As India sets ambitious climate targets and looks to enhance energy security by 2047, the focus on green hydrogen has intensified, given its potential to enable sustainable economic growth. Green hydrogen is produced by dividing water into hydrogen and oxygen through an electrolyser driven by renewable energy sources like solar or wind. What makes it attractive is its ability to help decarbonise significant greenhouse gas-emitting industries like refining, steel, and transportation, where eliminating fossil fuel usage is problematic.
Green hydrogen may allow the country to continue its growth trajectory while mitigating environmental impact, underscoring why this sector deserves attention. Read on to learn about the key companies involved and trends around capacity growth, infrastructure development, policy incentives, and the start-up ecosystem that will be crucial to determining investment viability.
Hydrogen is identified as a critical enabling solution for reducing global greenhouse gas emissions, especially in industries where electrification is challenging to achieve. Green hydrogen, produced through electrolysis from renewable energy, is gaining immense traction worldwide, given its minimal carbon footprint.
Hydrogen is the most ample element on earth but rarely exists in its elemental form. Bulk hydrogen production happens via Steam Methane Reforming (SMR) or Coal Gasification, which requires fossil fuels like natural gas or coal. This leads to significant carbon dioxide emissions, making it carbon-intensive ‘grey hydrogen’.
Transitioning instead to electrolytic splitting of water into hydrogen and oxygen using renewable electricity offers a cleaner approach. Since the input energy is emissions-free, it produces no additional greenhouse gases. This makes it essentially ‘green hydrogen’.
There are two main processes for electrolytic hydrogen production:
A.) Alkaline Electrolysis Cells (AEC):
This mature, commercially available technology uses an alkaline liquid electrolyte conducting solution and operates at low temperatures of about 80°C. Energy efficiency levels typically range from 50-70%. Siemens and Nel are major global electrolysis suppliers deploying AEC technology.
This uses a solid polymer electrolyte operating at much higher temperatures between 500-1000°C but with higher energy efficiency rates exceeding 70%. Compared to AEC, PEM lends itself better to intermittent renewable energy inputs. Key manufacturers deploying PEM electrolysers include ITM Power, Plug Power, and Cummins.
Green hydrogen’s unique properties make it an ideal enabler for deep decarbonisation across the industrial landscape:
Green hydrogen is fast and promising as a zero-emission replacement for fossil-fuel-based hydrogen across industrial applications. Companies focused on production, infrastructure development, and end-use integration are attracting investor interest. Here are some key features that strengthen the case for adding green hydrogen stocks as a tactical allocation in portfolios:
IEA forecasts a 6x growth in global hydrogen demand by 2050 as decarbonisation efforts intensify. Several economies have announced ambitious deployment plans recently, including Germany, which targets 14GW by 2030, and South Korea, which aims for over 15GW by 2050. India has unveiled its 5MMT per annum by 2030 green hydrogen mission. The exponential capacity growth promises a multi-decade growth runway for companies to scale.
Green hydrogen shares sector is witnessing vital innovation across production technologies, such as advanced alkaline and PEM electrolysers, newer catalysts, and falling renewable energy costs—all helping drive down hydrogen costs. Companies investing in such cutting-edge R&D and strategic Given potential future cost leadership, companies partnerships merit investor attention, given potential future cost leadership.
Green hydrogen development requires build-out across adjoining renewable energy supplies and distribution infrastructure through repurposed gas pipelines and storage facilities. This necessitates an integrated planning focus from production to last-mile connectivity. Players adopting such an expansive and collaborative approach across the broader ecosystem better position themselves to handle evolving complexities.
Realising green hydrogen’s vast emissions abatement potential, governments are unveiling supportive policies like production subsidies, guaranteed offtake from public sector undertakings and mandated blending in applications like fertiliser and refining. Such measures incentivise private investment across production and utilisation for predictable policy periods, providing revenue visibility.
The versatility of hydrogen allows it to progressively replace grey hydrogen across various industries, such as oil refining, steel, metals manufacturing, electronics fabrication, and even emerging areas like transportation through conversion to e-fuels. This provides wider addressable market opportunities encompassing both existing and potential demand sectors.
India aims to build 5 million tonnes of domestic green hydrogen production capacity annually by 2030 under its National Green Hydrogen Mission. This would require nearly $80-100 billion in investments across production, infrastructure, distribution and exports.
