Whalesbook
JV Signs Record Green Hydrogen Deal
NeuEN Green Energy, a 50:50 joint venture between Bharat Petroleum Corporation Limited (BPCL) and Sembcorp Industries, has agreed to supply 10,000 tonnes per year (10KTPA) of green hydrogen to Numaligarh Refinery Ltd. (NRL). This agreement is a major step for India's National Green Hydrogen Mission. NeuEN will build and operate a green hydrogen production plant at NRL's refinery in Assam, with operations expected to start in 2028. The facility will use renewable energy and storage to ensure a consistent supply, helping NRL reduce its carbon footprint.
BPCL, valued around ₹1.25 trillion with a trailing P/E ratio near 5.00, is expanding its role in clean energy, using its domestic infrastructure. Sembcorp Industries, a Singapore-listed company with a market cap of S$11.22 billion and a P/E of 10.45, contributes its global renewable energy experience. The winning bid set a global record low tariff of Rs 279 per kilogram (about $3.08/kg before taxes), significantly beating European prices. This competitive tender, which attracted nine bidders, shows the sector's growing maturity and the push for cost-effective green hydrogen solutions.
Policy Support and Competitive Landscape
India's National Green Hydrogen Mission is driving this development. The mission aims for 5 million metric tonnes of annual green hydrogen production by 2030 and expects over ₹8 lakh crore in investments. Schemes like the Strategic Interventions for Green Hydrogen Transition (SIGHT) offer financial support to boost electrolyzer and hydrogen production, making projects such as NeuEN's more feasible.
The Rs 279/kg bid matches forecasts that green hydrogen costs in India could soon rival grey hydrogen, potentially dropping to $2-3/kg by 2030, down from current estimates of $3.5-5/kg. India's strong renewable energy resources, evident in its record-low solar tariffs, give it a significant edge. Major Indian companies, including Reliance Industries, Adani Group, NTPC, IOCL, and L&T, are also investing heavily in green hydrogen production and electrolyzer manufacturing, aiming to capture market share. This competition, boosted by government backing, is key to expanding green hydrogen use in essential sectors like refining, fertilizers, steel, and transport.
Challenges for Green Hydrogen Scale-Up
However, significant economic and operational challenges remain for green hydrogen. The Rs 279/kg tariff, while a record low, is still much more expensive than grey hydrogen, which costs around $2.3-2.5/kg. Higher borrowing costs in India compared to some other countries could affect overall project finances, requiring about a 30-40% cost reduction for India to compete globally as an exporter.
Current Indian production costs are estimated between $5.30 and $6.70 per kilogram. Reaching the projected cost of $2.40/kg by 2030 depends heavily on falling renewable energy prices and technological advances. Green hydrogen's competitiveness in India currently relies significantly on government subsidies and waivers.
Sembcorp Industries' global strategy includes major acquisitions, such as Alinta Energy for $4.3 billion. This broad, capital-intensive approach may affect its focus on domestic joint ventures without continued policy support. BPCL's typical valuation as a 'value stock' with a low P/E ratio of 5.00 contrasts with green hydrogen's high-growth, capital-intensive nature. This difference could pose challenges for future large-scale investments. Analysts have given BPCL mixed reviews, with HDFC Securities rating it 'Reduce' (target ₹275) and Prabhudas Lilladher rating it 'SELL' (target ₹381), suggesting caution about its overall stock performance despite its diversification into new energy.
Future Outlook for Green Hydrogen
India's National Green Hydrogen Mission plans to establish the country as a global hub for green hydrogen production, use, and export by 2030. The mission is expected to attract over ₹8 lakh crore in investment and create more than 6 lakh jobs. Analysts generally rate Sembcorp Industries as 'Buy,' though price targets suggest limited immediate upside.
The success of projects like NeuEN's depends on evolving policy incentives, technological advancements in electrolyzers and storage, and continued efforts to lower production costs. This will be crucial for competing with existing energy sources and other global green hydrogen producers. The long-term contract with NRL offers revenue certainty, which is important for managing the risks inherent in this new, costly industry.