BPCL and Sembcorp’s joint venture, NeuEN Green Energy, has signed a record deal to supply 10,000 tonnes of green hydrogen annually to Numaligarh Refinery (NRL). This is a huge boost to India’s efforts in the field of green hydrogen and industrial clean-up, in spite of the challenges still to be overcome.
JV Signs Record Green Hydrogen Deal:
NeuEN Green Energy, a 50:50 joint venture between Bharat Petroleum Corporation Limited (BPCL) and Sembcorp Industries, has entered into an agreement to supply 10,000 tonnes per annum (10KTPA) of Green Hydrogen to Numaligarh Refinery Ltd (NRL). This is a significant milestone in India’s National Green Hydrogen Mission. NeuEN Green Energy will develop and operate a Green Hydrogen production plant at NRL’s refinery in Assam, with operations commencing in 2028. This will enable NRL to reduce its carbon footprint and transition towards cleaner operations with a consistent supply of Green Hydrogen, generated by renewable energy and stored to enable a stable supply of Green Hydrogen to NRL’s refinery operations.
BPCL, which has a market capitalization of about ₹1.25 trillion and a trailing P/E of about 5.00, is contributing to the growth of clean energy through its infrastructure in the domestic market. Sembcorp Industries, a Singapore-based company with a market capitalization of S$11.22 billion and a P/E of 10.45, provides expertise from its global experience in the renewable energy sector. The bid was awarded at a record low tariff of Rs 279 per kilogram, which works out to about $3.08/kg before taxes. This is much cheaper than what is currently available in Europe. This bidding process, which attracted nine bidders, reflects a maturing sector in its bid to provide cost-effective green hydrogen technology.
Policy Support and Competitive Landscape:
The National Green Hydrogen Mission in India is promoting the development of green hydrogen technology. This mission aims to achieve 5 million metric tonnes of green hydrogen production by 2030, which will attract investments of over ₹8 lakh crore. Schemes like Strategic Interventions for Green Hydrogen Transition (SIGHT) provide financial support to increase investments in electrolyzer technology, which will make such projects more feasible.
The Rs 279/kg bid is in line with predictions that the cost of green hydrogen in the country is likely to become competitive with grey hydrogen in the near future, bringing down the price to as low as $2-3/kg from the current estimates of $3.5-5/kg. The favorable renewable energy availability in the country, as reflected in the record-low tariffs for solar, also puts it at a significant advantage. Large Indian conglomerates like Reliance, Adani, NTPC, IOCL, and L&T are also investing heavily in the production of green hydrogen and manufacture of equipment like electrolyzers, looking to gain a larger market share.
Challenges for Green Hydrogen Scale-Up:
The scale-up of green hydrogen faces several challenges in terms of costs, which, despite the Rs 279/kg being a record low, remains significantly higher than grey hydrogen, which currently costs around $2.3-2.5/kg. In addition, India also faces a relatively higher interest rate environment compared to other countries, which could impact the economics of the project, with a 30-40% reduction in costs being required to become competitive in the international market as a exporter.
The current Indian costs of production range from $5.30 to $6.70 per kilogram. The costs projected for 2030, $2.40/kg, rely on the decrease in costs of renewable energy sources. The competitiveness of green hydrogen in India is also dependent on subsidies and exemptions provided by the government.
Sembcorp Industries has a global strategy that includes major acquisitions, such as that of Alinta Energy for $4.3 billion. Such a wide-ranging approach may influence its green hydrogen strategy in India in the absence of government policies. BPCL’s normal valuation as a ‘value stock’ with a low P/E ratio of 5.00 differs from green hydrogen’s high growth potential and capital-intensive business model. This may prove to be a problem for green hydrogen in the long term for major investments in the field. BPCL has received mixed reviews from analysts, with HDFC Securities giving a ‘Reduce’ rating for the stock with a target price of ₹275 and Prabhudas Lilladher giving a ‘SELL’ rating with a target price of ₹381 for the stock, considering its potential in new energy as well as its performance as a stock.
