India offers over $500 million in incentives to boost domestic green hydrogen production
Source and Citation: Original reporting by ET Bureau, published January 12, 2024
Analysis of this news for a layman
The article discusses India’s first phase results for an incentive program supporting companies to manufacture electrolysers. Electrolysers use renewable electricity to split water into hydrogen and oxygen in a process called electrolysis. The resulting “green” hydrogen fuel can displace fossil fuels in transport, industry, and more.
Over 20 major industrial companies bid for a share of the 45 billion rupee ($550 million) incentive budget. Winners spanning conglomerates like Reliance, to clean energy players like Greenko, will now receive subsidies over 5 years as their facilities come online. In return, they must meet local manufacturing and other criteria that boost India’s electrolyser supply chain.
This will expand India’s production capacity to generate green hydrogen domestically. It complements separate policy efforts on the demand-side to mandate hydrogen use in fertilizer production and transportation sectors. Together, these measures aim to establish India as a global hub for green hydrogen.
Impact on Retail Investors
For retail investors, this incentive scheme provides useful signals on pockets of new growth within the renewable energy transition. The strong competition between industrial giants battling for limited subsidies highlights executable plans across transport, refining, hydrogen infrastructure and more.
Investors may wish to research participating public firms like Reliance, L&T and Adani for details on their strategies here. Supportive policies and incentives lend confidence these companies can deliver on hydrogen roadmaps. This may attract Institutional investors to Indian stocks enabling strategic plays in decarbonization.
However, India’s support mechanisms remain in early stages. Investors should watch for specifically how subsidy allocations translate to dedicated investments, partnerships, and growth updates from management. Extensions of the incentive program and further policy visibility from 2024 elections will also provide confidence.
Impact on Industries
Green hydrogen enables the decarbonization for high-emitting sectors like refining, fertilizers, heavy transport & shipping. This incentive scheme boosts the domestic supply chain for production equipment. Electrolyser manufacturers will see major growth opportunities as both public and private sectors look to expand pilot projects.
Adjacent industries in renewable power equipment, industrial gas, plastics and electronics also stand to benefit. Renewables firms, for example, must supply the solar and wind power for electrolysis. This further motivates investments in hybrid renewable plants at scale.
Conversely, fossil fuel industries will face a growing threat medium to long term from green hydrogen as an alternative. This may accelerate plans by incumbent players in coal and natural gas power to diversify their portfolios. But distribution infrastructure like gas pipelines may see declining utilization rates over time if hydrogen adoption advances.
Long Term Benefits & Negatives
This incentive program aims to establish India as an exporter of electrolysis technology alongside building domestic capacity. Success would bring in significant foreign capital investments and high-quality manufacturing jobs. Becoming a global production hub also lets India leverage scale to drive down electrolyser costs faster.
In the long run, green hydrogen enables the complete decarbonisation of transportation, electricity, building heating and industrial processes. However, most applications require massive rollout of refueling infrastructure. Hydrogen production must also keep pace through dedicated solar/wind plants.
These systemic changes won’t happen overnight. Nearer term negatives include increased public spending on incentives now for uncertain returns later. Most hydrogen pilot projects worldwide are still small scale demonstrations. Factors like fossil fuel price dynamics also affect viability.
Short Term Benefits & Negatives
An immediate benefit is the expansion in private sector investments into green hydrogen production capability. Approved companies have committed budgets to access the incentive subsidies over 5 years. This should directly create skilled jobs.
However, building out electrolysis Gigafactories and associated plant infrastructure takes years. Investors shouldn’t expect overnight transformational updates to financials. Upsides from supplemented earnings may also be modest if firms need to discount product prices to drive early adoption.
For Incumbent fossil fuel companies like Reliance, new hydrogen investments could divert focus from current cash cow divisions. However, diversification also derisks from long-term demand decline. Investors should monitor how management balances the short-term pressures of today’s oil and gas earnings vs future bets.
Beneficiaries and Losers from India’s Electrolyser Incentive Scheme:
Indian Companies Likely to Gain:
- Reliance Industries (RIL): Its subsidiary Ohmium Operations secured the highest points and full quoted capacity (137 MW) in the technology-agnostic segment. This signifies strong technological capabilities and positions RIL as a leader in green hydrogen production. Market sentiment for RIL could be positive, potentially boosting its stock price.
- Greenko Group: Secured 300 MW capacity in the technology-agnostic segment, showcasing its commitment to clean energy and hydrogen ventures. This win strengthens Greenko’s green energy portfolio and could attract further investments.
- Jindal India: Won 300 MW capacity in the technology-agnostic segment, highlighting its expertise and ambitions in hydrogen production. This could boost market confidence in Jindal’s green initiatives and potentially increase its valuation.
- Larsen & Toubro (L&T): While L&T’s Advait Infratech arm received only 63 MW (against 300 MW bid) in the technology-agnostic segment, its participation signifies an entry into the hydrogen space. Future success in larger projects could positively impact L&T’s stock.
- Homihydrogen: Awarded its full quoted capacity (101.5 MW) in the indigenous stack technology segment, indicating its technological edge and potential to become a leader in this space. Positive market sentiment towards Homihydrogen and its future prospects is likely.
Indian Companies Potentially at Risk:
- Adani New Industries: Despite winning partial capacity (198.5 MW) in the indigenous stack technology segment, Adani missed out on securing any capacity in the larger technology-agnostic segment. This could raise concerns about its competitiveness and potentially dampen investor sentiment.
- ACME Cleantech Solutions, Waaree Energies, Avaada Electrolyser: These companies did not secure any capacity in the technology-agnostic segment, despite expressing interest. This could hurt their reputation and market perception, especially if competition in the hydrogen space intensifies.
Global Companies:
The article primarily focuses on Indian companies. However, global players in electrolyzer technology and green hydrogen infrastructure could indirectly benefit from India’s growing commitment to this sector. Companies like Siemens, Thyssenkrupp, and ITM Power could see increased interest in their technologies and expertise as India’s hydrogen market expands.
Disclaimer: This analysis is based on the information provided in the news article and should not be considered financial advice.