The connection between dollar-denominated tariffs and green hydrogen

It is no secret that the cost of capital in India is extremely high. A lucky borrower will pay 9 per cent for his loan after offering much as security. 

If you want to bring down the cost of green hydrogen, you must bring down the cost of solar power. (Today, solar power based electrolysis is the most within-reach technology for green hydrogen.)

If you must bring down the cost of solar power, you must bring down the cost of capital. Large pools of international capital are waiting to get into India. Accessing them will bring down the cost of capital. 

However, international investors have some concerns. Construction risk is not an issue, operational risk is not a deal-breaker either. But regulatory risk -- the risk of sudden and crazy regulations -- is a big risk, but investors are learning to live with it, perhaps by spreading themselves across the country, because regulatory risk is more a state-related one, rather than of the federal government.

The one risk that has to be dealt with is the currency risk. If your returns are in rupees and these rupee returns must be converted into dollars for repatriation, and if the rupee depreciates against the dollar (as it typically does), then your rupees will buy you fewer dollars.

This is why experts like Ahmad Chatila, the former founder and CEO of SunEdison, who today has investments in a series of companies with large footprint in India, call for dollar-denominated solar tariffs. Chatila made a strong pitch for this in an interview to the Business Line newspaper. 

“You are anyway buying oil in dollars,” he said to the newspaper, pointing out that India’s oil bill would rise from $160 billion now to $250 billion by 2035. “When you import anything, you are reducing the GDP of your country.” Dollar-denominated tariff would effectively mean that “you are paying yourself the dollars”.

Chatila feels that given the climate action imperatives and the fact that India (and other developing countries) will have no option, unless helped, but to emit greenhouse gases as they develop, developed countries would necessarily invest in India in green sectors, because otherwise, global emissions cannot be tamed. Dollar-denominated tariffs would galvanise FDI flows into India.

Chatila also recommends that the government fix interim targets for hydrogen, renewable energy, again to provide visibility to foreign investors. He feels that hydrogen is India’s chance to be what the US is today, in energy.