Green Hydrogen
India already consumes 5–6 million tonnes of hydrogen a year, almost all of it grey at $1.5–2/kg. Green costs roughly twice that. Everything in this sector is an argument about how that gap closes — and whether it closes before the capital runs out.
Power is the product. One kilogram needs about 53 units of electricity, so the cost of green hydrogen is mostly the cost of renewable power — and the electrolyser is ~70% of the equipment bill.
Existing demand, and the colour that supplies it.
The demand already exists. India consumes 5–6 MMT of hydrogen annually, principally in refineries, fertiliser and ammonia production. This is not a market that needs creating — it needs converting. That is a far better starting position than most energy-transition themes, and it is why fertiliser and refining are the realistic first beachheads rather than mobility.
Mobility is distant. Hydrogen in transport remains a long-dated proposition, most plausible for larger vehicles and public transit. Worth noting that at least one European rail operator that launched the world's first hydrogen line has since opted for an all-electric future on efficiency grounds — a useful check on enthusiasm.
The colour classification
- Grey · ~75%Of global hydrogen. Made from natural gas via steam methane reforming.
- BrownMade from coal. High CO₂.
- BlueFossil-based, with some CO₂ captured — not all.
- GreenRenewable electricity powers an electrolyser splitting water into hydrogen and oxygen. Zero CO₂ at the point of production.
Separation methods for conventional hydrogen: pressure swing absorption (PSA) and steam methane reforming (SMR).
A cost gap, and the scale needed to close it.
The gap, stated plainly
- Grey hydrogen$1.5–2.0/kg, tracking natural gas prices.
- Green hydrogen$3.17–3.78/kg currently — roughly double.
- Power intensity~53 units of electricity per kg. This is why power cost dominates the equation.
- Scale required40–50 GW of installed capacity is the level at which the economics are argued to work.
The policy alternative to waiting for cost decline is to tax grey hydrogen and close the gap from the other side.
The value chain concentrates in one component. The electrolyser is roughly 70% of total equipment cost — plus the technology licence behind it. Everything else is power sourcing from an IPP, balance of plant, and EPC. So an investment in green hydrogen is largely an investment in electrolyser cost curves and power procurement.
Government commitment is substantial. ₹8 lakh crore committed by 2030, targeting 60–100 GW of electrolyser capacity. PLI awards have been made to some manufacturers, with others having bid and not yet been awarded — a distinction worth checking before assuming a company is a policy beneficiary.
The rest of the chain is more prosaic. Heat exchangers and SMR reformers are straightforward engineering products that Indian fabricators already make. That is a real, near-term revenue pool — and a very different risk profile from electrolyser manufacturing.
Power cost, technology access, and offtake.
Cheap, firm power
At ~53 units per kg, the power tariff largely is the hydrogen cost. Secured low-cost renewable supply, and the firming to run an electrolyser at high utilisation, is the whole economic argument.
Electrolyser position
At ~70% of equipment cost, whoever controls electrolyser technology and cost controls the chain. Licensed versus owned technology is a critical distinction for durability.
Contracted offtake
Refineries, fertiliser and ammonia already consume hydrogen. A signed offtake at a workable price converts a speculative project into a financeable one.
What to answer before underwriting.
- →Power as a share of cost. What percentage of the cost to produce a kilogram is energy, and at what tariff is that struck?
- →Where on the chain? Electrolyser manufacturer, EPC, project developer, or fabricator of balance-of-plant equipment. Very different risk and revenue timing.
- →Owned or licensed technology. Licensing arrangements bring speed but cap long-term margin and create dependency.
- →Announced vs commissioned capacity. How much of the stated MW or GW is actually built, commissioned and running?
- →PLI status. Awarded, or bid and awaiting award? The difference is material and often blurred in company communication.
- →Offtake. Are there signed agreements, with whom, at what price, and for how long?
- →Power sourcing. IPP arrangement, captive renewable, or grid? Firm or intermittent, and what does that do to electrolyser utilisation?
