Budget 2022 must focus on green hydrogen as a key energy resource

Global industry interest in green hydrogen as a decarbonisation and energy storage solution has been hitting record highs. Hydrogen has potential in a variety of applications, including as a heat source in metal processing, a source of fuel for the long-haul trucking and shipping industries and an energy storage solution for infirm renewable power. 

India has been announcing a slew of measures to promote green hydrogen - in her speech on the Union Budget 2021-22, Finance Minister Nirmala Sitaraman had announced the upcoming publication of the National Hydrogen Energy Mission (NHEM), which was initially referenced in the Prime Minister's 2021 Independence Day speech.  

The biggest challenges facing India are to develop and demonstrate green hydrogen technologies (including transportation technologies) which are technically and economically viable and cost-competitive, and to create a robust supply chain and delivery mechanism for these technologies. 

Accordingly, we envisage that the Union Budget 2022-23 will develop on the preliminary announcements in the Union Budget 2021-22 and focus on meeting these challenges. 

Also Read: India aims to emerge as a global leader in green hydrogen: Power Minister R K Singh

Suggestions of key stakeholders 

In pre-budget consultations held by the finance minister, key suggestions included the launch of incentives for hydrogen storage and fuel cell development.  

Additionally, the India Hydrogen Alliance, a coalition of industry participants, made a six-point policy submission to the NITI Aayog and the Ministry of New and Renewable Energy for building a hydrogen economy. 

The submissions include the setting up of a public-private task force to prepare a milestone-based national hydrogen roadmap, the creation of a national fund with participation from industry players, sovereign partners, multilaterals etc. with the aim to cover the entire supply chain and raise $1 billion by 2030, the promotion of domestic manufacturing of electrolysers, the setting of globally harmonised and inter-operable standards for hydrogen storage, transport and dispensation, the development of large-scale demonstration projects for pre-feasibility studies and the formation of separate industry groups to leverage hydrogen for decarbonisation and to drive hydrogen commercialisation in various industries. 

Budget expectations 
Given the submissions made by various stakeholders, our expectations for green hydrogen-related announcements in the Union Budget 2022-23 include the creation of a fund for research and development spending, to be set up with contributions from the government and industry, and the publication of a roadmap that lays out the targets of the NHEM over the course of at least the upcoming financial year.  

More specifically, the research and development efforts should focus on the development and economisation of green hydrogen technologies (managed through public-private partnerships), funding pilot and demonstration projects and the setting of standards in respect of various components involved in the green hydrogen supply chain. 

Leveraging India's significant renewable energy potential to position India as a top producer and potential exporter of green hydrogen should be a priority. 

The means for scaling up the cross-sector use of green hydrogen (in the transport and power sectors, to start) and the refurbishment and use of existing natural gas pipelines for the transport of green hydrogen should also be explored. 

Key policy interventions that are expected to be announced in the upcoming budget include regulatory support for domestic manufacturing of supply chain components (with a focus on electrolyser systems) in the form of extension of the production-linked incentive scheme of the government to cover the domestic manufacturing of key green hydrogen system components, the prescription of green hydrogen purchase obligations for various industries for which green hydrogen is a potential decarbonisation solution and the introduction of a viability gap funding scheme with a focus on heavy mobility. 

This would deliver on the statements and promises made by various government representatives and stakeholders over the last year.  

Also Read: Government's Moves on Alternative, Green Fuels

Fiscal incentives that could conceivably be announced as a part of the roadmap include the extension of tax benefits applicable to the infrastructure sector to green hydrogen-related activities. 

This includes 100% accelerated depreciation benefits on new investments in green hydrogen technologies and tax deductions (i.e. deduction of a particular percentage (up to 100%) of income and profits of an enterprise involved in developing green hydrogen for specified assessment years after commencement) under Section 80IA of the Income Tax Act, 1961. 

In its nascent stages, similar impetus was provided to renewable energy, and the extension of these benefits to hydrogen projects with linkages to renewable energy is a natural next step. 

Further, until the aforesaid incentives for domestic manufacturing of green hydrogen supply chain components create a robust domestic market, duties and taxes on import of these components should be kept minimal.    

The budget could also explore the provision of state offtake guarantees for hydrogen components such as electrolysers and low-interest loans for the setting up of green hydrogen system demonstration and production facilities.  

All of these measures and incentives will ensure that India does not fall behind in the global green hydrogen race that is currently ongoing. 

(The authors of this piece are Santosh Janakiram, Partner and head of the Projects practice, Sangita John, Partner and Nandita Menon, Senior Associate, Cyril Amarchand Mangaldas)