Setting the Stage for Green Hydrogen in India: How Refineries Are Driving the National Hydrogen Transition

India’s latest price discovery under SIGHT Mode 2B has delivered one of the lowest green hydrogen prices globally, with bids reaching as low as Rs 279 per kg. At a time when comparable international prices in Europe remain in the €5–8 per kg range and even advanced markets like the United States hover around $3–6 per kg, India’s ability to achieve sub‑$3.1 per kg firmly establishes its cost leadership. This achievement reflects the strength of India’s renewable energy ecosystem, competitive market design, and clear policy direction—demonstrating that green hydrogen can be both economically viable and globally competitive.

Background

India’s transition toward a low‑carbon economy accelerated with the launch of the National Green Hydrogen Mission (NGHM) in January 2023. Backed by a Union Cabinet‑approved outlay of Rs 19,744 crore (~$2.3 billion) through FY 2029‑30, the mission aims to establish India as a global hub for green hydrogen production, domestic utilization, and export.

• At the heart of this effort is the Strategic Interventions for Green Hydrogen Transition (SIGHT) programme, which earmarks Rs 17,490 crore (~$2.1 billion) to close the cost gap between renewable‑powered green hydrogen and conventional grey hydrogen produced from natural gas.

• SIGHT is organized into two components. Component I allocates Rs 4,440 crore to build domestic electrolyzer manufacturing capacity, reducing import dependence and strengthening supply‑chain resilience. Component II provides viability gap funding (VGF) to support green hydrogen production and early‑stage market development. Within Component II, two procurement pathways are defined: Mode 1, which selects producers based on the lowest incentive required over three years, and Mode 2, which aggregates demand and invites bids for the lowest‑cost supply of green hydrogen or its derivatives. Mode 2 is further divided into Mode 2A (green ammonia for fertilizers) and Mode 2B (green hydrogen for refineries).

• Mode 2A was operationalized through guidelines issued on 16 January 2024, resulting in the award of 7.24 lakh TPA of green ammonia at a weighted mean reference price of Rs 53.27/kg, supported by Rs 1,534 crore in subsidies.

• In parallel, Mode 2B was crafted specifically for India’s oil and gas sector. Implemented by Oil & Gas PSUs and the Centre for High Technology (CHT) under the Ministry of Petroleum and Natural Gas (MoPNG), Mode 2B aggregates refinery demand and conducts competitive auctions for the lowest‑priced green hydrogen supply. Delivery is mandated at the refinery battery limit, with suppliers responsible for storage, transportation, and uninterrupted supply.

• Mode 2B’s incentive structure is clearly defined: Rs 50/kg in Year 1, Rs 40/kg in Year 2, and Rs 30/kg in Year 3, applicable for three years from the start of production. Bidders quote a single uniform price (exclusive of taxes) and a fixed annual supply capacity for the entire Hydrogen Purchase Agreement (HPA) period. Trading or arbitrage is prohibited, and hydrogen volumes cannot receive incentives under multiple SIGHT modes. While agencies may invite bids beyond the incentivized quantum, only the notified 2,00,000 MT per annum under Tranche I is eligible for VGF support.

• Incentives are disbursed annually based on the lower of allocated capacity or actual supply, with payments processed through CHT and MoPNG after verification. This structure ensures transparency, fiscal discipline, and alignment with national decarbonization objectives.

Mode 2B is strategically important because refineries account for over 40% of India’s hydrogen consumption, roughly 6.5 million tonnes per year, predominantly grey hydrogen used in desulfurization and hydrocracking. By aggregating demand and enabling long‑term BOO‑based supply contracts, Mode 2B creates a stable anchor market for green hydrogen adoption and accelerates India’s broader hydrogen economy.

1. Early Foundations: Policy Genesis and Mission Launch

India’s green hydrogen ambitions were shaped by its COP26 commitment to achieve net‑zero emissions by 2070. Green hydrogen emerged as a critical solution for decarbonizing hard‑to‑abate sectors such as refining, steel, and fertilizers—industries where electrification is technically limited. At the time, global green hydrogen prices ranged from $4–6/kg, significantly higher than grey hydrogen’s $2–3/kg, driven by high electrolyzer CAPEX ($500–1,400/kW) and renewable electricity costs.

The NGHM approval in January 2023 set clear national targets:

·       5 million tonnes of annual green hydrogen production by 2030

·       600,000 jobs across the value chain

·       Rs 8 lakh crore (~$96 billion) in investments

Economically, the mission addresses India’s 85% dependence on imported fossil fuels, with the potential to save $10–20 billion annually by 2030 while boosting domestic manufacturing. Refineries were prioritized under Mode 2B due to their large, continuous hydrogen demand and existing infrastructure, which can reduce project setup costs by 10–20% compared to greenfield installations. IOCL, for example, has committed to converting 50% of its hydrogen consumption to green hydrogen by 2030.

