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India’s journey towards a sustainable and green energy future has taken a significant leap forward with its ambitious plans to become a global hub for the production of green hydrogen. Chandu Gopalakrishnan reports

What is common among Reliance Industries, L&T and ONGC? Apart from the fact that they are India-listed companies, these three enterprises lead the pack of businesses that eye the pie of India’s nascent green hydrogen business.

The country aims to reduce its carbon emissions and minimise fossil fuel imports by revolutionising its energy sector with the use of green hydrogen. This shift marks a crucial milestone in India’s pursuit of becoming a net-zero carbon emitter by 2070.

Hydrogen emits only water when burned but creating it can be carbon intensive,” wrote Emanuele Taibi, head of power sector transformation strategies at the International Renewable Energy Agency (IRENA).

Depending on production methods, hydrogen can be grey, blue or green – and sometimes even pink, yellow or turquoise. However, green hydrogen is the only type produced in a climate-neutral manner, making it critical to reach net zero by 2050.”

As India’s green hydrogen production capacities expand, the potential for exports also grows. India’s vast coastline, abundant renewable energy resources and a strong industrial base position it as a potential global supplier of green hydrogen.

This aligns with the country’s goal of reducing carbon emissions and contributing to global efforts to combat climate change.

Unlike renewable power, which is the cheapest source of electricity in most countries and regions today, electrolysis for green hydrogen production needs to significantly scale up and reduce its cost by at least three times over the next decade or two,” wrote Taibi. “However, unlike CCS [carbon capture and storage] and methane pyrolysis, electrolysis is commercially available today and can be procured from multiple international suppliers right now.” Akin to what the new space policy did for India’s moon mission, a host of public and private sector enterprises have hopped on the bandwagon.

Policy change fuels new sector

The groundwork for this transformation was laid with the announcement of the National Green Hydrogen Mission (NGHM) in January 2022, which is part of the larger plan of becoming energy independent by 2047, and achieving net-zero carbon emissions by 2070.

Green hydrogen is considered a promising alternative for enabling this transition. Hydrogen can be utilised for long-duration storage of renewable energy, replacement of fossil fuels in industry, clean transportation, and potentially also for decentralised power generation, aviation and marine transport,” said an NGHM mission statement.

The NGHM aims to foster domestic manufacturing capabilities, attract investment and drive economic growth. It also prioritises job creation, and backs research and development initiatives in the sector.

This mission, aligned with India’s overarching goal of achieving “green growth”, received substantial financial backing in the Union Budget 2023, with an allocation of INR102 billion (USD1.2 billion) to the renewable energy sector.

The NGHM comes with incentives worth INR174 billion for the production and manufacturing of electrolysers. This mission signifies the government’s strong intent to make India a global player in the green hydrogen market.

The mission is set to be implemented in a phased manner and has an outlay of INR197 billion from FY2023-24 to FY2029-30.

In addition to this substantial financial backing, the government has also taken various other steps to promote green hydrogen production. These include extending waivers of transmission fees for renewable power to hydrogen manufacturing plants commissioned before January 2031, a move aimed at reducing operational costs for green hydrogen production facilities.

The policy change aligns with the global move towards green hydrogen. Public and private sector conglomerates in India were quick to seize the opportunity, pledging to accelerate India’s green hydrogen mission. Companies like Adani Group, Reliance Industries Ltd (RIL), Indian Oil Corporation Ltd (IOCL), and many others are investing billions of dollars to develop green hydrogen production capacities.

Public, private sectors pitch in

Praveen Raju, a partner at Spice Route Legal in Mumbai, classifies primary players in the hydrogen sector as: (1) producers; (2) electrolyser manufacturers; (3) distributors or retailers; and (4) consumers.

Apart from the four core players, there are also ancillary stakeholders such as EPC (energy performance contracting) contractors, O&M (operation and maintenance) service providers, storage providers and transporters.

