Green Energy Transition

Industry stakeholders discuss opportunities and challenges

The power industry’s focus is shifting from green electricity generation to green energy transition. The aim is not only to expand clean power capacity but also to increase green hydrogen production and set up energy storage projects. In addition, the domestic manufacturing of solar modules has become a priority for policymakers. While navigating this transition, industry stakeholders are facing challenges related to land acquisition, power evacuation, recurrent policy and regulatory changes, etc. At the India Energy Transition Summit 2022 organised by the Federation of Indian Chambers of Commerce and Industry, leading industry experts discussed these challenges and provided policy suggestions. Edited excerpts…

Vivek Bhide, Managing Director, John Cockerill India

Vivek Bhide

For clean energy transition, the uptake of green hydrogen is ex­tremely important. Th­e­re are a few challenges in the manufacturing of green hydrogen in the Indian context. We need land, water supply for electrolysers and 24×7 supply of renewable energy to the manufacturing units. There are issues pertaining to costs as well. If we break up the cost of green hy­dr­ogen, there is a stack-related component in electrolysers that would be 22-25 per cent of the overall cost. Also, there is a huge cost associated with balance of plant and power electronics that can be mitigated by promoting local manufacturing. There are issues of transportation and energy storage as well since hydrogen is a highly inflammatory gas.

For accelerating green hydrogen manufacturing in India, I would like to make five key recommendations. One, India has an immense pool of talent and technology. Thus, investing heavily in green hy­­drogen research and development will harness the innovative potential for In­dia’s green energy transition. Two, there is a need for more production-linked in­ce­ntive (PLI) schemes for electrolysers and related green hydrogen facilities in India. Three, there should be import duty concessions for importing global metals as far as electrolyser manufacturing is concerned. Four, to enable low-cost fi­nan­cing, we need to attract foreign direct investment to help accelerate green hy­drogen manufacturing. Five, we shou­ld introduce hydrogen purchase obligations and create markets to balance the demand and supply.

Hitendra Dave, Chief Executive Officer, HSBC Bank India

Hitendra Dave

The solution for finan­cing energy transition commences with fixing the underlying ba­sic issues. A banker is concerned about land acquisition-related issues and regular changes in policies and regulations during the project’s construction period. The higher the risk of developing a project, the lower will be the possibility of getting a long-tenor bank capital. The banking system is willing to lend capital but on assurances that there are visible cash flows or a demonstration of sale of goods that will be converted into money later.

A key concern is that not all contracts are adhered to or honoured, resulting in long judicial processes. Hence, it is important to fix basic issues like associated project risks in the infrastructure sector. Most infrastructure sector projects face high risk in land acquisition, allocation of state government funds, maintenance of law and order and many more. Thus, the industry needs to give confidence to the lenders with a clearer visibility of cash flows.

Given that some projects have extre­mely long tenures for completion, the co­untry needs to establish an institution that can pro­vide partial credit guarantees. Such in­stitutions should be set up as specia­li­sed institutions to provide first loss guarantee for projects.

There must be institutions undertaking currency risks to manage the associated hedging risks. It is time for India to consider a proper export credit agency wherein some subsidised funding is available for longer tenors. Eventually, for larger infrastructure for green energy transition, there is need for an Employees’ Provident Fund Organisation, pension funds and insurance companies to direct equity risk wh­ere project risks are taken up by long-term savers. According to me, debt has been underpriced and going forward we need to prepare for more realistic bidding.

Somesh Kumar, Partner, EY

Somesh Kumar

Battery storage is an emerging domain of fo­cus in India’s energy transition. However, hi­gh costs are turning out to be the biggest roadblock in the seg­ment. Currently, the cost is on the up­ward side at Rs 10 per kWh. The government aims to bring down the round-the-clock costs to Rs 6-Rs 7 per kWh over a period. The key question is how to bring the costs down to the desired level in the co­ming years. The government has already adopted certain interventions in this regard. For instance, the PLI scheme has been introduced to offset costs and provide incentives for battery production; a viability gap funding mechanism has been adopted; and concessional financing has been offered. However, these are temporary interventions, which are likely to be unsustainable in the long run. Con­cessional financing, for instance, cannot be sustained over a long period of time as eventually, financing must be sustainable for both lenders and borrowers. There­fore, mechanisms that are self-sufficient and economically viable in the long run must be adopted as has been done in In­dia’s solar power sector.

