The Ministry of New and Renewable Energy (“MNRE”), on June 28, 2023, notified the scheme for Strategic Interventions for Green Hydrogen Transition (“SIGHT”) programme for promoting the green hydrogen sector in India as envisaged under the National Green Hydrogen Mission for the period from the financial year 2025-26 to the financial year 2029-30. The MNRE unveiled two components for the implementation of the SIGHT programme for green hydrogen, namely:

1. Component I: Incentive Scheme for Electrolyser Manufacturing (“Electrolyser Scheme”); and
2. Component II: Incentive Scheme for Green Hydrogen Production (under Mode 1) (“Green Hydrogen Scheme”).

The key aspects of the two components of the SIGHT programme have been discussed hereinbelow:

Component I: Electrolyser Scheme

Component I of the SIGHT programme has been unveiled with a total outlay of Rs. 4440 crores with the objective to: (i) maximize the indigenous electrolyser manufacturing capacity; (ii) achieve lower levelized cost of hydrogen production; (iii) ensure global competitiveness and quality of products; (iv) enhance domestic value addition; and (v) support established and promising technologies.

The Electrolyser Scheme comprises the following key aspects:

Implementation Mechanism: A transparent bidding process has been set out by the MNRE for the implementation of the Electrolyser Scheme.

The MNRE has designated Solar Energy Corporation of India Limited (“SECI”) as the agency for undertaking the effective implementation of the Electrolyser Scheme. SECI will be responsible, inter alia, for inviting and scrutinising the applications, selecting bidders for awarding incentives and ensuring the disbursement of incentives. SECI will review the progress of the Electrolyser Scheme and will submit quarterly review reports and disbursement details to the MNRE. SECI will also have a right to carry out physical inspection of an applicant’s manufacturing units and offices.

Further, the performance of the bidder will be secured through the submission of adequate performance guarantees by the bidder.

Bid Process: The bidders will be required to quote the annual manufacturing capacity for which incentive is sought, committed specific energy consumption (“SEC”) of the electrolyser for the 5 year period, and committed local value addition (“LVA”) on an annual basis for 5 years.

The selection will be based on the summation of the selection parameters described hereinbelow.

Selection Parameters: The selection of bidders under the program will be undertaken by SECI, primarily based on the following parameters:

1. Performance Quotient: The Electrolyser Scheme has been introduced to incentivize the manufacturing of efficient and high-quality electrolytes. As SEC impacts the cost of green hydrogen, the Electrolyser Scheme sets out detailed parameters which will be considered to calculate the incentives on the basis of SEC.
2. Local Value Addition: The scheme intends to indigenize the electrolyser value chain and sets out the minimum LVA for each year of production required to be demonstrated by the bidder. For this purpose, the LVA will be calculated as follows:
   LVA= [(Sale Value of Electrolyser)— (Value of imports)] x 100%
                              Sale Value of Electrolyser
   The Electrolyser Scheme has set out the minimum LVA separately for (i) alkaline electrolysers; and (ii) proton exchange membrane/ solid oxide electrolyser/ anion exchange membrane electrolysers.

Manufacturing Capacity for First Phase: In the first phase of the SIGHT programme for electrolysers, bids will be invited in 2 buckets for a total manufacturing capacity of 1500 MW comprising (i) a 1200 MW bucket for electrolyser manufacturing capacity based on any stack technology; and (ii) a 300 MW bucket for electrolyser manufacturing capacity based on indigenously developed stack technology.

A single bidder may apply for any one or both buckets, for a minimum capacity of 100 MW (for electrolyser manufacturing capacity based on any stack technology) and a maximum capacity of 300 MW.

Eligibility for bidding: The eligibility criteria for the selection of the bidder has been detailed in the Electrolyser Scheme which, inter alia, requires the electrolysers manufactured by the bidders to fulfill the following requirements:

1. SEC must be equal to or less than 56kWh/ kg of hydrogen production;
2. Guaranteed life of electrolyser must be at least 60,000 hours; and
3. Minimum LVA during first year must be 40% for alkaline electrolysers and 30% for other technologies.