2. Guidelines and Tender Rollout: Structuring the Ecosystem

MNRE issued detailed guidelines for SIGHT Component II, Mode 2B in January 2024, establishing a robust framework for demand aggregation, competitive bidding, and incentive disbursement. Bidders must ensure 100% renewable‑powered electrolysis, meet minimum efficiency thresholds (50–55 kWh/kg), and comply with carbon‑intensity limits (<2 kg CO₂/kg H₂). Projects operate under 15–25‑year BOO models with guaranteed refinery offtake, significantly reducing market risk.

Major tenders were launched across the refinery ecosystem:

·       IOCL Panipat – 10 KTPA (Sept 2024; opened Jan 2025)

·       BPCL Kochi/Bina/Mumbai – 5 KTPA (July 2024; opened July 2025)

·       HPCL Visakh – 5 KTPA (Oct 2024; opened July 2025)

·       NRL Numaligarh – 10 KTPA (Aug 2024; opened Aug 2025)

·       CPCL Manali – 2 KTPA (Dec 2024; opened July 2025)

·       MRPL Mangalore – 10 KTPA (Oct 2024; opened Feb 2025)

These tenders emphasized local content, ISTS waivers for renewable power, and clear allocation of land, water, and power responsibilities. Early challenges included electrolyzer import costs (adding 20–30% to CAPEX) and water requirements (9–10 liters/kg), but VGF support and low renewable tariffs (Rs 2–2.5/kWh) helped target a levelized cost of hydrogen (LCOH) below $4/kg.

3. Milestones in Awards and Price Discovery: Building Momentum

From 2025 onward, Mode 2B moved decisively into execution, with competitive bidding driving rapid price reductions.

• IOCL Panipat (10 KTPA) – Awarded to L&T Greentech (June 2025) at Rs 397/kg inclusive (~Rs 336/kg exclusive)

• BPCL Multi‑Site (5 KTPA) – Awarded to Ocior Energy (Oct 2025) at Rs 387/kg inclusive (~Rs 328/kg exclusive)

• HPCL Visakh (5 KTPA) – Awarded to Ocior Energy (Oct 2025) at Rs 387/kg inclusive

• NRL Numaligarh (10 KTPA) – Awarded to NeuEn Green Energy (Feb 2026) at Rs 329.22/kg inclusive (~Rs 279/kg exclusive)

The Numaligarh award marked a 15% price drop from earlier benchmarks, despite remote‑area challenges. Competing bids from Renew, HG Infra, and AM Green clustered around Rs 280–281/kg exclusive, indicating aggressive market positioning.

Additional developments is ongoing in CPCL Manali & MRPL Mangalore with bidding stage. Therefore, overall in the sector 170 KTPA allocated out of which ~42 KTPA tendered and ~ 30 KTPA awarded. The prices declined from Rs 397/kg to Rs 329/kg inclusive within 18 months is a important achievement in the sector.

4. Challenges Encountered

Mode 2B’s progress also revealed structural challenges. Infrastructure gaps in remote locations added 10–15% to CAPEX due to grid, logistics, and water constraints. Limited bidder participation, as seen in MRPL’s cancellation, reflected high upfront investments and concerns about long‑term bankability if LCOH assumptions prove optimistic.

Supply‑chain dependence on imported electrolyzers increases costs by 20–30%, though NGHM’s manufacturing incentives aim to localize 60–100 GW of electrolyzer capacity by 2030. Without mitigation, these challenges could raise LCOH by $0.5–1/kg, though policy relaxations such as ALMM exemptions offer relief.

5. Global Context and Economic Impact: India’s Competitive Advantage

India’s Mode 2B price discovery—$3.08–4/kg exclusive—positions it among the most competitive green hydrogen markets globally.

Region	Typical LCOH (2026)	Drivers	India’s Advantage
India	$3–4/kg	Low renewable tariffs, VGF	20–30% cheaper
EU	€5–8/kg	High energy costs	India 50–60% lower
US (IRA)	$3–6/kg	$3/kg tax credit	Comparable, but India has stronger demand pull
Middle East/China	$2–4/kg	Cheap solar, scale	India competitive with domestic manufacturing push

India’s combination of policy clarity, low-cost renewables, and large anchor demand gives it a structural cost advantage, strengthening its position as a future exporter and global hydrogen hub.

6. Future Outlook: Scaling Up and Sustaining Growth

With 30 KTPA awarded, Mode 2B is scaling toward commercialization. The target of sub-$1.5/kg by 2030 is feasible via electrolyzer localization and mandates (e.g., 5-10% refinery blending). Enablers include 125 GW renewable additions, water recycling, and grid upgrades.

Strategically, refineries anchor demand, catalyzing 5 MT production and positioning India for exports. From 2024 guidelines to 2026's 15% price drop, Mode 2B exemplifies how targeted incentives can drive economic viability in clean tech.

#GreenHydrogen, #India, #Pricediscovery, #GreenHydrogenTransition, #SIGHTMode2B, #ViabilityGapFunding #VGF, #RefineryDecarbonization , #HydrogenPriceDiscovery, #RESI, #REChronicles, #ThePowerSaga

The Renewable Energy Society of India (RESI) Journal- Renewable Energy Chronicles: The Power Saga  (ISBN: 978‑81‑993949‑6‑4)