Making the Transition: Opportunities and challenges in the drive towards a low-carbon future

The world needs to limit the average global temperature rise to 1.5 °C. If this is not done, eve­ry inc­rement of warming beyond 1.5 °C will result in increasingly de­s­­t­ruc­tive and costly implications.

India, in its nationally determined contri­bu­tions, as a part of goals set under the Paris Agreement within the United Na­tio­ns Framework Con­­vention on Climate Ch­­­an­­­ge, has committed to three targets by 2030 40 per cent of India’s cu­mulative electric power installed capacity will come from non-fossil fuel-based energy so­urc­es; India will reduce the emission intensity of its gross domestic product by 33-35 per cent (vis-à-vis 2005 levels); and India will create an additional carbon sink of 2.5 billion-3 billion tonnes of carbon dioxide equivalent (through ad­ditional forest and tree cover).

By 2022, India seeks to provide all households in the country with 24×7 power. Also, India being one of the fastest growing and the fifth largest global economy, energy de­mand has gone up significantly and is ex­pected to increase even more in the co­ming years, particularly looking at the current per capita energy consumption levels. One of the latest reports by the Council on Energy, Environment and Water and financial think tank Carbon Tracker shows that India accounts for 9 per cent of the emerging market electricity demand and 20 per cent of the expected demand growth. This itself speaks about the speed and scale of energy growth in India.

Achieving the above-mentioned targets and meeting the increasing energy de­mand will require a fundamental transition in how we generate, transport and consume energy.

India’s current power generation capacity is about 400 GW, of which about 61 per cent is primarily driven by fossil fuels. Over 80 per cent of India’s oil demand is met through imports, while about 25 per cent of its coal demand is met through imports. In­dia has been planning to gradually phase out its coal plants, replacing them with cleaner options. It has already achieved ab­o­ut 150 GW of renewable energy (in­clu­ding hydro), of which solar and wind to­gether contribute about 85 GW. It has been a remarkable journey, which has been possible because of clear policy di­re­c­tion and with renewables becoming very affordable and competitive due to im­proved technology and massive cost re­duction over the past decade.

However, energy transition is not just limited to phasing out fossil-based generation and replacing it with clean generation so­urces, but also ensuring that we achieve maximum energy independence and energy security. This basically means that we need to transform the entire energy systems – a radical tra­ns­formation from fossil fuels to renewables and other low-carbon technologies. This would require a collaborative app­roach from all stakeholders, that is, governments, investors, companies, co­n­sumers, etc. So, the government needs to set up en­abling policies, businesses need to produce the right products with sustainable inputs and consumers need to make the right choices.

First and foremost, for achieving a reliable and sustainable energy transition in India, the pace and scale of renewable en­er­gy implementation and integration will be a key driver. Ac­c­or­ding to Central Electricity Au­thority projections, ins­tead of 40 per cent, India will have 63 per cent of the in­s­­talled capacity from non-fossil fuel sourc­es by 2029-30.

Simultaneously, the government should plan and incentivise investment in the massive enabling infrastructure and technologies that are critical for transforming the energy system.

So, as the electricity sector becomes cl­ea­ner through low-carbon electrons and low-carbon molecules, electrification wou­ld emerge as a crucial tool for reducing emissions. Transition to electric vehicles (EVs) is a key imperative for India, as ra­pid electrification would make electricity central and critical both from an energy security and a sustainability standpoint, reducing our dependence on fossil fuels. It is also equally important to inc­rease en­ergy efficiency across the entire value ch­a­in including energy supply and demand such that even though the size of our eco­nomy grows, we should use lesser energy over a period of time; basically co­nsu­ming less energy more efficiently. The digitalisation of electricity grids would im­pro­ve energy effici­ency and this would help in meeting the increasing demand.