“In India, large upstream oil & gas companies and power producers are the primary participants in the production of green hydrogen – the likes of OIL, NTPC, Adani and Reliance Industries,” Raju tells India Business Law Journal.

Some renewable energy companies like ReNew Power and Greenko are also foraying into production. On manufacturing, while well-known international manufacturers like Ohmium and Blume Energy have already made an entry in the Indian market, domestic players like Avaada and Jackson Green are also making their mark.”

According to Raju, distribution or retailing of green hydrogen is too early in India, but it is expected that players will be the usual large downstream oil and gas distribution companies, which already have a wide network across the country.

At present, consumers of green hydrogen are largely from infrastructure sectors such as cement, steel and shipping.

However, with innovation, we believe that hydrogen would also be a crucial and important source of fuel for transportation and other sectors,” says Raju.

Praveen Raju, Spice Route Legal

Ramya Parthasarathy, an associate at Dentons Link Legal in Bengaluru, says that while it may be a little early to mention that the sector is thriving, “the plan and roadmap laid down by the government authorities make the sector open to investments by relevant dominant players in the Indian market, mainly renewable energy giants.

With the relaxations and policy incentives announced by the central and state governments, it is fair to assume that the players in this new field of manufacture have weighed out risks both commercially and technically,” she says.

Indian companies including Reliance Industries, Indian Oil, NTPC, Adani Enterprises, JSW Energy and ReNew Power have announced their respective initiatives and investments in the green hydrogen sector, specific to setting up manufacturing units in India.

While it was expected that public sector energy giants such as IOCL, ONGC, BPCL and NTPC will have their operations aligned with the government’s green hydrogen plan, the private sector in India has not lagged in its commitment.

Many conglomerates have already made significant investments and set ambitious targets for green hydrogen production.

This brings us to a crucial question: What are the regulations that govern the green hydrogen manufacturing and distribution operations in India?

Regulatory landscape

Although India had been regulating hydrogen use through policies, there were no specific regulations in place for establishing green hydrogen enterprises.

The notification on 19 August this year, issued by the Ministry of New and Renewable Energy (MNRE), has outlined a clear definition for green hydrogen as hydrogen derived from renewable energy sources.

Since there is no dedicated legislation for green hydrogen in India, it would be regulated by the currently existing legislation like the Manufacture, Storage, and Import of Hazardous Chemical Rules (1989), the Gas Cylinders Rules (1981), the Environment Impact Assessment Notification (2006), the Factories Act (1948), the Petroleum and Natural Gas Regulatory Board Act (2006) etc.,” notes Akhand Chauhan, a partner at Maheshwari & Co in New Delhi.

The approvals and licence for the commissioning would include, without limitation: consent to establish and consent to operate; no objection certificate from the Fire Department; environmental clearance from the concerned regulatory body; registration under the Factories Act; and approval from the Petroleum and Explosive Safety Organisation [PESO],” says Chauhan.

Spice Route Legal’s Raju says the definition of green hydrogen notified by the MNRE “has removed some ambiguities around the criteria for classifying green hydrogen. Once the MNRE rolls out a detailed methodology for certification of green hydrogen, stakeholders will be able to check the quality and origin of green hydrogen with more certainty, and will incentivise investors to participate.”

According to Raju, the Electricity (Promoting Renewable Energy through Green Energy Open Access) Rules (2022) will play a significant role in facilitating supply and procurement of green energy for green hydrogen projects. The open access rules enable any person having a consumption requirement of 100KW or more to: procure renewable energy through open access; have provision of approval for open access within a timeline of 15 days; and have certainty on charges for availing renewable energy through open access, enabling consumers to make a cost-benefit analysis.

Banking of such renewable energy (subject to certain limits) with the distribution licensee is also permitted. Grid Controller of India Limited will act as a central nodal agency and provide a single window portal for the application of open access.

Other than specific incentives and regulatory policies announced by the government for the green hydrogen industry, legal considerations for producers of green hydrogen in India are not very different from other energy companies in India,” says Spice Route Legal’s Raju. “Manufacturers of electrolysers will have to comply with the requirements that are generally applicable to manufacturers.

