5 minute read 7 Feb 2023
Electrolyzer market in india

How can India become the industrial hub for electrolyzer production by 2030

By EY India

Multidisciplinary professional services organization

5 minute read 7 Feb 2023

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  • Shortage of electrolyzers for green hydrogen

The rising popularity of the green hydrogen globally translates to a promising and sizeable opportunity for Indian manufacturers of electrolyzers.

In brief

  • Green hydrogen production capacity is expected to reach 21 MT per year by 2030.
  • Electrolyzer manufacturers are gearing up to increase capacity to cater to the increasing demand for green hydrogen.
  • Electrolyzer production capability will probably grow ten folds in the next 10 years.
  • Indian electrolyzer manufacturers can immensely benefit from this opportunity if they use technology wisely, secure supply, and improve overall planning and tie-ups.

Green hydrogen has been labeled as one of the cleanest forms of energy in the world and is being looked at as the ultimate solution to achieve net zero emissions. With electrolyzers at the core of the green hydrogen value chain, the rising popularity of the clean fuel globally translates to a promising and sizeable opportunity for indigenous manufacturers of electrolyzers. A recent EY report, "Shortage of electrolyzers for green hydrogen," highlighted the global increase in production capacity for green hydrogen in the last few months and projected the green hydrogen demand to reach 63 million tons (MT) per year by 2030. In January 2023, the Government of India approved the India’s National Green Hydrogen Mission that targets green hydrogen production of 5 MT per year by 2030 with an initial outlay of US$2.5 billion. The policies and initiatives announced by the US and the EU will provide a big push to the hydrogen market and help in meeting the green hydrogen demand of 63 MT per year by 2030.

A problem that is an opportunity

The global demand for hydrogen is 94MT in 2021 and is expected to reach 185 million tons by 2030 in the net zero scenario. While the demand for hydrogen is today enjoying unprecedented momentum, its production still faces significant challenges. Currently, there are only a few electrolyzer OEMs globally with advanced technologies and extensive production facilities, resulting in a massive demand-supply gap. In India, the gap is more prominent as there were hardly any fully functional manufacturing facilities and suppliers until last year. 

The lack of domestic manufacturers today is posing a challenge to India's green hydrogen targets. However, the Indian electrolyzer manufacturing capacity has picked up pace in the last few months to cater to the growing demand of green hydrogen.

This capacity-crunch challenge is an opportunity for the Indian OEMs to ramp up their facilities and help India become an electrolyzer market hub that caters to domestic demand and exports to the global market. 

Leveraging the billion-dollar opportunity: the action plan

The electrolyzer production capability may ramp up ten folds in the next 10 years. However, concrete action is required for the country to benefit from this opportunity. Few actionable steps for Indian manufacturers to make the most of this opportunity are:

1. Choose the technology wisely: Alkaline electrolyzers dominate the market today and are expected to continue being the most preferred technology. The lower cost and higher efficiency of alkaline technology gives it an edge over Proton Exchange Membrane (PEM). However, as PEM technology advances, it is expected to achieve higher efficiency with reduced cost similar to that of alkaline. 

2. Secure raw material supply: Most metals and minerals required for electrolyzers are concentrated in specific geographies, presenting a supply chain risk to manufacturers. Electrolyzer manufacturers must collaborate with key stakeholders globally on raw material dependency issues through strategic sourcing and partnerships. 

3. Plan for large-scale investments and projects: Economies of scale can only be achieved by increasing the size of electrolyzer facilities. Manufacturing more units of stack assembly will result in a cost reduction of 90% by shifting from a manual to a semi-automated process. 

4. Tie-up anchor capacity with reliable hydrogen producers: As the demand for electrolyzers increases in the next few years, the players will look forward to strategic tie-ups with key hydrogen manufacturers across industry segments. These partnerships will play an integral role in supporting the development of a green hydrogen ecosystem. 

Commenting on the challenges faced by the electrolyzer manufacturing industry, Kiran Malla, Partner - Clean Energy, EVs and Infrastructure, EY-Parthenon, said, "Green hydrogen has the potential to become the cogwheel of India's decarbonization strategy. However, there is a need to build a robust manufacturing ecosystem for green hydrogen in the country. Although the government has been taking steps to accelerate the uptake of green hydrogen, a more robust policy framework for investors, subsidies for manufacturers, financing mechanisms, and creation of demand through purchase and bundling obligations can provide the necessary boost to the sector."

The way forward

India has a unique opportunity to become a global hydrogen electrolyzer manufacturing hub. A few steps by the union government could boost the green hydrogen market in India. Akin to incentives which were announced for solar modules and storage, a favorable PLI policy for electrolyzers would boost players to gain scale and achieve overall cost competitiveness for green hydrogen. While US and European markets will spearhead the overall demand for green hydrogen, it will be equally important to create a local demand for green hydrogen. Similar to renewable purchase obligations that are applicable for utilities and captive generators, the union government can consider purchase obligations for petroleum refining and fertilizer sectors to use green hydrogen as a certain proportion of their requirements in a phased manner. Finally, the government could also consider an efficient hydrogen contracting framework which can facilitate long-term offtake of green hydrogen and develop an efficient contracting framework for subsidizing green hydrogen until cost parity with gray hydrogen is achieved. 

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The National Green Hydrogen Mission was approved by the government in January 2023, targeting green hydrogen production of 5 MT per year by 2030 with an initial outlay of US$2.5 billion. This, along with the policies announced by the US and the EU, will help meet the green hydrogen demand by 2030. However, few steps need to be taken by the Indian manufacturers to ramp up the production and benefit from this opportunity. Certain pro-active steps by the government, such as updating the PLI policy for electrolyzes, charting an efficient hydrogen contracting framework, may also help in this regard.

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By EY India

Multidisciplinary professional services organization