Green Hydrogen Financing: Lessons from India’s First Wave of Projects

India’s ambition to emerge as a global hub for green hydrogen is no longer an aspirational policy objective and is gradually becoming a financing reality. Supported by the National Green Hydrogen Mission, production linked incentives, and increasing international demand for low carbon fuels, several large scale green hydrogen and green ammonia projects have reached advanced stages of development. Indian conglomerates, renewable energy developers and international strategic investors have announced huge investments, while domestic and international lenders are beginning to evaluate these projects as a new asset class.

While the first wave of green hydrogen projects has attracted significant policy support and investor interest, it has also highlighted that the financing of such projects poses challenges that are fundamentally different from those encountered in conventional renewable energy financings. Unlike utility scale solar or wind projects, green hydrogen projects encompass multiple interdependent components including renewable power generation, hydrogen production, storage, transportation and offtake arrangements, each of which introduces distinct legal, commercial and operational risks that must be carefully allocated among the project participants.

Conventional renewable energy financing has matured considerably over the last decade. Lenders have developed familiarity with the associated risks, including land acquisition, grid connectivity, regulatory approvals and long term power purchase agreements (PPAs). Revenue models are relatively predictable where projects benefit from long term PPAs with creditworthy counterparties. Green hydrogen projects, by contrast, involve a significantly more complex value chain. A typical project requires dedicated renewable power generation, electrolysers for hydrogen production, desalination or water treatment facilities, storage infrastructure, and in many cases ammonia conversion facilities for export. The commercial viability of the project depends upon the successful integration of each of these components. Consequently, the financing is exposed not only to construction and operational risks associated with renewable assets, but also to technology performance, industrial processing, commodity pricing and export logistics.

Perhaps the most significant lesson from the first generation of green hydrogen projects is that revenue bankability remains the principal concern for lenders. Unlike conventional renewable energy projects, which benefit from long term PPAs providing predictable pricing and stable cash flows, green hydrogen projects operate within a nascent and evolving commercial market. Although demand from fertiliser manufacturers, refineries, steel producers and international buyers is expected to grow significantly, long-term offtake arrangements remain limited. Consequently, the absence of firm purchase commitments creates uncertainty around future revenues. Even where offtake agreements are in place, lenders closely scrutinise pricing mechanisms, volume commitments, termination rights, force majeure provisions and the creditworthiness of offtakers. As a result, projects supported by robust take-or-pay arrangements with investment grade counterparties are significantly more likely to secure financing than those dependent on anticipated or spot market demand.

Another notable feature of green hydrogen financing is the complexity of project structures. Many proposed projects involve multiple project companies responsible for renewable generation, hydrogen production, ammonia conversion, transmission infrastructure and export facilities. Some projects are also developed through joint ventures involving domestic sponsors, international technology providers and various investors. This fragmented ownership structure has important implications for security creation. Traditional project finance security packages comprising mortgage over project land, hypothecation of movable assets, assignment of project documents and pledge of shares may no longer provide complete coverage where multiple special purpose vehicles own different components of the value chain. Financing parties are increasingly evaluating upstream and downstream contractual rights, inter-company arrangements, common cash flow mechanisms and cross-default provisions to ensure that the security package adequately captures project value.

India has made significant progress in establishing a policy framework for green hydrogen through the National Green Hydrogen Mission and supporting regulatory initiatives. Nevertheless, several aspects of the regulatory ecosystem remain under development. Questions relating to certification standards, renewable energy accounting, transmission concessions, open access frameworks, export incentives and carbon accounting continue to evolve. For cross-border projects targeting international markets, compliance with overseas certification regimes and sustainability requirements may become commercially critical. Thus, there is an additional challenge of assessing regulatory risks that extend beyond domestic approvals and include evolving international market standards.

Green hydrogen projects frequently involve simultaneous construction of multiple interconnected facilities by different contractors. Delays affecting renewable generation assets, electrolysers, storage facilities or ammonia plants may postpone commercial operations for the entire project. Accordingly, financing documentation must carefully address completion testing, milestone certification, liquidated damages, interface obligations between contractors and contingency planning for delayed commissioning. The traditional project finance assumption that construction risks can be comfortably transferred through EPC contracts requires more detailed examination in integrated hydrogen projects.

Many of India’s announced green hydrogen projects contemplate participation by export credit agencies, multilateral development banks, climate-focused investment funds and international commercial lenders. These funding sources frequently impose enhanced environmental and social compliance obligations, international procurement standards and sustainability reporting requirements.

The first wave of green hydrogen projects demonstrates that the principal challenge is not the availability of capital, but the bankability of projects. Investors remain willing to deploy capital where projects offer predictable cash flows, balanced risk allocation and robust security structures. As the market matures through standardised offtake arrangements, technological advancements and greater regulatory clarity, financing is expected to follow the trajectory of India’s solar and wind sectors, where established market practices gradually enhanced bankability. Ultimately, the success of India’s green hydrogen sector will depend as much on effective legal structuring as on technological innovation and policy support. Bankable projects require legal frameworks that appropriately allocate risks, safeguard lender interests and provide the certainty necessary to attract long term capital.