- →Order book quality. How much is domestic versus export, and how much is firm versus MoU?
- →Capex and funding. Phase-wise capex plan and how it is financed against a pre-revenue or early-revenue position.
- →Regulatory compliance. PESO standards for hydrogen handling and storage in India.
- →Carbon credits. Whether project economics assume carbon credit revenue, and how robust that assumption is.
- →The near-term revenue. For fabricators, how much revenue comes from heat exchangers, reformers and conventional process equipment today — the business that exists now.
What to monitor, quarter by quarter.
| KPI | Calculation / source | Benchmark or read-through |
|---|---|---|
| Levelised cost per kg | All-in production cost ÷ kg | $3.17–3.78 today vs $1.5–2.0 grey. The gap is the thesis |
| Power cost per kg | Tariff × ~53 units | The dominant cost line; drives everything else |
| Electrolyser utilisation | Operating hours ÷ available hours | Intermittent power caps utilisation and raises unit cost |
| Commissioned MW | Built and running vs announced | Announcements far exceed commissioned capacity sector-wide |
| Electrolyser cost per MW | Capex ÷ MW installed | ~70% of equipment cost — the primary cost-down lever |
| Contracted offtake | Tonnes under signed agreement | Separates financeable projects from announcements |
| Order book — firm vs MoU | Order book split | MoUs are not revenue; insist on the distinction |
| PLI awards received | Awarded capacity and disbursement | Awarded ≠ bid; check which the company actually holds |
| Conventional equipment revenue | Heat exchangers, reformers, BOP ÷ total | The revenue that exists today while hydrogen scales |
| Capex vs funding runway | Committed capex ÷ available funding | Most of this sector is pre-revenue; runway is the survival metric |
| Technology licence terms | Royalty, exclusivity, duration | Caps long-run margin and creates counterparty dependence |
| Green ammonia linkage | Volumes contracted to fertiliser | The most credible near-term demand pool |
How the thesis breaks.
- !The cost gap simply persists. Green at roughly double grey is the central fact. If power costs do not fall and grey is not taxed, the conversion does not happen at scale.
- !Announcement inflation. Announced GW targets across the industry vastly exceed commissioned capacity. Treat MW claims as intent until commissioned.
- !Policy dependence. ₹8 lakh crore of commitment and PLI awards underpin most business cases. Policy timing slips, and awards are not guaranteed.
- !Technology dependency. Licensed electrolyser technology — particularly from a single foreign partner — caps margin and creates geopolitical and commercial exposure.
- !Efficiency losing to direct electrification. Where batteries or direct electrification work, hydrogen loses on round-trip efficiency. Rail is a live example of exactly this reversal.
- !Pre-revenue balance sheets. Heavy capex against minimal current revenue means funding runway, not order books, determines survival.
- !Carbon credit assumptions. Project returns that only clear with carbon credit revenue are relying on a market whose pricing is neither deep nor certain.
The figures, and where they stand.
| Metric | Value | Note | Basis |
|---|---|---|---|
| India hydrogen demand | 5–6 MMT p.a. | Refineries, fertiliser, ammonia | Research note |
| Grey hydrogen cost | $1.5–2.0/kg | Tracks natural gas prices | Research note |
| Green hydrogen cost | $3.17–3.78/kg | Roughly double grey | Research note |
| Power intensity | ~53 units/kg | Why power cost dominates | Technical |
| Scale for viable economics | 40–50 GW | The level at which costs are argued to work | Est. |
| Government commitment | ₹8 lakh crore | By 2030 | Policy |
| Electrolyser capacity target | 60–100 GW | National target | By 2030 |
| Electrolyser share of equipment cost | ~70% | Plus the technology licence | Research note |
| Grey share of global hydrogen | ~75% | Steam methane reforming | Research note |
| Announced Indian capacities | 100 MW – 1 GW | Across phases and players; largely pre-scale | Announced |
| Regulatory body | PESO | Indian standard for hydrogen handling | Regulatory |