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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Steve Ovett, the famous British middle-distance athlete, won the 800-metres gold medal at the Moscow Olympics of 1980. Just a few days later, he was about to win a 5,000-metres race at London’s Crystal Palace. Known for his burst of acceleration on the home stretch, he had supreme confidence in his ability to out-sprint rivals. With the final 100 metres remaining,
[wptelegram-join-channel link=”https://t.me/s/upsctree” text=”Join @upsctree on Telegram”]Ovett waved to the crowd and raised a hand in triumph. But he had celebrated a bit too early. At the finishing line, Ireland’s John Treacy edged past Ovett. For those few moments, Ovett had lost his sense of reality and ignored the possibility of a negative event.
This analogy works well for the India story and our policy failures , including during the ongoing covid pandemic. While we have never been as well prepared or had significant successes in terms of growth stability as Ovett did in his illustrious running career, we tend to celebrate too early. Indeed, we have done so many times before.
It is as if we’re convinced that India is destined for greater heights, come what may, and so we never run through the finish line. Do we and our policymakers suffer from a collective optimism bias, which, as the Nobel Prize winner Daniel Kahneman once wrote, “may well be the most significant of the cognitive biases”? The optimism bias arises from mistaken beliefs which form expectations that are better than the reality. It makes us underestimate chances of a negative outcome and ignore warnings repeatedly.
The Indian economy had a dream run for five years from 2003-04 to 2007-08, with an average annual growth rate of around 9%. Many believed that India was on its way to clocking consistent double-digit growth and comparisons with China were rife. It was conveniently overlooked that this output expansion had come mainly came from a few sectors: automobiles, telecom and business services.
Indians were made to believe that we could sprint without high-quality education, healthcare, infrastructure or banking sectors, which form the backbone of any stable economy. The plan was to build them as we went along, but then in the euphoria of short-term success, it got lost.
India’s exports of goods grew from $20 billion in 1990-91 to over $310 billion in 2019-20. Looking at these absolute figures it would seem as if India has arrived on the world stage. However, India’s share of global trade has moved up only marginally. Even now, the country accounts for less than 2% of the world’s goods exports.
More importantly, hidden behind this performance was the role played by one sector that should have never made it to India’s list of exports—refined petroleum. The share of refined petroleum exports in India’s goods exports increased from 1.4% in 1996-97 to over 18% in 2011-12.
An import-intensive sector with low labour intensity, exports of refined petroleum zoomed because of the then policy regime of a retail price ceiling on petroleum products in the domestic market. While we have done well in the export of services, our share is still less than 4% of world exports.
India seemed to emerge from the 2008 global financial crisis relatively unscathed. But, a temporary demand push had played a role in the revival—the incomes of many households, both rural and urban, had shot up. Fiscal stimulus to the rural economy and implementation of the Sixth Pay Commission scales had led to the salaries of around 20% of organized-sector employees jumping up. We celebrated, but once again, neither did we resolve the crisis brewing elsewhere in India’s banking sector, nor did we improve our capacity for healthcare or quality education.
Employment saw little economy-wide growth in our boom years. Manufacturing jobs, if anything, shrank. But we continued to celebrate. Youth flocked to low-productivity service-sector jobs, such as those in hotels and restaurants, security and other services. The dependence on such jobs on one hand and high-skilled services on the other was bound to make Indian society more unequal.
And then, there is agriculture, an elephant in the room. If and when farm-sector reforms get implemented, celebrations would once again be premature. The vast majority of India’s farmers have small plots of land, and though these farms are at least as productive as larger ones, net absolute incomes from small plots can only be meagre.
A further rise in farm productivity and consequent increase in supply, if not matched by a demand rise, especially with access to export markets, would result in downward pressure on market prices for farm produce and a further decline in the net incomes of small farmers.
We should learn from what John Treacy did right. He didn’t give up, and pushed for the finish line like it was his only chance at winning. Treacy had years of long-distance practice. The same goes for our economy. A long grind is required to build up its base before we can win and celebrate. And Ovett did not blame anyone for his loss. We play the blame game. Everyone else, right from China and the US to ‘greedy corporates’, seems to be responsible for our failures.
We have lowered absolute poverty levels and had technology-based successes like Aadhaar and digital access to public services. But there are no short cuts to good quality and adequate healthcare and education services. We must remain optimistic but stay firmly away from the optimism bias.
In the end, it is not about how we start, but how we finish. The disastrous second wave of covid and our inability to manage it is a ghastly reminder of this fact.