One effective way to bring down the cost of battery storage in the long run is to in­crease the scale of production. Thus, if gr­eater certainty about the scale of battery storage projects can be provided in the coming years, one can expect a greater th­rust from the industry stakeholders to innovate and further bring down the costs. Moreover, we are still largely dependent on imports for battery components as the su­pply chain is limited in the country. This is a huge limiting factor. Several countries have vertically integrated their supply chain, but India has not done that so far. Therefore, India must move towards integrating its supply chain vertically, making battery storage more cost effective, especially given the rising challenges of global energy security. Further, since India does not possess abundant domestic natural re­serves for battery materials, a robust battery recycling policy is important. The materials we procure and recycle could bring down the costs as well. This pro­cess would be more sustainable. Finally, giving greater importance to research and development and innovation in battery storage would go a long way in achieving the de­sired outcomes. New materials that bring down the cost can also be explored. In­d­eed, the cost will come down, but how fast that would happen is a crucial question.

Ultimately, as we proceed in our mission of clean energy transition, it is important to ensure that this is a just transition. The concept of just transition is vital and must be considered in all aspects of decision-making pertaining to clean energy developme­nt. As we move towards cleaner fu­els, we must also focus on its impact on the environment, employment, social sec­urity and livelihoods. Several studies have found that energy storage has the potential to increa­se electricity tariffs in the current term, so it is important to consider whether India can afford such a rise in tariffs. Rese­arch by EY has also found that more than 110,000 jobs can be affected due to the closure of coal mines. The renewable energy industry could enable significant job creation, but whether it will provide jobs to people who are losing th­eir jobs is uncertain. The transition will be just if such a disadvantage is not created. Our clean energy transition wo­uld, thus, go hand in hand with the up­s­killing and reskilling of the wo­rk­force. Go­ing forward, an institutional me­chanism with a transition fund can also be set up, particularly for states where the population is likely to be severely impacted.

Kishor Nair, Chief Operating Officer and Director, Avaada Power

Kishor Nair

Many companies are interested in investing in the renewables sector, but there are many challenges for project developers. The mo­st critical challenges pertain to la­nd ac­­quisition and transmission infrastructure. These are the two key aspects th­at are holding us back from setting up our ca­pacity. The country has a non-fossil fuel capacity target of 500 GW by 2030. Of this, it has already installed 150 GW. The balance 350 GW will require around 1.4 million acres of land. Since we require co­n­tiguous land for a solar project, we are fa­cing a lot of trouble finding even 500 ac­res of land at a single location.

We have recently commissioned the world’s largest solar project of 1,250 MW at a single location in Bikaner, which re­q­uir­ed 5,000 acres of land. A key issue that should be highlighted is that approximately 90 per cent of the land in India is categorised as agricultural land, necessitating its conversion for industrial use. The core issue in many states is that the land is al­ready classified as Class 1 or Class 2, which means that before utilising it for so­lar projects, one must change its classification to the suitable Class 4. We also en­c­ounter land that is allocated to Schedu­led Castes and Scheduled Tribes, which cannot be used for industrial purposes.

In some states, prior permission is re­quir­ed for the acquisition of land. Even in big states like Uttar Pradesh, clearance is ne­e­­ded in advance to purchase land for in­dustrial purposes. To top it, we have iss­ues when the land is barren but it still costs a lot. This is because when planning to buy land to set up a project, local politicians will induce villagers by saying that they will receive any amount of money that they request. The land is purchased at the asking price set by the land­owner. They no longer have any claim to the land after that. Today, however, we find ourselves in a predicament where af­ter pa­y­ing the who­le price and buying the land, we conti­nue to face land acquisition issu­es. Go­ver­nment policies and support are required to solve these issues.

A lot of time and energy will be saved if the agricultural and renewable energy sectors are regarded as green industries and this will eliminate half the problems. Further, all of the states’ available barren land can be put to use for solar or other renewable en­ergy projects. It will save a lot of time if the states can identify the land on which project development is accepted with all the necessary approvals. The distribution and transmission companies can set up energy evacuation and energy storage infrastructure on those locations.

Gautam Reddy, Chief Operating Officer, Greenko

Gautam Reddy

In order for energy tra­nsition to be succ­ess­ful, multiple solutions are required at prese­nt, as one single solution would not ad­dress every issue. Pumped storage, from India’s perspective, is an outstanding so­l­ution. If the same thing is attempted in Eu­rope or the US, the scale and cost arbit­rage may not make such projects fe­a­si­ble. However, India can deliver energy sto­rage through pumped storage projects at a much lower cost than any other technology in the next decade. New technologies will surely come, like they should, as the country needs to develop sufficient st­o­rage capacity for deep decarbonisation, and it is quite encouraging that the gove­rnment is promoting energy storage.