Several key players are emerging across the value chain spanning state-owned energy giants, sizeable private sector conglomerates and specialised startups:
RIL has unveiled ambitious plans to invest ₹75,000 crore over the next 15 years in establishing four giga factories for solar PV manufacturing, energy storage, electrolysers and fuel cells. An initial outlay of ₹60,000 crore has already been committed over the next three years as part of the New Energy business arm.
RIL has set a target of 100 GW of renewable energy by 2030, which is needed to power its green hydrogen expansion. Strategic partnerships with domestic solar cell and module manufacturers are being explored to secure a reliable long-term supply.
RIL’s recent acquisition of Norwegian-based electrolyser manufacturer Stiesdal also plugs a critical technology gap through access to mature PEM technology. According to Chairman Mukesh Ambani, RIL aims to transition progressively from grey hydrogen production to nearly 50% green hydrogen by 2025, suitable for early adoption among Indian corporates.
Indian Oil is the country’s largest oil refining and fuel distribution enterprise. With 9 of its refineries having captive steam methane reforming units for grey hydrogen production, IOCL is targeting major expansion across the green hydrogen value chain through:
As India’s largest buyer of fossil-based hydrogen, IOCL’s offtake assurances and fuel integration strategies provide sound demand visibility for investors. Its Pan-India infrastructure also offers ready access to crucial consumption hubs once supply ramps up after 2025.
NTPC is India’s largest power generation utility, with an installed capacity base of over 70 GW. It has finalised plans to set up the country’s largest green hydrogen-making facility in Gujarat, with a 464 MW capacity, at an outlay of over $500 million.
This project will come up in phases, with the first 12 MW facility expected to be commissioned by 2023. NTPC is leveraging its expertise in some of India’s most complex power projects by foraying into electrolysers and solar capacity for captive supplies.
Its strong financial position, marked by annual operating cash flows of over $5 billion and government backing, provides vital competitive strengths as a dark horse contender for investors to watch out for.
Jindal Stainless is one of India’s leading speciality steel manufacturers. It is an expert in integrating renewable energy into its manufacturing operations. The company has already installed a green hydrogen unit at its Hisar plant in Haryana for testing and validation.
With plans to replace imported natural gas usage with green hydrogen over the long term, Jindal Stainless provides credible demand visibility as it aims to transition completely to carbon-free steel production by 2050.
JSW Energy has outlined plans for nearly 300 MW in wind and solar capacity additions over the next few years aligning with India’s goal for 50% renewable energy by 2030. With solid capabilities as one of India’s largest renewable power producers, JSW Energy provides integrated green power supplies crucial for electrolytic hydrogen production.
The company has also signed an MoU with Australian firm Fortescue Future Industries to study green hydrogen storage and utilisation strategies. This indicates its intent to pursue new energy verticals, leveraging its steady cash flows from the power generation business.
GAIL is India’s largest natural gas transmission and distribution company, with over 14,000 km of pipelines nationwide. The company is exploring business opportunities in green hydrogen production, transportation through its pipeline network, and as a fuel for long-haul buses.
GAIL also inked a pact with state-owned power gear manufacturer BHEL to manufacture electrolysers. With strong government backing and assured gas demand from established industrial consumers, GAIL is favourably positioned as a dark horse contender in the emerging hydrogen energy landscape.
Diversified conglomerate L&T has announced plans to make green hydrogen a $2 billion business for its hydrocarbon engineering division over the next 4-6 years. L&T Hydrogen – the company’s newly formed unit- aims to provide integrated solutions across production, storage, distribution and integration with various end-use applications.
With specialised engineering expertise across industrial sectors, L&T provides comprehensive EPC capabilities spanning complex electrolyser projects and allied transmission infrastructure build-outs. Its strategic tie-ups with ISRO’s Vikram Sarabhai Space Centre for production technologies also attest to execution strengths.
In addition to these leading players, around 50 companies, including private project developers, state-owned energy majors, and specialty startups, have announced plans to invest over $100 billion in India’s green hydrogen market.
Selecting stocks with sound financial positions, demonstrated project execution capacities in allied areas like renewable energy, and strategic global partnerships could be a prudent strategy for benefiting from the massive investment inflow expected into this emerging sector.
