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RIL Rides PLI Schemes to Close in on $1-1.5/kg Green H2 Target

RIL’s Low-Cost Green Hydrogen Plans and Its Impact

Source and Citation: News article published by Economic Times on January 23, 2024

Analysis for Layman

Reliance Industries Ltd (RIL) has set a goal to produce green hydrogen at a cost of $1-1.5 per kilogram in the near future, making it one of the most cost-efficient options globally. Green hydrogen is a type of hydrogen produced using renewable energy sources and is known for its zero carbon emissions.

RIL’s cost target is almost three times lower than the current prevailing rates for green hydrogen, which are around $3 per kilogram. To support this endeavor, RIL has received incentives worth $0.5 per kilogram under India’s PLI (Production-Linked Incentive) scheme, which encourages the manufacturing of green chemicals.

In addition to this, RIL has also benefited from PLI schemes related to solar modules and advanced batteries. When combined with RIL’s ambitious plans to achieve 100GW of renewable energy capacity and 5GW of green hydrogen production by 2030, experts believe that these incentives will help RIL reach its low-cost target.

If successful at scale, such low production costs for green hydrogen can have a significant impact across various sectors, including fertilizer production, oil refining, steel manufacturing, and transportation, thereby accelerating India’s transition towards cleaner energy sources.

RIL Rides PLI Schemes to Close in on $1-1.5/kg Green H2 Target

Impact on Retail Investors

For retail investors in India, RIL’s progress in the green energy sector carries several investment implications:

  • It validates India’s supportive policy environment for renewable energy, making it globally competitive.
  • RIL’s extensive scale, efficient execution, and technological partnerships position India as a potential hub for exporting green hydrogen, which could benefit the overall economy.
  • Minority investors should closely monitor the timelines of RIL’s new energy capacity expansion, as success here may lead to a separate listing in the future.
  • Progress in green energy can enhance RIL’s Environmental, Social, and Governance (ESG) scores, improving its access to global ESG funds and ultimately boosting its overall valuation.

In summary, RIL’s shift towards clean energy aligns with India’s self-reliance goals while offering profitable growth opportunities for minority shareholders. Investors should evaluate RIL’s progress in building green energy capabilities while also tracking its core Oil-to-Chemicals (O2C) business performance.

Impact on Industries

Industries that are poised to benefit directly or indirectly from RIL’s green energy initiatives include:

  • Renewable Energy Equipment: Companies like Renew Power and Suzlon Energy may supply components required for renewable energy projects.
  • Battery Materials: Coal India and Graphite India could supply materials needed for advanced batteries.
  • Engineering & Construction: L&T and Tata Projects may be involved in building renewable energy capacities.
  • Oil Marketing: RIL’s decarbonization efforts may support HPCL and BPCL in transitioning to cleaner energy sources.
  • Gas Sector: The establishment of new hydrogen production capacities could reduce imports over time, benefiting companies like GAIL and Gujarat Gas.

RIL’s aggressive timelines are likely to encourage more private and public firms in these industries to expand India’s green energy footprint.

Long Term Benefits & Negatives

Positives:

  • Strengthens energy security and reduces dependence on fossil fuel imports.
  • Creates new revenue streams and export opportunities in the hydrogen equipment and fuel sector.
  • Supports global net-zero emissions goals by promoting enabling technologies like electrolyzers.

Negatives:

  • Viability hinges on the continuation of PLI schemes, which carries policy risks.
  • High reliance on renewable energy may increase power grid integration challenges.
  • Potential for stranded assets if global adoption of hydrogen faces a slowdown.

Despite the typical risks associated with pioneering ventures, India’s growth requirements make clean energy a strategic opportunity. RIL’s ambitions can serve as a market validator, encouraging policymakers and private players to participate actively.

Short Term Benefits & Negatives

Positives:

  • Accelerates the adoption of renewable energy in India.
  • Provides revenue visibility for manufacturers of new energy products and related equipment.
  • Demonstrates India’s supportive policy environment for sustainable businesses.

Negatives:

  • Ambitious timelines pose execution risks for RIL in an emerging and uncharted sector.
  • High capital expenditure (capex) may temporarily impact RIL’s return ratios over the next three years.
  • Global economic challenges may potentially delay new energy investments.

Despite short-term challenges, the long-term outlook justifies investments, given RIL’s scale-up efforts that contribute to the “Make in India” initiative, which helps mitigate global market risks over time.

Potential Gainers and Losers from RIL’s Green Hydrogen Push

Indian Companies that will gain:

  • Adani Green Energy Ltd (ADANIGREEN): RIL’s potential dominance in green hydrogen could incentivize other major players like Adani to accelerate their own investments, leading to wider adoption and market growth.
  • GreenCell Technologies Ltd (GREENCELL): A pure-play hydrogen fuel cell company poised to benefit from increased demand for hydrogen technology across various sectors.
  • Solar Module Manufacturers: Companies like Tata Power Solar Systems Ltd (TATAPOWER), Waaree Energies Ltd (WAREE) and Vikram Solar Ltd (VIKRAMSOLAR) could see increased demand for their products due to RIL’s ambitious solar capacity expansion plans.
  • Electrolyser Technology Providers: Companies like L&T Technology Services Ltd (LTTS) and Thermax Ltd (THERMAX) can benefit from potential partnerships with RIL for electrolyser deployment, boosting their renewable energy technology business.
  • Engineering, Procurement, and Construction (EPC) Companies: Players like Larsen & Toubro Ltd (L&T) and KEC International Ltd (KEC) might see increased infrastructure project opportunities related to RIL’s green energy initiatives.

Indian Companies that might lose:

  • Traditional Energy Companies: Coal miners like Coal India Ltd (COALINDIA) and oil & gas companies like ONGC (ONGC) could face increasing pressure to transition to cleaner energy sources as green hydrogen gains traction.
  • Existing Green Hydrogen Players: Smaller players in the nascent green hydrogen market might face competition from RIL’s vast resources and government support, potentially impacting their market share.

Global Companies that will gain:

  • Renewable Energy Technology Providers: Leading global companies like Siemens AG (SIE) and Schneider Electric SE (SU) could see increased demand for their renewable energy technologies and solutions in India.
  • Green Hydrogen Equipment Manufacturers: International players like thyssenkrupp AG (TKA) and Air Liquide (AL) could benefit from partnerships or equipment supply contracts for RIL’s green hydrogen projects.
  • Investment Firms: Global investment funds focused on clean energy might see India as a more attractive market due to RIL’s ambitious green energy push.

Global Companies that might lose:

  • Fossil Fuel-based Companies: International oil & gas giants like Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX) could face long-term pressure as green hydrogen gains wider adoption in various sectors.
  • Existing Green Hydrogen Developers in Developed Markets: RIL’s potential cost leadership in green hydrogen production could impact the competitiveness of existing projects in developed markets.

Market Sentiment:

This news is likely to positively impact the Indian renewable energy sector, potentially leading to a rise in stock prices of companies mentioned above. Increased investor confidence in India’s green hydrogen future could also attract more foreign investments into the sector. However, some traditional energy companies and smaller green hydrogen players might face temporary challenges due to increased competition.

Disclaimer: This information is for educational purposes only and should not be considered financial advice. Please consult with a qualified financial advisor before making any investment decisions.

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