It is also important to make investment in research and development (R&D) for new technologies in the coming years to propel the transition over the years. Also, so­me sectors would continue to use fossil fuels, or it may be difficult to reduce emis­s­ions, so we would need technologies such as carbon capture and storage.

The government has taken various initiatives and formulated policies to enable this energy transition. Some key highlights are given below:

• India has set an ambitious target of achieving 175 GW renewable energy capacity by 2022 and 450 GW by 2030.
• The Electricity Act amendments are be­ing pushed to enable stricter compliance with the renewable purchase obli­gations, improve the financial health of discoms, enable smooth open access regulations across the country to promote green po­wer procurement directly by consumers, facilitate distribution re­forms to promote competition and benefit consumers, en­able the sale of re­newable power in the real-time market, green term-ahead market, day-ah­ead market, etc.
• Massive investment in transmission and distribution network and giving the go-ahead to establish the transmission network prior to generation.
• The government has come out with the Central Public Sector Undertaking Sc­heme to set up 12 GW grid-connected solar photovoltaic (PV) power projects by government producers with viability gap funding support.
• The government, under the Make in In­dia initiative, has rolled out a producti­on-linked incentive (PLI) scheme to attract large local and global companies to create domestic manufacturing capacity for some of the key areas such as high efficiency solar PV modules with preference from polysilicon to modules, advance chemistry cell battery to create energy storage capacity, for electrolyser production to create an ecosystem for gr­e­en hydrogen production and automobiles and auto components to promote e-mobility. These will en­su­re sufficient capacity build-up to ensure energy independence and security.
• Transport will be a key sector, going forward, for emission reduction glo­bally as well as in India. The use of green energy in the transport sector is around 1 per cent only in India and is around 3 per cent globally. The National Electric Mo­­­bi­lity Mission Plan aims to bring ab­out a transformational paradigm shift in the automotive and transportation in­dustry in the country by promoting hy­brid and electric mo­bi­lity in India and various supply- and demand-side in­c­en­­tives, creation of charging infrastr­u­c­ture, promoting R&D, etc. The government has planned 30 per cent of ve­hi­cl­es to be sold by 2030 to be EVs.
•  The government has launched the Na­tional Hydrogen Mis­sion and is also discussing plans to impose green hydrogen purchase obligations on several se­­c­­tors including the refining, fertiliser, city gas, steel and power sectors in ph­a­­­ses. Initial pilot projects for deployme­nt are being thought of in Lada­kh, Lakshadweep, Andaman and other remote locations.
• Government-designated agencies such as the Solar Energy Corporation of India (SECI) are planning for facilitation of 50 per cent of renewable energy capacities by 2030. SECI will also be the intermediary for the development of solar-wind sto­rage hybrid projects, large-scale stand-alone storage capacity deployment, green hydrogen and green EV char­ging network.

The entire energy transition will require a massive investment, in trillions of dollars, over the next few decades. So, the financial sector will play a critical role in the ac­celeration of this en­ergy transition. The financial sector needs to look at this energy transition as a big opportunity, rather than as a risk to existing investments in fo­ssil fuel-backed energy systems. The fin­an­cial sector needs to bring in a lot of in­no­vation to fund this transition th­ro­ugh different mechanisms such as carbon trading markets and green bonds.

Since the energy ecosystem is so complex and the transition will be a gradual physical transition, it becomes imperative for the financial sector to track the carbon footprint of its future investments closely so that the drive towards a low-carbon future is accelerated but, at the same time, without jeopardising the transition phase.

We have seen some sort of energy crisis over the last month or so in Europe and China, and currently in India, on account of lower coal reserves as we are at present majorly dependent on coal. We need to be careful that this should not deter us from our path; rather it should be seen at as an op­portunity to turbo-c­ha­rge funding for re­ne­wables and energy efficiency programmes.

To quote Tim Wirth, “Energy is needed for development and sustainable energy is needed for sustainable development.” It is imperative to take up the challenge and make this transition towards clean, reliable and sustainable energy.