Ten years since the solar revolution began in the country, prices have dropped to a historic low of Rs 1.99 per kilowatt-hour (kWh). The revolution was made possible by the coming together of many elements, mainly forward-looking policies for a conducive market to inspire the confidence of private players and streamlining of bureaucratic processes.
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A similar approach is needed to increase the contribution of green hydrogen in India’s energy mix. At the moment, India imports 85 per cent of its crude oil, 24 per cent of coal, and 54 per cent of gas requirements.
Currently, India consumes about 6 million metric tonnes of grey hydrogen per annum, which is about 8.5 per cent of the global hydrogen demand. Increasing the share of hydrogen in the country’s energy mix would take it towards greater self-reliance in its energy needs.
Further, an emphasis on green hydrogen would help reduce carbon emissions and take India closer to meeting its climate change commitments. A good approach would be to increase the share of hydrogen in the short run — not overly concerned about grey, blue, or green. However, as its use picks up, our efforts should move towards a higher share of green hydrogen.
The growth of solar has given a unique advantage for the growth of green hydrogen. Cheap solar tariffs mean the cost of powering the electrolysis process through surplus electricity at peak hours to generate hydrogen remains low. Setting up hydrogen generation plants near solar parks will further reduce transmission costs.
Proactive industry collaboration with the government is key to creating a hydrogen economy in India. This will help bring best-in-class hydrogen technology, equipment, and know-how to create a hydrogen supply chain in India — in many cases, these could be “Made in India”. By prioritising national hydrogen demonstration projects, innovations to further reduce the cost of hydrogen will become prominent locally.
Hydrogen, a versatile fuel, has applications across sectors. This means several ministries need to be involved in the framing of policies and increase adoption of green hydrogen in their respective segments. The Government of India should consider setting up a multi-agency mission to bring multiple ministries, private industry and academia together in a partnership to scale up the deployment of hydrogen across sectors and industries.
Having a clear mid-term and long-term target inspires confidence in the private sector to make their investments in a new energy source. India should increase this demand and aspire to meet at least 4 per cent of its energy demands by hydrogen by 2030.
This would represent about 13 million metric tonnes of hydrogen demand by 2030. A target for 2050 of about 10-12 per cent hydrogen within the energy mix could also be recommended to ensure long-term supply-demand creation whilst further instilling confidence in the market.
For the quick adaptation of hydrogen as a source of energy, the Government of India should incentivise private players to make electrolysers cheaper. Furthermore, the annually collected cess tax for coal (approximately Rs 24,000 crore), currently used in various projects for the expansion of India’s RE capacity, should be utilised to fund research on newer hydrogen technologies as well. Existing subsidies from schemes like FAME II for electric vehicles should be extended to fuel-cell electric vehicles.
Tax benefits that solar and wind receive should be extended to all players in the green hydrogen ecosystem. In the short term, the price of hydrogen generated through steam methane reformation should be capped — ideally at Rs 17 per kg. This enables hydrogen production at a cost of Rs 260 per kg. Generating hydrogen from biomass should also be incentivised as it also has the potential to increase farmer incomes. In addition, some of the key policy reforms include:
To kickstart demand, policies should also mandate the use of Green Hydrogen. For example, industries such as fertiliser, steel, and oil refineries should be mandated to meet 10 per cent of their energy by green hydrogen.
The cost of transmission of electricity from solar parks to hydrogen generation facilities should be kept minimum, ideally not more than 50p per kWh.
Like how fixed prices were paid earlier to renewable electricity integration into the electric grid, feed-in tariffs should be set for private players to integrate green hydrogen into the natural gas grid.
Reverse auctioning of the per-unit cost of solar energy was key to the growth of solar. Taking up the responsibility to set up logistics, the Centre put out bids for buying solar energy and chose the cheapest bidder. This triggered a massive price drop — from Rs 7 to Rs 4 as soon as reverse auctioning began.
Green hydrogen is one of the most promising fuels in the efforts to reduce carbon emissions. India should aim to reduce the cost of hydrogen to less than $2 by 2030. By doing so, the demand is expected to increase by at least five times today’s demand to 30 million tonnes per annum by 2050.
