The green hydrogen value chain in India is likely to create a cumulative investment opportunity of as much as $125 billion by 2030, driven by the rising focus on sustainability, demonstrated commercial viability, expanding use-cases and a strong regulatory push, according to Avendus Capital.
The biggest chunk within this opportunity is renewable energy production, the key component in the green hydrogen value chain, with an investment potential of almost $80 billion by 2030. Green hydrogen and green ammonia production offer investment opportunities worth $30 billion and $10 billion, respectively, while electrolyser production offers a $5 billion opportunity, the investment bank said in a report.
“India is home to one of the cheapest renewable electricity costs globally, has abundant availability of fresh water and is emerging as a global manufacturing hub – three essential elements required for the production of green hydrogen at a competitive cost,” said Prateek Jhawar, managing director & head of infrastructure & real assets investment banking at Avendus Capital.
Share of steel
Jhawar said that while the commercial and industrial (C&I) business model for domestic consumption of green hydrogen will drive the first set of investments in the sector, the steel industry will form the largest share of offtake contracts in the near term with the imposition of the Carbon Border Adjustment Mechanism (CBAM) in the EU.
Akhil Dokania, director of infrastructure & real assets investment banking at Avendus Capital, said the green steel industry's consumption will provide a fillip to investments in India as it will be at the domestic level, unlike green ammonia, which would depend on the Far East or European markets.
“Because of this particular regulation (CBAM), a lot of steel manufacturing companies in India would have the obligation to now take a call on shifting to green hydrogen today, because if they start committing to these infrastructure deployments today, only then they will be in a position to start producing green steel in the next couple of years or be ready to pay taxes,” said Dokania.
To bolster green hydrogen production and local electrolyser manufacturing, the Indian government has introduced a production-linked incentive (PLI) scheme, and some capacity has already been allocated in the first tranche.
The emergence of green hydrogen has also increased the target market for renewable power producers and can lead to better project economics, Avendus said. According to the report, early-stage investment risks are likely to be short-lived as the sector is already at an inflection point.
“In terms of project bankability, green hydrogen is already viable for a subset of target off-takers and its derivatives are also gaining visibility in global markets. Hence, long-term contracts are already available,” said Dokania.
Constraints and challenges
To be sure, while the green hydrogen ecosystem offers a huge investment opportunity, Avendus noted that there are some constraints in achieving its full potential.
“India has ambitions of deploying a large amount of renewable power just to support the power needs of the country. Along with that, now we have to deploy additional renewable power to support the production of green hydrogen. It puts a constraint on the resources that the country has, whether it is the solar resource that India has or vendor source or the transmission infrastructure,” said Dokania.
He said funding will also be a challenge as the $125 billion potential will translate into equity investment requirements of close to $40 billion by 2030.
“In the next five to six years we have to be doing at least $5 to $6 billion of equity in this space on an average every year. When you compare that with renewables, we do not see more than $5 to $6 billion of equity transactions per year. So, it's a big funding requirement,” said Dokania.
Investor Interest
Even though the equity investment needed is massive, Avendus said there is interest in the sector from a range of investors and not just the traditional infrastructure/energy focused investors.
“We are witnessing a global shift towards core sectors, driven primarily by the fact that energy transition is becoming a centrepiece when it comes to deployment of capital. Big capital pools, globally, are realising that over the next 20 years, the big chunk of money will go towards energy transition,” said Jhawar.
“Traditionally, the so-called infra funds were the ones who were investing in the energy space with a limited mandate of generating predictable cash flows and hence they were more interested in operating assets. But now you will see investors who play across the value chain - right from VC funds all the way up to private equity growth. Investors are looking to make early bets, they are not really waiting for only operating assets,” added Jhawar.
By SWARAJ SINGH DHANJAL
https://www.moneycontrol.com/news/business/indias-green-hydrogen-value-chain-a-125-billion-investment-opportunity-by-2030-avendus-capital-12572311.html
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