green hydrogen economy beyond electrolyser Newsletter - COE Chakra

BEYOND ELECTROLYSERS

Building the ecosystem that will define the green hydrogen economy

The next phase hydrogen will not be decided by manufacturing capacity alone. It will be decidedby the ability to align power, infrastructure, markets, capital and execution into bankable industrial systems.

From announcements to execution

The global hydrogen sector is entering a different phase of development. Hydrogen demand exceeded 100 million tonnes in 2025, installed electrolysis capacity rose to more than 4 GW, and investment in low-emissions hydrogen projects reached nearly US$7 billion. At the same time, however, the pipeline of projects expected to become operational by 2030 has been revised as several projects have been delayed, resized or cancelled.

The announced low-emissions hydrogen production pipeline for 2030 stands at around 27 million tonnes, while more than 100 GW of proposed electrolysis capacity would require timely investment decisions to remain on track for commissioning by the end of the decade.

The constraint is increasingly not the availability of electrolyser technology alone. Projects must simultaneously secure competitively priced renewable power, transmission access, land and water, infrastructure for storage or transport, credible buyers and long-term financing. A weakness in any one of these elements can delay the entire project, even when the production technology itself is commercially available.

Demand visibility is particularly important. New hydrogen offtake agreements announced during 2025 covered approximately 1.7 million tonnes per annum, but only around 20% of these volumes represented firm contractual commitments. This illustrates the challenge facing the sector: a substantial project pipeline exists, but only a small proportion has progressed to the contractual and financial arrangements required for construction.

The next phase of green hydrogen development will therefore be judged increasingly by conversion - how effectively announced projects move through firm offtake, final investment decision, construction and sustained commercial operation.

THE GREEN HYDROGEN CONVERSION GAP

Source: International Energy Agency (IEA), Global Hydrogen Review 2026.

Figure 1. The five pillars of a bankable green hydrogen ecosystem.

Power: every molecule begins with an electron

Green hydrogen economics begin before water reaches an electrolyser. It begins with the price, reliability and carbon attributes of electricity. The lowest equipment quotation cannot produce competitive hydrogen if the electrolyser operates for too few hours, faces grid congestion or relies on costly balancing power. This is why renewable resource quality, hybrid solar-wind profiles, storage and transmission access are increasingly being evaluated as integrated power package.

At scale, the distinction between renewable capacity and usable renewable supply becomes critical. A gigawatt of generation located far from an industrial cluster is not equivalent to a gigawatt delivered reliably at the electrolyser busbar. Transmission queues, curtailment, land aggregation and the timing of grid expansion can materially alter utilisation and debt-service capacity. The business model therefore has to optimise the complete electricity-to-hydrogen system, not simply minimise the cost of individual components.

India's National Green Hydrogen Mission reflects the magnitude of this linkage: the 2030 objective of at least 5 million tonnes of annual green hydrogen production is associated with about 125 GW of additional renewable energy capacity. That relationship is a reminder that hydrogen strategy is also power-system strategy. Regions that can combine strong renewable resources with evacuation infrastructure, flexible supply and nearby demand will hold durable cost advantage.

Infrastructure: the missing middle

Hydrogen is difficult to store, move and trade. That physical reality creates a large 'missing middle' between production and use. Pipelines can be efficient where volumes are high and routes are stable; ammonia, methanol and other derivatives can use elements of existing industrial and port infrastructure; and on-site production can avoid transport altogether. Each route, however, creates a different combination of conversion losses, capital expenditure, safety requirements and contractual risk.

Global plans remain far ahead of committed infrastructure. More than 40,000 km of hydrogen pipelines have been announced for completion by 2035, but only 9% are operational or backed by committed investment. Announced underground storage is 11 TWh (335kt H2), yet just over 7% has reached final investment decision or construction. Even trade introduces a material energy and cost penalty: where pure hydrogen is ultimately required, shipping and reconversion can add at least USD 2 per kilogram and consume more than 10 kWh per kilogram.

The practical response is not to build every possible network in advance. It is to concentrate early deployment in hubs where producers and users can share power connections, water treatment, storage, testing facilities, pipelines and port assets. Co-location reduces interface risk and allows infrastructure to scale with contracted demand. In an emerging market, density is often more valuable than geographic reach.

Markets: production without a buyer is inventory

The decisive constraint is demand. A project may have competitive power, proven equipment and available land, but it will struggle to find financiers without credible revenue. Developers and lenders therefore need more than a memorandum of understanding. They need an offtake structure that defines volume, tenure, price adjustment, product specification, delivery obligations and the allocation of change-in-law and certification risk.

The current market is revealing where adoption is most likely to begin. Existing hydrogen-consuming sectors - refining, ammonia and chemicals - offer established demand, technical familiarity and clear substitution pathways. The IEA expects 2.5 million tonnes of low-emissions hydrogen from committed projects to be consumed in refineries and industrial facilities by 2030, equivalent to 60% of committed global production. New uses in steel, shipping, aviation and power may become major markets, but their near-term growth depends heavily on mandates, carbon pricing, green-product premiums and public procurement.

This leads to a useful distinction between a production target and a market. A target measures intended capacity; a market establishes who pays, under what rules and for how long. Certification is part of this commercial architecture. It determines whether a molecule qualifies for an incentive, satisfies an import standard or supports a green claim. Where certification requirements differ across markets, developers face the risk that hydrogen produced under one set of standards may not fully qualify for incentives, compliance requirements or green claims in destination market.