Pallavi Bedi, Phoenix Legal

Rimali Batra, an associate partner at DSK Legal in New Delhi, says that states such as Andhra Pradesh, Rajasthan, Odisha, Uttar Pradesh, Kerala, Madhya Pradesh and West Bengal “have either implemented or are in the process of implementing policies, or amending their state acts, to promote green hydrogen production”.

According to Pallavi Bedi, a partner at Phoenix Legal in New Delhi, the frameworks of most state polices broadly contemplate incentives such as:

  1. Land allocation for the green hydrogen facility at concessional rates;
  2. Exemptions/waivers for land conversion charges and stamp duty payable on the land purchased for setting up a green hydrogen facility;
  3. State goods and services tax (SGST) reimbursements;
  4. Electricity duty exemptions/concessions;
  5. Concessional transmission/wheeling charges;
  6. CSS reimbursement;
  7. Grid connectivity on priority; and
  8. Renewable purchase obligation compliance.

Almost all lawyers contacted by India Business Law Journal pinpoint land as an area of concern for the core players in the sector. India’s land acquisition process is rife with intricacies, involving a web of formal and informal property rights, overlapping claims, customary usage, and diverse land types encompassing both agricultural and non-agricultural areas.

DSK Legal’s Batra identifies potential issues involved in land acquisition as:

  • Land tenure risks. India has a large informal land market, where land rights are often not formally documented. This can make it difficult for project developers to acquire the necessary land rights and can also lead to disputes with local communities who may have customary rights to the land.
  • Land rights. Land rights in India can be both formal and informal. Formal land rights are those that are legally defined and documented. Informal land rights are those that are socially recognised but not legally documented. Developers need to be aware of both types of land rights and take steps to mitigate the risks associated with them.
  • Land acquisition and compensation. The central government has the power to compulsorily acquire land in the public interest, but it is required to pay adequate compensation to affected parties. The compensation is determined based on a multiple of the market value. The UN Basic Principles and Guidelines on Development-Based Evictions and Displacement set out the narrow circumstances in which forced evictions may legally take place, and the minimum procedural requirements that should apply.
  • Land rights disputes. Given the nature of historic land rights in India, it is important for project developers to conduct a detailed due diligence of any historic land disputes before starting the development of a project. It is also important to create appropriate grievance or dispute resolution processes to address land disputes arising from the project over time.
  • Environmental clearance. Since green hydrogen production uses renewable energy, the compliance related to environmental clearance may be aligned to renewable energy projects.

Lawyers say they are advising their clients operating in the sector to secure land within designated industrial parks or zones, as it mitigates the risks with title disputes.

In addition to land acquisitions, businesses have to navigate a labyrinth of environmental clearances, including those from state pollution control boards, which vary depending on the nature of their operations.

Storage and transportation of green hydrogen is highly compliance-driven under Indian law. The Motor Vehicles Act (1988) regulates the transportation of hazardous materials, including hydrogen, which require specific registration requirements.

According to Parveen Arora, of BTG Legal, the transportation of hydrogen through pipelines will be required to comply with the regulation set by the Petroleum & Natural Gas Regulatory Board (PNGRB). A regulatory framework by the PNGRB for hydrogen transmission in existing networks (like city gas distribution) is expected in the future.

For exports, the government has released the Green Port Guidelines 21, and intends to extend benefits under the Remission of Duties and Taxes on Export Products [RoDTEP] scheme for the export of green hydrogen,” says Arora.

The Petroleum and Natural Gas Regulatory Board Act (2006) lays down various compliances for transporting hydrogen gas through pipelines, including permissions to establish and operate terminals and storage facilities, environmental approvals, land use permits from forests, and permissions to cross highways, railroads and municipal areas.

While the mission is yet to lay a concrete framework for the green hydrogen industry, there is a varied set of regulations for standards on storage and transportation of hydrogen,” says Spice Route Legal’s Raju. “The Explosives Safety Organisation plays a crucial role in overseeing the safe storage, transportation and use of explosive substances.

