons). The electrons get transported through an external circuit to the cathode. The hydrogen ions selectively move from the anode to the cathode and then combine with the electrons from the external circuit to form hydrogen gas.
SOECs operate at about 700-800°C, which is the temperature required for the oxide membranes to function properly. In comparison, PEMs operate at around 70-90°C and AECs which operate at less than 100°C. This gives an indication of the energy required to be generated for electrolysis using current technologies.
Green hydrogen can also be produced through steam reforming landfill gas or biogas, which is methane rich.
The material cost drivers for the production of hydrogen from electrolysis are:
| Land | Acquiring land for green hydrogen production, storage, and transportation facilities could involve significant capital expenditure. As India expects to be exporting a large portion of domestically produced green hydrogen, government policies such as the National Green Hydrogen Mission contemplate development of Green Hydrogen Hubs, green ammonia bunkers and refuelling facilities at most major ports in India by 2035. |
| Electricity price |
A substantial component of the cost of producing green hydrogen is the cost of round-the-clock renewable electricity, where deploying energy storage substantially drives up the cost of renewable electricity. Accessibility to cheaper low emissions electricity pricing can have a material impact on the levelized cost of hydrogen. |
| Plant size and capital costs |
Increasing the size of the electrolyser and the number of electrolysers in a plant decreases capital costs on a per electrolyser basis and enables greater utilization of the balance of the electrolysis related infrastructure (e.g. compressors, heat exchangers and pumps etc.) which can improve system efficiencies |
| Capacity factor |
The more the electrolyser is used, the greater the potential to derive revenue and pay back the capital investment |
| Efficiency |
Efficiency increases with the size of the plant but improvements can also be achieved via R&D and operation optimization. Current electrolyser efficiencies are between 54-58kWh/kg depending on the technology. |
The flexibility of AEC and PEM stacks is enough to follow fluctuations in wind and solar on account of intermittency. The flexibility of the system is limited, however, by the energy requirements of the balance of plant (e.g. the compressors used to generate the appropriate pressure for the electrolysis). It is therefore critical to deal with the intermittency of renewable power by supplementing it with battery storage or pumped hydro.
Once produced, low-carbon or green hydrogen can be stored and transported, making it a more flexible energy vector than electricity. However, transport and storage costs would play a significant role in the competitiveness of hydrogen as an energy carrier. As a result, commentators often focus on the delivered cost of hydrogen (which includes storage and transport costs). Storage of hydrogen is possible in compressed gas or liquefied form, in tanks or in geological storage such as salt-caverns or depleted gas wells. The appropriate storage option will often depend on the volumes stored, the duration of the storage and the available geology. While hydrogen can be transported through pipelines, acquiring right of way and other permits for installing pipeline infrastructure has always been a challenge in India and hence, it may be more efficient to transport hydrogen through tanker trucks and trailers.
The green ammonia production through the air separate unit (ASU) which extracts nitrogen from the air, the Haber-Bosch reactor and thermal management system (which combines hydrogen and nitrogen to make ammonia) can be co-located with the green hydrogen production facility. The process requires extremely high temperatures (around 400-450°C) and pressures (15-25 MPa), which demand substantial energy input.
Co-location of the green ammonia and green hydrogen facilities reduces the need for transporting hydrogen, which can be costly and logistically challenging. It allows for direct use of hydrogen produced on-site, enhancing overall efficiency.
Where the Haber-Bosch reactor is being powered through renewable sources, the reactor must be designed to handle fluctuations in energy supply. This can involve integrating energy storage systems (including pumped hydro) or developing flexible reactor designs. The iron-based catalysts used in the Haber-Bosch process have limited efficiency in relation to hydrogen and nitrogen gases reacting to produce ammonia, leading to low single-pass conversion rates (approximately 15%). This necessitates the recycling of unreacted gases, further increasing energy consumption. Advances in catalyst technology and process optimization would help improve efficiency and reduce the energy requirements of the Haber-Bosch process when powered by renewable energy.
In the early stages of the development of the hydrogen market the initial consideration for structuring offtake arrangements was whether the product will be marketed and sold in the same way as a refined/petrochemical product (i.e. on a net-back basis with the project taking a certain level of volume and/or price risk) or whether it will be structured more along the lines of an LNG sale and purchase arrangement. Thinking and practice has converged on the LNG model. This means that the offtaker will be required to enter into a long-term fixed price contract with a take-or-pay obligation to insulate the project company against volume and price risks.
Volume risk is allocated to the offtaker by way of a take-or-pay obligation in respect of a fixed annual quantity. If the offtaker takes less product than the take-or-pay volume, it will be required to pay for product not taken. Commonly there is an obligation on the project company to use reasonable endeavours to market and sell product not taken by the offtaker in order to mitigate its losses. The offtaker bears the difference between the value of the take-or-pay volume and the revenues received by the project company from the offtaker and the sale of volumes not taken. Similarly, the project company may be exposed to damages for shortfall in the quantity of product delivered as compared to contractual quantities. The low carbon standards applicable to green ammonia in the relevant target market for export would also heavily influence the structure of the transaction. Japan has set its standard for carbon intensity for low-carbon ammonia at 0.87 kg-CO2e/kg-NH3 on a well-to-gate basis. This is aligned with the standard set by the European Union. The European Union and Japan both mandate that low carbon ammonia (which would also include blue ammonia alongside green ammonia) must achieve at least 70% reduction in greenhouse gas emissions compared to fossil fuel derived ammonia production.
It is important therefore to demonstrate that green ammonia produced by a project satisfies the regulatory requirements of the target market to maximise its value and attract the premium required to make the project bankable. A portfolio of offtakers targeting different markets could be used to create some flexibility for the project in terms of managing the overall construction risk in this regard.
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