The Ministry of Petroleum & Natural Gas (MoP&NG) established GAIL (India) Limited as a Central Public Sector Undertaking (PSU) in 1984.
It works in several industries, including petrochemicals, transmission services, natural gas marketing, LPG and liquid hydrocarbons, and others. The transmission services section (LPG) covers natural gas and liquid petroleum gas.
However, the other category comprises power generation, exploration and production (E&P), GAIL Tel, and City Gas Distribution (CGD). In addition, GAIL is involved in procuring and exchanging natural gas, producing LPG, liquid hydrocarbons, and petrochemicals, and the pipeline transmission of natural gas and LPG. It is also becoming more prevalent in the fields of renewable energy like solar, wind, and biofuel.
While India’s green hydrogen prospects seem promising, the sector needs to navigate critical challenges related to technological readiness, infrastructure availability, and economic viability.
India needs more domestic manufacturing capabilities across vital equipment like electrolysers, storage tanks, and fuel cells, resulting in imported dependencies. Resolving technology inadequacies requires boosting local IP in new materials, component testing, and module assembly. For instance, quality benchmarks for electrolyser stacks suited to handle Indian ambient conditions must be formulated through pilot testing.
Skills development across process engineering, new energy project management, and allied technical trades also need concerted focus. Industry-academia partnerships, international tech transfers, and modular training programs for plant personnel can help bridge competency gaps.
Green hydrogen development necessitates major infrastructure across renewable energy evacuation, transportation networks, and distributed storage facilities, which requires integrated planning between stakeholders.
For example, linking ultra-mega solar parks through enhanced transmission connectivity with upcoming demand centres offers infrastructure synergies. Similarly, creating hydrogen storage hubs at strategic ports leveraging existing oil and gas infrastructure allows a smoother transition to new energy distribution models.
Efforting such large-scale changes requires coordination across central and state agencies and private corporations, necessitating clear delineation of responsibilities between authorities.
High capital costs for electrolyser plants, affordable financing bottlenecks and untested off-take risks today impede the private sector’s appetite to undertake significant investments.
Bridging the cost viability gap through measures like concessional land allotments, power subsidies during initial years, and guaranteed buyback arrangements can accelerate deployments. Policy initiatives may also be directed towards facilitating priority lending status and easier compliance for mega projects above certain thresholds like 500 MW.
Regulatory stability through consistent purchase obligations, transparent pricing formulas and assured renewal tenure of budgetary support schemes would also encourage greater private participation.
Investing in companies specialising in green hydrogen production and allied solutions offers several lucrative benefits:
IEA estimates that global demand for hydrogen could increase up to sixfold by 2050 as decarbonisation efforts intensify. This exponential market expansion offers attractive growth potential for first movers and allied suppliers in production, storage, and transportation.
Governments worldwide offer varied incentives to boost green hydrogen development, including preferential tax rates, guaranteed minimum prices, and low-cost debt financing. Companies enjoying such policy advantages may witness investor interest.
Tightening emission norms can negatively impact fossil fuel companies through stranded asset risks. On the contrary, green hydrogen stocks can benefit from the accelerating energy transition, which provides a hedge in investor portfolios.
Choosing green hydrogen stocks allows participation in climate-aligned solutions to reduce economy-wide emissions. This enables portfolio greening for environmentally conscious investors.
Significant capital and specialised technological expertise required for scaling up green hydrogen production capacity pose deterrence for new entrants. Existing market players stand to gain through such a high incumbent advantage.
Banking on early mover advantages, falling production costs through technological innovations and policy incentives indicating higher profitability make green hydrogen stocks a potentially rewarding bet.
While the green hydrogen opportunity appears lucrative, investors must undertake diligence across several aspects before committing capital.
The government aims to create an environment that allows green hydrogen adoption through supportive policies like concessional financing, swift approvals, and purchase mandates. However, the track record of promised incentives and regulatory changes reaching intended beneficiaries remains uneven across sectors. Investors need to analyse the on-ground transmission of policies impacting revenue visibility and investment activity. Robust bid pipelines, swelling project sanction debt and rising capacity additions are positive indicators to monitor.