Capital: banks finance cash flows, not capacity announcements

Green hydrogen projects combine risks that are usually financed separately: renewable generation, electrochemical equipment, industrial process integration, storage, logistics and commodity offtake. When these interfaces are bundled into a first-of-a-kind project, uncertainty compounds. Cost overruns can delay commissioning; low utilisation can raise unit costs; an infrastructure delay can strand completed equipment; and an untested price formula can weaken cash flows.

Bankability therefore depends less on whether each technology works and more on whether risks sit with parties with the ability to manage them. Long-term power arrangements must align with electrolyser operating requirements. Engineering, procurement and construction packages need clear performance and completion tests. Offtake contracts must address volume ramp-up and price gaps. Sponsors require sufficient contingency and balance-sheet support, while public instruments may be needed for risks the private market cannot yet price efficiently.

This is also why capital spending can rise while final investment decisions slow. The IEA estimates that low-emissions hydrogen investment reached nearly USD 7 billion in 2025 and could approach USD 10 billion in 2026, but new Final Investment Decision (FID) in 2025 fell below 0.8 million tonnes per annum. Expenditure is progressing on committed projects, while the next cohort struggles to cross the demand, system and finance gates. For lenders, the central diligence question is not 'Is this a hydrogen project?' but 'Is this a contracted industrial ecosystem with resilient cash flows?'

Figure 2. From announced capacity to operating cash flows: the three conversion gates. 

Execution: the advantage of co-ordination

The final pillar is execution - the capacity to move policy, permits, infrastructure, standards, skills and supply chains on compatible timelines. Hydrogen projects often span multiple ministries, regulators, utilities, local authorities and industrial counterparties. A delay in any one workstream can affect the entire schedule. Policy generosity cannot fully offset fragmented implementation.

Effective ecosystems therefore create mechanisms for co-ordination. Hydrogen hubs can aggregate demand and common infrastructure. Standard contracts can shorten negotiation cycles. Clear emissions thresholds and certification rules can reduce market uncertainty. Sequenced auctions can connect production incentives to real procurement. Skills programmes and domestic manufacturing can improve maintenance capability and reduce supply-chain exposure, but localisation must be accompanied by quality, performance and cost competitiveness.

The strongest policy frameworks will increasingly be assessed not by the size of announced support, but by their ability to generate committed buyers and completed assets. This is especially relevant as global public funding remains tilted towards supply. The next policy frontier is to convert support into predictable demand and investable project structures rather than add another layer of capacity targets.

India's opportunity: move from schemes to systems

India has several ingredients required for a competitive green hydrogen ecosystem: a large renewable energy programme, established refining and fertiliser demand, engineering and manufacturing capabilities, an extensive industrial base and ports connected to prospective export markets. The National Green Hydrogen Mission provides a common direction, backed by an outlay of ₹19,744 crore and a 2030 target of at least 5 million tonnes per annum.

By mid-2026, incentives had been awarded for 862,000 tonnes per annum of green hydrogen production and 3,000 MW per annum of domestic electrolyser manufacturing capacity. Demand-side mechanisms were also beginning to take shape: agreements had been signed for around 0.67 million tonnes per annum of green ammonia supply to fertiliser plants, and contracts covering 30,000 tonnes per annum of green hydrogen had been awarded for refineries. Six states (Gujarat, Rajasthan, Uttar Pradesh, Maharashtra, Andhra Pradesh and West Bengal) had notified dedicated green hydrogen policies. These steps matter because they begin to connect manufacturing and production ambitions with identified users.

The next stage will require tighter spatial and contractual integration. Hydrogen hubs should be selected not only for renewable resource potential, but also for transmission readiness, water planning, industrial anchor demand, port access and the ability to share infrastructure. Demand aggregation should lead to durable contracts rather than price discovery alone. Domestic manufacturing should improve lifecycle service and supply security without insulating equipment from performance benchmarks. Certification must remain compatible with the markets India intends to serve.

For financiers, India's opportunity is not simply the volume of projects that may be announced. It is the possibility of financing clusters in which multiple cash flows, common facilities and credible counterparties reinforce one another. Such ecosystems can lower unit costs, diversify demand and create repeatable project structures. The policy architecture has begun to assemble the pieces; the value will be realised through co-ordinated execution.

The winners will build ecosystems

Green hydrogen is moving beyond the period in which progress could be measured primarily through targets, gigafactories and project pipelines. Those indicators established direction, but they do not guarantee delivery. The more relevant measures are now firm offtake, infrastructure readiness, financial closure, construction progress and reliable operation.

This does not diminish the importance of electrolysers. It places them in their proper context. Equipment innovation and manufacturing scale will continue to reduce costs, but the commercial outcome will be determined by the system in which that equipment operates. Power must arrive when required. Infrastructure must connect production with use. Buyers must accept the product and its premium. Contracts must allocate risk. Institutions must deliver on a common timeline.

The next phase of the hydrogen economy will therefore be an ecosystem race. Countries and companies that integrate these elements will convert ambition into operating assets; those that optimise only one component may continue to accumulate announcements. The defining capability will not be the ability to produce a molecule in isolation, but the ability to build a market around it.

Authored by
Subhadeep Guha (Credit Analyst)
SBI CHAKRA Centre of Excellence