There's a New Kid on the Green Hydrogen Block

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There's a New Kid on the Green Hydrogen Block

Nov 17, 2021

There's a New Kid on the Green Hydrogen Block

Earlier this month I wrote to you about 5 Indian Companies Leading the Green Hydrogen Revolution.

In the article, I elaborated on the companies in the green hydrogen space and discussed their investment plans and strategies.

I also discussed why green hydrogen is hot right now.

Here is an excerpt from the article -

  • India's current energy import bill is over US$160 bn (Rs 12 tn) a year. The continued coal and oil dependency will increase this amount by 2-3 times.

    To cut down expenses and reduce this dependency, sustainable sources of energy like green hydrogen will become more of a necessity than a choice in the near future.

    The government's nudge is another area that is creating an opportunity for the sector.

    It recently announced a draft policy mandating that green hydrogen account for 10% of the overall hydrogen needs of refiners by 2023-24. For the fertiliser sector, the requirement is around 15%.

    It also plans to increase its non-fossil energy capacity to 500 GW by 2030 and meet 50% of its energy requirements from renewable energy by 2030.

As you can see, green hydrogen is the need of the hour and companies who plan to make the shift stand to gain a lot.

The latest company to join the green hydrogen bandwagon is Adani Enterprises.

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Recently, billionaire Gautam Adani announced plans to invest up to US$70 bn (Rs 5.3 tn) in renewable energy over the next decade and produce the cheapest hydrogen in the world.

Speaking on the side lines of the UK's Global Investment Summit at the London Science Museum, he said...

  • When combined with India's cost and locational advantages, this investment will enable Adani Enterprises to produce the world's least expensive green electron and be on track to become the world's largest renewable power portfolio by 2030.

Adani plans to invest the money across the entire green energy value chain.

This will include investments with potential partners for electrolyser manufacturing, backward integrations for component manufacturing to secure the supply chain for the solar and wind generation businesses, and AI-based utility and industrial cloud platforms.

The mega investment will lay the foundation for Adani to become one of the largest green hydrogen producers in the world and, in turn, will make India the producer of the world's cheapest hydrogen.

Billionaire Mukesh Ambani has already announced plans to bring down the cost of green hydrogen considerably within a decade.

His company, Reliance Industries (RIL) recently partnered with Danish company Stiesdal A/S through its subsidiary Reliance New Energy Solar (RNESL) to develop and manufacture hydrogen electrolysers.

The electrolyser giga factory will manufacture modular electrolysers for the production of green hydrogen for domestic use as well as for international sales.

While this will be expensive (the cost of green hydrogen is around US$3.6-5.8/kg), Ambani said the company aims to produce hydrogen at 'under US$1/kg within a decade'.

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So how does Adani plan to fund his US$70 bn plan?

About a fifth of Adani's proposed US$70 bn plan is expected to be financed through internal accruals.

The rest will be through a combination of different routes including foreign direct investments, loans and bonds.

The company is already in talks with at least half a dozen sovereign and global pension funds and energy majors to raise up to US$2 bn in equity sales.

Some of these are the Abu Dhabi Investment Authority (ADIA), the Qatar Investment Authority (QIA), a BNP Paribas arm and Total Energies SE.

Other potential investors include international energy infrastructure operator SNAM, the Ontario Teachers' Pension Plan, and Apollo Global.

The proposed equity sale could be in the range of 5-10%. The deals are likely to be finalised in the next few quarters.

The share of Adani Enterprises' mining business will likely reduce to less than 10% as no new capital is expected to be allocated to coal.

Mining accounts for about a third of the company's total assets. The move will help reduce its weighted average cost of capital.

Green fuels are a priority for Adani

Adani will offer a range of green fuels through its recently launched petrochemicals arm, Adani Petrochemicals.

The company plans to deploy its renewable energy generation units, its Mundra-based solar manufacturing unit, existing liquified natural gas (LNG) supply chain, and its compressed natural gas (CNG) network for the production and supply of these green fuels.

It plans to manufacture green hydrogen, green methanol, green ammonia and green fertilisers. For each fuel, Adani is planning to reach out to different sets of buyers.

It will also participate in tenders that the government is planning for green hydrogen and fertilisers. Officials said the standard bidding document for both will be out soon.

The move comes at a time when the central government through Niti Aayog has set the roadmap to move towards a 'methanol economy'.

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Adani to Partner with Ashok Leyland for green fuel pilot project

In the first leg of pilot projects for its green fuels, Adani will join hands with leading commercial vehicle maker, Ashok Leyland, to supply green methanol for a select fleet of the automaker.

It will start a pilot with VRL Logistics, which has the largest fleet of Ashok Leyland's commercial vehicles, to run 250 vehicles on 10% blended green methanol.

The IC (internal combustion) engines require a minor retrofit for them to run on blended methanol. The plan has been approved by VRL and the deployment will begin soon.

When asked about its tie-up with the Adani Group, N Saravanan, chief technology officer, Ashok Leyland, said...

  • We are working on multiple alternate fuels such as compressed natural gas/liquefied natural gas, methanol, and H2 (hydrogen) with various key partners and look forward to having a complete portfolio of commercial vehicles in the alternate fuel area in the next 2-3 years.
  • Adani is also in talks with leading shipping companies who are making the shift to greener fuels.

    Conclusion

    The hydrogen sector is one of the few areas where India has taken steps to keep itself at par with global technology leaders.

    As the Indian government plans to be self-reliant in energy by 2047, hydrogen is expected to play a key role in achieving this goal.

    According to the India Hydrogen Alliance (IH2A), India will require an estimated US$15 bn in public and private funding to set up 15 gigawatts (GW) of green hydrogen electrolyser capacity by 2030.

    This electrolyser capacity is expected to produce 3 million metric tonnes (MMT) of green hydrogen and would need 30 GW of renewable energy.

    With Adani's expansion plans, the company's renewable energy capacity is expected to reach 10 GW. This should be able to cover one-third of the renewable energy requirements.

    To know what's moving the Indian stock markets today, check out the most recent share market updates here.

    Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

    Ayesha Shetty

    Ayesha Shetty is a financial writer with the StockSelect team at Equitymaster. An engineer by qualification, she uses her analytical skills to decode the latest developments in financial markets. This reflects in her well-researched and insightful articles. When she is not busy separating financial fact from fiction, she can be found reading about new trends in technology and international politics.

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