Green hydrogen development is tied to massive renewable energy supplies and nationwide distribution infrastructure, which remain work-in-progress. Understanding infrastructure expansion plans across renewables, pipelines, and storage facilities is vital. Companies demonstrating preparedness through strategic tie-ups, captive generation capacities and distribution partnerships merit attention. Conservative assumptions for project returns may be prudent given the nascency.
While India’s cost advantages provide export cheer, global hydrogen demand depends considerably on the decarbonisation priorities of trading partners. Investor assessment of realisable export potential requires tracking the hydrogen adoption roadmaps of key importing regions. For instance, the REPowerEU initiative aims for 20 million tonnes of hydrogen imports by 2030, indicating the EU’s thrust. India’s bilateral government relationships across target markets also provide cues on forthcoming off-take agreements guiding export-oriented strategies.
The capital intensity of projects requires prudent evaluation of investment payback scenarios. Factors like electrolyser costs, interest rates, energy tariffs and grid power backup expenses warrant modelling to determine viable IRR thresholds ahead of equity commitments. Companies demonstrating diligent capital allocation towards technologies with clearer sightlines to cost competitiveness and policy-enabled end-user demand may merit a premium.
Investors benefit from adopting a balanced portfolio spanning mature energy giants and emerging startups across the value chain. This blends stability with higher risk-reward propositions. The sector leaders, speciality technology players, distribution utilities, and allied segment disruptors display promising potential for substantial portfolio gains over the next 5-10 years as decarbonisation efforts gather momentum. Pursuing such a diversified strategy after thoroughly assessing crucial financial viability and demand risks could optimise overall returns.
Adopting a balanced portfolio approach between established energy majors and specialised startups could allow investors to benefit from the sector’s massive growth upside over the next decade.
As India charts an ambitious clean energy future, the case for betting on green hydrogen is growing stronger by the day. With supportive government policies, significant industry investments and rising global demand – the underlying drivers seem aligned towards exponential growth for this sector over the coming decade.
However, as with any emerging innovation, the road ahead has its fair share of challenges around technology viability, infrastructure constraints, and economic uncertainty. Addressing critical issues like reducing production costs through scale, ensuring robust offtake across industries, avoiding delays in capacity buildouts, and maintaining policy stability would be crucial to accelerating the momentum already underway.
But suppose the renewable energy revolution has offered any cues. With the right incentives and political will, India can deliver speedy transitions that may surprise the world positively. Green hydrogen presents the next opportunity to assert leadership as a sustainable economy while meeting developmental priorities.
As an investor scanning emerging segments, identifying companies across the value chain that display long-term vision, execution track record, and strategic risk calibration would be vital in optimising portfolio outcomes. Blending exposures across large conglomerates like Reliance, Adani, or L&T, which bring scale, and startups like Ohmium or Agnikul, which offer innovation, allows tactical participation in this high-growth arena.
Some of the leading green hydrogen stocks in India are Reliance Industries (RIL), Adani Green Energy (AGEL), Indian Oil Corporation (IOCL), Larsen and Toubro (L&T) and NTPC based on market capitalisation, project pipelines and technology partnerships.
Supportive government policies, falling renewable energy costs making production economical, huge investments committed by large conglomerates and global demand for clean hydrogen as decarbonisation efforts intensify are key growth drivers.
A balanced portfolio investing in a mix of established energy majors and specialised startups could allow you to benefit from the segment’s massive growth upside over the next decade.
Technology obsolescence, lack of infrastructure, uncertain demand outlook, high project capital requirements, and policy reversals remain vital risks that need to be evaluated before investing in this nascent segment.
With integrated production-to-use case approaches, the sector leaders Reliance, ONGC, and IOCL seem best positioned for long-term investors betting on India’s hydrogen economy transition over this decade.
Related Tags
Invest wise with Expert advice
IIFL Customer Care Number
(Gold/NCD/NBFC/Insurance/NPS)
1860-267-3000 / 7039-050-000
IIFL Capital Services Support WhatsApp Number
+91 9892691696
Download The App Now
Follow us on
2024, IIFL Capital Services Ltd. All Rights Reserved
IIFL Securities Limited - Stock Broker SEBI Regn. No: INZ000164132, PMS SEBI Regn. No: INP000002213,IA SEBI Regn. No: INA000000623, SEBI RA Regn. No: INH000000248
This Certificate Demonstrates That IIFL As An Organization Has Defined And Put In Place Best-Practice Information Security Processes.