The year 2020 saw 20 countries, including Australia, Canada, the USA, Japan, and Germany, announce hydrogen policies. India should ramp up international collaborations for more effortless transfer of technology and resources related to hydrogen. Low solar prices coupled with pragmatic policies can help India take a leadership position in driving the global hydrogen economy.
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Petrol in India is cheaper than in countries like Hong Kong, Germany and the UK but costlier than in China, Brazil, Japan, the US, Russia, Pakistan and Sri Lanka, a Bank of Baroda Economics Research report showed.
Rising fuel prices in India have led to considerable debate on which government, state or central, should be lowering their taxes to keep prices under control.
The rise in fuel prices is mainly due to the global price of crude oil (raw material for making petrol and diesel) going up. Further, a stronger dollar has added to the cost of crude oil.
Amongst comparable countries (per capita wise), prices in India are higher than those in Vietnam, Kenya, Ukraine, Bangladesh, Nepal, Pakistan, Sri Lanka, and Venezuela. Countries that are major oil producers have much lower prices.
In the report, the Philippines has a comparable petrol price but has a per capita income higher than India by over 50 per cent.
Countries which have a lower per capita income like Kenya, Bangladesh, Nepal, Pakistan, and Venezuela have much lower prices of petrol and hence are impacted less than India.
“Therefore there is still a strong case for the government to consider lowering the taxes on fuel to protect the interest of the people,” the report argued.
India is the world’s third-biggest oil consuming and importing nation. It imports 85 per cent of its oil needs and so prices retail fuel at import parity rates.
With the global surge in energy prices, the cost of producing petrol, diesel and other petroleum products also went up for oil companies in India.
They raised petrol and diesel prices by Rs 10 a litre in just over a fortnight beginning March 22 but hit a pause button soon after as the move faced criticism and the opposition parties asked the government to cut taxes instead.
India imports most of its oil from a group of countries called the ‘OPEC +’ (i.e, Iran, Iraq, Saudi Arabia, Venezuela, Kuwait, United Arab Emirates, Russia, etc), which produces 40% of the world’s crude oil.
As they have the power to dictate fuel supply and prices, their decision of limiting the global supply reduces supply in India, thus raising prices
The government charges about 167% tax (excise) on petrol and 129% on diesel as compared to US (20%), UK (62%), Italy and Germany (65%).
The abominable excise duty is 2/3rd of the cost, and the base price, dealer commission and freight form the rest.
Here is an approximate break-up (in Rs):
a)Base Price | 39 |
b)Freight | 0.34 |
c) Price Charged to Dealers = (a+b) | 39.34 |
d) Excise Duty | 40.17 |
e) Dealer Commission | 4.68 |
f) VAT | 25.35 |
g) Retail Selling Price | 109.54 |
Looked closely, much of the cost of petrol and diesel is due to higher tax rate by govt, specifically excise duty.
So the question is why government is not reducing the prices ?
India, being a developing country, it does require gigantic amount of funding for its infrastructure projects as well as welfare schemes.
However, we as a society is yet to be tax-compliant. Many people evade the direct tax and that’s the reason why govt’s hands are tied. Govt. needs the money to fund various programs and at the same time it is not generating enough revenue from direct taxes.
That’s the reason why, govt is bumping up its revenue through higher indirect taxes such as GST or excise duty as in the case of petrol and diesel.
Direct taxes are progressive as it taxes according to an individuals’ income however indirect tax such as excise duty or GST are regressive in the sense that the poorest of the poor and richest of the rich have to pay the same amount.
Does not matter, if you are an auto-driver or owner of a Mercedes, end of the day both pay the same price for petrol/diesel-that’s why it is regressive in nature.
But unlike direct tax where tax evasion is rampant, indirect tax can not be evaded due to their very nature and as long as huge no of Indians keep evading direct taxes, indirect tax such as excise duty will be difficult for the govt to reduce, because it may reduce the revenue and hamper may programs of the govt.