Written by Priyanshu Gupta student at National Law Institute University, Bhopal.
Introduction
Transitioning to a hydrogen-driven economy is increasingly viewed as a critical step toward achieving global decarbonization goals and addressing climate change. Green hydrogen (“GH2”), produced using renewable energy sources, has emerged as a key solution for reducing emissions in sectors that are particularly challenging to decarbonize, such as steel and iron manufacturing, fertilizers, oil refineries, and transportation. Additionally, for industries like aviation and shipping, which face limited alternatives to fossil fuels, GH2 represents one of the most viable pathways to sustainability. This has led to a growing global focus on advancing green hydrogen technologies and integrating them into energy systems.
India, in line with its commitment to achieving net-zero emissions by 2070, has adopted a comprehensive approach to energy transformation. Among its strategies, the promotion of GH2 and its derivatives, such as Green Ammonia (“GNH3”), stands out as a significant initiative. Supported by policy measures at both the central and state levels, GH2 is produced primarily through water electrolysis powered by renewable energy and, in some cases, through biomass gasification. These efforts align with India’s broader objectives of reducing reliance on fossil fuels and expanding the use of clean energy in its domestic grid and industrial processes.
This article examines the regulatory landscape surrounding GH2 in India, focusing on the challenges posed by the European Union’s (“EU”) directives on green hydrogen production and export. By analysing these restrictions, this article aims to provide an overview of their potential impact on India’s ambitions in the global green hydrogen market and the challenges they may pose to the country’s efforts to become a leading exporter of renewable hydrogen.
Regulatory Landscape Surrounding Green Hydrogen in India
India’s regulatory framework for green hydrogen (GH2) is rapidly evolving, driven by a series of strategic initiatives aimed at positioning the country as a global leader in clean energy. The Green Hydrogen Policy, launched in 2022, is the foundation of these efforts, introducing measures such as land allotment within renewable energy parks for GH2 and Green Ammonia (GNH3) manufacturing to reduce transmission losses and costs.
To further strengthen this vision, the government launched the National Green Hydrogen Mission (NGHM) in January 2023. The NGHM’s goal is to make India a hub for GH2 production, usage, and export, with a target of adding 125 GW of renewable energy capacity by 2030. This aligns with India’s broader aim of achieving 500 GW of non-fossil fuel-based energy.
A crucial regulatory initiative is the Green Hydrogen Certification Scheme of India (GHCI), developed by the Bureau of Energy Efficiency (BEE). The GHCI aims to enhance transparency and accountability in GH2 production by certifying the origin and emission intensity of hydrogen produced. The certification will include a Guarantee of Origin (GO) label, detailing the project and environmental impact.
The European Union’s Regulatory Framework for Green Hydrogen
The European Union, through its European Green Deal and the REPowerEU plan, has adopted an ambitious agenda aimed at addressing climate change and reducing its reliance on fossil fuel imports from Russia. Central to these efforts is the goal of producing 10 million tonnes of renewable hydrogen domestically and importing an additional 10 million tonnes from third countries by 2030. To ensure a consistent and standardized approach to the definition of “renewable hydrogen,” the EU has amended the Renewable Energy Directive (2018/2001) (RED II) with the introduction of a Delegated Act (DA) under Article 27. This DA provides a detailed Union-wide methodology that outlines the conditions under which hydrogen can be classified as renewable. In addition to the DA on Article 27, a further delegated act under Article 28, has been introduced to establish the methodology for assessing the greenhouse gas (GHG) emissions savings associated with renewable hydrogen. The act mandates that renewable hydrogen must achieve a minimum of 70% GHG emissions reductions relative to conventional hydrogen production methods.
A key feature of the RED II read with the DA is the principle of additionality which requires that the electricity used in hydrogen production must come from new renewable energy projects (like solar or wind farms) that were not already supplying power to the grid. The intent is to avoid diverting existing green electricity away from other sectors and to ensure that hydrogen production contributes to an actual increase in renewable capacity. Further, the regulation also demands geographical correlation, meaning that the renewable energy used to produce hydrogen must be generated within the same geographical region or power grid zone as the hydrogen production facility. This ensures that the green power used is physically capable of reaching the electrolyser without relying on long-distance transmission or grid balancing from non-renewable sources.