To give a little more perspective on deep decarbonisation, 80 GW out of roughly 210 GW of peak power consumption in In­d­ia is by industrial consu­mers. Most of this can be attributed to captive coal in­dustries, including lar­ge steel, aluminium and other facilities, which are some of the most intense emitters of carbon. It is im­portant to tackle carbon emissions from these industries to seriously move towar­ds deep de­car­bonisation. How­ever, these are very cost-consci­ous industries. They eventually need a solution where captive coke can be repla­c­ed with a continuous gr­een power sour­ce that is also cost eff­ective. A pumped storage system is very beneficial in the Indian context and can be more useful for industries than even power utilities.

There are surely plenty of challenges in the adoption of pumped storage facilities, but they are being addressed. As with any other big infrastructure project, land availability and acquisition continue to be a big issue in pumped storage projects as well. We are building four pumped storage projects at present with the first one expected to be commissioned by the end of next year and our other projects in Madhya Pra­desh and Karnataka have also recei­v­ed permits. The typical size of land requ­ired for just the storage part is 1,500 ac­res. Along with this, solar and wind po­wer plants need to be set up, which require 15,000-20,000 acres of land for just 3-4 GW of project capacity. On the transmission side, the government has introduced enabling policies and power can be wheeled in and out without any transmission charges.

Land-related issues need to be tackled like the road development work, where the government identifies the prospective sites and takes care of the bulk of the ac­quisition. Then, this land can be allocated to a pro­ject developer. This will significantly he­lp in addressing land acquisition is­sues es­pecially in forest areas.

Other areas that require policy direction are related to recognising revenue strea­ms from the host of ancillary services that pumped storage projects provide apart from storage like grid balancing and frequency regulation. Even standalone energy storage has no defined revenue stre­am at present. However, ef­forts are being ma­de in these areas, which would help pro­mote investments in the future.

Saibaba Vutukuri, Former Chief Executive Officer, Vikram Solar

Saibaba Vutukuri

It is interesting that the industry has shifted its focus from gr­e­en electricity to a bro­ader aim of green energy transition. With this, the focus has also shifted to the promotion of green hydrogen, which will require additional capacity of renewables and therefore additional capacity of solar modules. For 2030, the solar capacity target is 280 GW. To meet this target alone in the next eight years at least 20-25 GW of solar modules need to be dep­loyed. In addition, solar modules will be needed to meet the ambitious gr­een hy­drogen production plans, which rely hea­vily on solar power given it is the cheapest source of electricity.

The key issue is that historically 90 per cent of the solar modules have been im­ported, mostly from China. We have to understand that there is a cost to the co­untry as solar projects are being set up with imported solar modules. India’s energy import bill is only expected to increase significantly in the coming years; this needs to change. Just to meet the 2030 solar targets, the country will need to spe­nd approximately $50 billion on im­ports. We need to create jobs in the co­untry by promoting domestic manufacturing, attra­ct the most efficient technology and beco­me self-sufficient. In the initial phases, China was giving a tremendous amo­u­nt of benefits to promote the do­m­es­tic manufacturing ecosystem and with eco­no­mi­es of scale it has become ex­tremely cost competitive.

Unfortunately, India missed the domestic manufacturing bus, as for a long time go­vernment policies have not been favou­r­able. In India’s automotive industry, a similar trend existed 30-40 years back when the reliance on imports was heavy. With tariff and non-tariff barriers over a period of 20-25 years, the domestic industry was built. Now the industry is globally competitive and is exporting to the world. At least the current government is trying to promote domestic manufacturing with tariff- and non-tariff-based barriers. The positive policy initiatives have been the PLI sc­he­me and basic customs duties on solar modules and cells. On the back of these initiatives, big industry players have an­nounced ambitious plans in this space and we have also doubled our production capacity in the past one year and plan to increase it by three times in the next three to four years.

It should be noted that the PLI scheme only attracted three to four players. How­ever, going forward, around 20-30 manufacturers are needed to meet the capacity needs. For the next phases of the PLI sc­heme, an outlay of Rs 195 billion has been announced, which is a po­sitive de­ve­lopment as compared to the first phases when approximately 50 GW of applications were received but the majority re­mained in the waiting list. The plan now is to come up with a new PLI bid, however, that is not required and the waitlisted players from the first phase should be cleared first.

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