Incentives: The Electrolyser Scheme will provide incentives on Rs./kW basis depending on the manufacturing capacity, for a period of 5 years from the date of commencement of electrolyser manufacturing. The base incentives for the first year have been set at Rs. 4440/kW which will be reduced on an annual basis as provided in the Electrolyser Scheme. The annual incentive for each successful bidder will be calculated as per the following formula:

Incentive= (Electrolyser Sales Volume)_i x (Quoted Base Support Rate)_i x (Performance Multiplier)_i x (Domestic Value Addition)_i

Monitoring Committee: The Electrolyser Scheme also provides for setting up a scheme monitoring committee (“SMC”) with the Secretary of the MNRE as its chairman and representatives from the MNRE, SECI, and other experts as its members.

Component II: Green Hydrogen Scheme

In furtherance of the objectives identified in the National Green Hydrogen Mission, the MNRE has identified two primary modes for implementing the ‘Incentive Scheme for Green Hydrogen Production’, namely:

Mode 1: Bidding on the least incentive demanded over the three-year period, through a competitive selection process.

Mode 2: Implementation agency shall aggregate demand and call for bids, though a competitive selection process, for procurement of Green Hydrogen and its derivatives.

Component II of the SIGHT programme has been notified to unveil Mode 1 of the Green Hydrogen Scheme with a total outlay of Rs, 13,050 crores which will be utilised to: (i) maximize green hydrogen production in India; (ii) enhance cost competitiveness of green hydrogen with fossil based alternatives; and (iii) encourage large-scale utilization of green hydrogen.

The Green Hydrogen Scheme comprises the following key aspects:

Implementation Mechanism: The Green Hydrogen Scheme will be implemented through a transparent process for the selection of bidders for awarding incentives.

The MNRE has designated SECI as the implementing agency for the Green Hydrogen Scheme which will be responsible, inter alia, for inviting and scrutinising the applications, selecting bidders for awarding incentives, and ensuring the disbursement of incentives. SECI will review the progress of the Green Hydrogen Scheme and will submit quarterly review reports and disbursement details to the MNRE. SECI will also have a right to carry out physical inspection of an applicant’s production plants.

Further, the performance of the bidder will be secured through the submission of adequate performance guarantees by the bidder.

Bid Process: The bidders will be required to quote the annual production capacity of green hydrogen and/ or its derivatives for which incentive is sought and the incentive demanded in per kg for each of the first three years of production as per the caps provided in paragraph 6 below.

Selection Parameters: The selection of bidders will be undertaken by SECI based on the least average incentive demanded by a qualified bidder, taken as a simple average of the incentive demanded in per kg for each of the three years.

Capacity for bidding during Tranche I: In the first tranche of the Green Hydrogen Scheme, bids will be invited in 2 buckets for a total capacity of 450,000 MT per annum of green hydrogen comprising: (i) a 410,000 MW bucket for ‘Technology Agnostic Pathways’; and (ii) a 40,000 MW bucket for ‘Biomass Based Pathways’.

A single bidder may apply for any one or both buckets, (i) for a minimum capacity of 10,000 MT per annum and a maximum capacity of 90,000 MT per annum (for Technology Agnostic Pathways); and (ii) for a minimum capacity of 500 MT per annum and a maximum capacity of 4,000 MT per annum (for Biomass Based Pathways).

Eligibility for Bidding: Any entity may bid under the Green Hydrogen Scheme if it fulfills the eligibility criteria provided therein. Further, for being eligible for incentives under the Green Hydrogen Scheme, the bidder will have to ensure production as per the criteria provided in the National Green Hydrogen Standard. In case the end-product is a derivative such as green ammonia, incentive will be provided based on the amount of green hydrogen (in kg) utilized for producing the derivative. The equivalence factor for each derivative of green hydrogen will be declared by the MNRE.

Incentives: The Green Hydrogen Scheme will provide incentives on the basis of Rs./kg production of green hydrogen, for a period of 3 years from the date of commencement of the production. These incentives have been capped at Rs. 50/kg for the first year, Rs. 40/kg for the second year and Rs. 30/kg for the third year of production. The annual incentive for each successful bidder will be calculated as per the following formula:

Incentive payout in a given year = (Incentive quoted for that year in Rs./kg) X (Allocated capacity or Actual Production in the year, in kg, whichever is lower)

Allocated capacity will remain constant for 3 years.

Monitoring Committee: A SMC will be set up with the Secretary of the MNRE as its chairman and representatives from the MNRE, SECI, and other experts as its members.

Please find attached a copy of the notification.

This update has been contributed by Rachika Agrawal Sahay (Partner), Siddhant Satapathy (Senior Associate), Sakshi Sharma and Sirisha Prasad (Associate).

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