The Dilemma of the Bidding Zone between the EU and India with respect to Green Hydrogen
A significant compatibility issue arises from the application of European sustainability criteria for renewable hydrogen, particularly the concepts of geographical correlation and bidding zones, to third countries like India. This dilemma is rooted in the fundamental differences between the electricity systems and market designs of the EU and other nations. The European regulatory framework for renewable hydrogen production is closely linked to the concept of bidding zones as they function within the European electricity market. Applying these specific rules, which were developed based on the structure and dynamics of the European grid, creates uncertainties for Indian green hydrogen projects targeting the EU market. The core of the dilemma is determining how the EU’s concept of bidding zones should be interpreted and applied in a different national context like India’s to ensure compliance with the DA’s objectives.
Bidding zones in the European electricity market
In the European Union, bidding zones serve as crucial structural elements of the electricity market. As defined by European Regulation 2019/943, a bidding zone is “the largest geographical area within which market participants are able to exchange energy without capacity allocation”. These zones are primarily established to reflect structural congestion present in the European transmission grid. The integration of bidding zones into the criteria for renewable hydrogen production is intended to prevent reliance on fossil-based generation and mitigate the risk of renewable electricity curtailment by ensuring electrolysers are located appropriately relative to renewable sources.
Bidding zones in the Indian electricity market
India has made significant strides in developing its electricity grid, achieving a highly interconnected system with the “one nation – one grid – one frequency” goal in 2013. Although historical congestion led to market splitting and regional price differences, which are still indicated by regional bidding areas, governmental efforts since 2014 have dramatically improved the situation. India now possesses one of the largest synchronous interconnected grids globally, facilitating almost free electricity exchange and leading to a single price across different grid areas. While “bid areas” persist, they differ fundamentally from EU bidding zones because electricity can be exchanged between them with nearly no capacity allocation or market splits, with only about 0.06% of electricity uncleared due to congestion. This structural characteristic suggests India’s grid functions more like a single integrated market area compared to the distinct, congestion-defined bidding zones in Europe.
Addressing the Gap and the Recommendation
The primary gap identified lies in the absence of a common understanding of the “congestion threshold” for considering areas in third countries as single bidding zones according to the EU definition. While the EU Commission allows the use of equivalent concepts in third countries that maintain the DA’s objectives and are “most similar” to EU bidding zones, the interpretation of “most similar” is unclear. Given India’s well-connected grid enabling electricity exchange and renewable PPAs across various regions with minimal congestion, the entire country could be considered one coherent bidding zone by EU standards. This classification would be highly beneficial, allowing Indian hydrogen producers to utilise a diversified portfolio of renewable sources from across the country (like wind and solar) to maximise electrolyser operation and reduce Levelized Costs of Hydrogen (LCOH) significantly, potentially by up to 25%. To mitigate the regulatory uncertainty and associated investment risks, a key recommendation is to promote a showcase project where a voluntary scheme recognised by the EU Commission certifies hydrogen production considering India as one bidding zone.
Conclusion
The application of European sustainability criteria for renewable hydrogen, particularly the requirement for geographical correlation linked to bidding zones, presents a significant challenge for Indian export projects due to the structural differences between the EU and Indian electricity grids. While European bidding zones reflect transmission congestion, India’s grid is now highly interconnected, facilitating almost free electricity exchange nationwide and effectively operating as a single market area. This characteristic supports the argument that India could be considered one comprehensive bidding zone under the EU definition. Such recognition is crucial for enabling Indian hydrogen producers to leverage the country’s abundant and diverse renewable energy resources across different geographical locations. This strategic flexibility in sourcing renewable electricity would allow for optimised electrolyser operation and lead to significantly lower renewable hydrogen production costs, benefiting both India and the EU through potentially cheaper imports. Resolving the existing regulatory uncertainty through a recognised voluntary scheme certifying India as a single bidding zone is essential to unlock investment and facilitate the export of green hydrogen to Europe.