Given hydrogen’s flammability, it is treated with the same level of caution as other explosive materials, necessitating stringent compliance for businesses dealing with hydrogen.”

When asked to pinpoint the most essential legal provisions that specifically apply to producers and distributors of green hydrogen, DSK Legal’s Batra lists the Electricity (Amendment) Rules (2022), and the Energy Conservation (Amendment) Act (2022).

The Electricity (Amendment) Rules provide that energy storage systems [ESS] can be used independently or with the generation, transmission and distribution infrastructure,” says Batra. “The rules also mandate that ESS be considered as a part of the power system.

The Energy Conservation (Amendment) Act (2022) contains provisions which stipulate that the designated consumers are required to use non-fossil fuel sources of energy, which further promotes the use of renewable energy for green hydrogen production. The act also introduced the carbon credit trading scheme, which will promote better carbon accounting in projects using renewable energy.”

Businesses and consultants need to be wary of the present regulations and their possible interpretations when it comes to storage and transfer, notes Bedi, of Phoenix Legal. “The policies for the manner of storage and transportation of green hydrogen, which are technologically feasible and cost competitive, are yet to be issued by the government,” she says.

For this purpose, it would be useful to consider if the existing natural gas pipelines can be used for the transportation of green hydrogen with some modifications, or new pipeline networks need to be developed, or would using cryogenic tankers be a better option.”

Challenges, opportunities in green hydrogen sector

While Indias green hydrogen aspirations are commendable, the sector faces numerous challenges.

Several consultancy reports have unanimously stated that in the current situation, green hydrogen production is more expensive than its grey counterpart, posing a hurdle to its widespread adoption. According to the reports, the higher cost is primarily due to the intermittency of renewable energy sources, necessitating the expensive storage of excess energy.

The successful implementation of green hydrogen production will require a massive 125GW of renewable energy by 2030, a considerable expansion compared to India’s existing 127GW renewable energy infrastructure. Moreover, India’s quest for becoming a global green hydrogen player could be hampered by trade barriers, particularly in export-focused markets like Europe, South Korea and Japan. These regions, with limited access to renewable energy, have the potential to be substantial markets for green hydrogen.

However, concerns have been raised over trade restrictions in these markets. For instance, Germany imposed barriers during a global green hydrogen tender, causing India to voice its concerns.

On the ground, companies have to wade through a stream of legal hassles yet to be sorted out, says Arora, of BTG legal. According to him, companies should keep in mind the following factors:

  1. Clear land title and due diligence are essential for green hydrogen projects, as deficiencies in title or approvals can result in financial losses;
  2. Restrictions on agricultural land use and conversion to non-agricultural purposes impact land acquisition significantly in terms of time and effort;
  3. Pre-approved renewable energy parks and industrial parks are viable alternatives for green hydrogen projects. Several states in India are offering incentives and/or priority in land allotments, and have their own green hydrogen policies;
  4. Environment compliance. As per the Expert Appraisal Committee, an environmental impact assessment is not required for standalone green hydrogen projects. However, adherence for requisite consents applicable under the provisions of the Air Act (1981) and Water Act (1974) is important. Consent to establish/operate from the Pollution Control Board is currently required.
  5. Requirements exist for the establishment of desalination plants as part of the green hydrogen project to treat waste water and then use it for electrolysis.

Road to sustainable green future

According to legal services that cater to private sector players in the sector, India’s green hydrogen revolution is well underway, with significant investment from both the government and private sector.

The challenges, such as the cost of green hydrogen production and trade barriers, are being actively addressed, offering ample room for growth.

With key players like Adani, Reliance, IOCL, and many others investing billions of dollars in green hydrogen projects, India is well on its way to achieving its targets and reducing its carbon footprint.

As costs decrease over time, green hydrogen could revolutionise India’s energy landscape and set a valuable example for the world to follow.

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