Green Hydrogen Ecosystem

SIGHT Program: the new PLI Avatar for the Green Hydrogen ecosystem

One of the key instruments of Green Energy Transition strategy was ensuring replacement of fossil energy by renewable energy, including creating capacities for production and export of Green Hydrogen (‘GH’) in India.

In brief
  • The Strategic Interventions for Green Hydrogen Transition (SIGHT program) is akin to a Production Linked Incentive scheme for the Green Hydrogen sector and it offers fiscal benefits for a duration of three and five years for production of Green Hydrogen and manufacturing of Electrolysers respectively.
  • The recent announcement by Finance Minister with respect to extension of PLI benefits to Chemicals and Petrochemicals sector, have created positive ripples in the global manufacturing ecosystem.

Firm clean energy transition commitments made by Government of India in COP 26 at Glasgow in Nov 2021, affirmed that a long-term roadmap would be laid for successful implementation and achievement of these targets. One of the key instruments of this strategy was ensuring replacement of fossil energy by renewable energy, including creating capacities for production and export of Green Hydrogen (‘GH’) in India. 

The National Green Hydrogen Mission released in early 2023 was the first such tangible step in this direction. The Mission introduced the Strategic Interventions for Green Hydrogen Transition (‘SIGHT’) program which provided for a financial incentive budgetary outlay of INR 17,490 crore, wherein INR13,050 crore was allocated for Green Hydrogen production and INR4,440 crore  were allocated for electrolyser manufacturing. 

The SIGHT program is akin to a Production Linked Incentive scheme for the Green Hydrogen sector and it offers fiscal benefits for a duration of three and five years for production of Green Hydrogen (GH) and manufacturing of electrolysers respectively. Selection criteria of successful applicants would be done on a competitive bidding basis, wherein the GH tender would prioritize bidders quoting the least amount of average incentives over a three-year duration, and the electrolyser tender is focusing on critical aspects of energy efficiency parameters and localization commitments over the five-year time frame.

The program envisages allotment of incentives through multiple tranches and this is the first tranche interalia. Special capacities have been earmarked for GH produced through biomass-based pathways and for indigenously developed technologies as well. This broad-based approach by policy makers is applaudable as it would be instrumental in laying strong foundations for this nascent sector and help the emerging startups and technologies in this space.

While the program is largely inclusive, there are several areas that lack detail and require more clarity like definition of term ‘Green Hydrogen’, guidelines for monitoring the 60,000 hours performance guarantee of manufactured electrolysers, and guidelines that are to be followed for verifying the localized content of the manufactured product.Whilst it is expected that most of these concerns would be addressed by the regulators in due course of time, some key parameters/ guidelines pertaining to product quality standards, etc should be clarified beforehand as it would enable companies to assess their investment commitments in more realistic terms. Genuine concerns are also raised by electrolyser manufacturers with respect to the 50% local sales condition, as it is believed that such stringent criteria may desist the Indian players from getting better bargain for their products in global markets.

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While the program is largely inclusive, there are several areas that lack detail and require more clarity like definition of term ‘Green Hydrogen’, guidelines for monitoring the 60,000 hours performance guarantee of manufactured electrolysers, and guidelines that are to be followed for verifying the localized content of the manufactured product.Whilst it is expected that most of these concerns would be addressed by the regulators in due course of time, some key parameters/ guidelines pertaining to product quality standards, etc should be clarified beforehand as it would enable companies to assess their investment commitments in more realistic terms. Genuine concerns are also raised by electrolyser manufacturers with respect to the 50% local sales condition, as it is believed that such stringent criteria may desist the Indian players from getting better bargain for their products in global markets.

 

Further, given the competitive nature of bidding mechanism, it becomes imperative that the bidders assess the whole landscape of incentives available in the country, whether from Central government or from different State government schemes/ policies. Ensuring better ROI for the projects would be crucial for delivering optimum Levelized Cost of Hydrogen (LCOH) in the long term and for ensuring competitiveness of the sector vis-a-vis Blue or Grey Hydrogen. 

 

In addition to the direct form of fiscal benefits, additional measures like competitive bidding for aggregated demand as well as certain mandatory purchase obligations for select consumption sectors are also under the anvil and could be expected to be released soon. Whilst all these measures shall provide the required impetus to this sector at initial stages, its long-term success would depend on development of novel technologies and on establishment of projects that could achieve true economies of scale.

 

While the spotlight presently is on the Green Hydrogen space, it is also pertinent to observe the latest happenings in related manufacturing sectors. The recent announcement by Finance Minister with respect to extension of PLI benefits to Chemicals and Petrochemicals sector, and the latest held industry-wide consultation by the Ministry of Heavy Industries for Advance Chemistry Cell manufacturers, have created positive ripples in the global manufacturing ecosystem and has again indicated GOIs seriousness towards its clean energy commitments. The recent projections on India’s GDP upwards of 6% growth target as well as upgrade of India’s ranking to ‘overweight’ by global brokerage firms, is yet another reflection of faith in the Indian growth story.

 

The article is also contributed by Mohit K Sharma, Senior Manager, Indirect Tax, EY India.

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Summary 

The current scheme of measures introduced by Government of India shall go a long way in strengthening the core of the Indian manufacturing ecosystem and shall position India suitably to become the third largest economy in the coming decade.

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