According to the Ministry of New and Renewable Energy, India is the world’s third-largest producer of renewable energy, with 40 per cent of its installed energy capacity sourced from non-fossil fuel sources. India’s efforts towards carbon neutrality are evident from the fact that its per capita carbon emissions amount to 1.8 tonnes as against 14.7 tonnes in the US and 7.6 tonnes in China. However, it cannot be ignored that India is still an emerging economy. The level of urbanisation and industrialisation in the country is yet to reach its peak, which means that India is likely to witness massive energy consumption demand and potentially much higher per capita carbon emissions in the coming years.
At present, the largest emitter of carbon is the power sector, accounting for 40 per cent of the total emissions, followed by industries, transport and building, respectively. Therefore, industries and businesses have a crucial responsibility to green their operations to significantly reduce their carbon footprint.
What can businesses do?
The crucial role that businesses can play in reducing carbon emissions and greening the supply chain across industries is evident. On the demand/energy consumption side, the government has released several guidelines and obligations for industries and businesses in a phased manner. Recently, the Ministry of Power issued a renewable purchase obligation (RPO) and energy storage obligation trajectory till 2029-30. According to this the total prescribed RPO will progressively increase from 24.61 per cent in 2022-23 to 43.33 per cent by 2029-30. This includes wind RPO, hydropower purchase obligation (HPO) and other RPOs. In August 2021, the government issued the Draft Electricity (Promoting Renewable Energy through the Green Energy Open Access) Rules, 2021. Under this, industries were allowed to meet their RPOs by purchasing green hydrogen.
The Perform Achieve Trade (PAT) scheme was also introduced in 2012 to accelerate improvement in energy efficiency in energy-intensive industries such as fertilisers, petrochemicals and power generation.
Additionally, in December 2022, India amended its Energy Conservation Act, 2001 to empower the central government to specify the minimum share of consumption of non-fossil sources by designated consumers as energy or feedstock. The act also empowers the central government to specify a carbon credit trading scheme with the aim of reducing greenhouse gas emissions. Provisions regarding the energy conservation code for buildings, which came into effect on January 1, 2023, also form a part of the amendment. Going forward, the targets for several sectors, especially those under the PAT scheme, are expected to be converted into specified carbon emission reduction targets. This is likely to increase the demand for renewable energy among industries in the coming years. Fuel switching technologies and energy efficiency mechanisms can expect to see greater investment as industries and businesses continue to reduce emissions.
In a recent statement at the India Energy Week, Sushma Rawat, director, ONGC, said that the company is actively deploying gas-based projects in its efforts towards net zero. Moreover, the company is undertaking partnerships with companies such as Equinor and Shell, while also foraying into hydrogen, biofuels, solar and wind energy. Several gas-based projects along the east coast are expected to come up this year. Moreover, ONGC is looking to recover oil by enhancing oil recovery, while carbon sequestration remains one of its top priorities.
Further, collaboration and partnership between companies can enable faster transition to clean energy. For instance, Nestle demands net zero commitments from its suppliers to ensure sustainability throughout the supply chain.
On the supply side, the key opportunity for businesses lies in the fact that there now exists huge demand for non-fossil fuels-based power generation in India. Beyond the direct power generation and development potential, allied opportunities in the form of energy efficiency technologies, data management systems and innovation-oriented research and development also exist in abundance. Corporates can also utilise the clean energy market opportunity as service providers. The market is now favourable for those who consistently improve and innovate to make their business operations more efficient, while also keeping them cost-effective. Corporate social responsibility efforts and voluntary commitments by corporates are also a welcome step in this regard. To support businesses on the supply side, the government has introduced a green day-ahead market (DAM) and green term-ahead market wherein setting up renewable energy plants has become more profitable for power producers. In the green DAM, bids go up to Rs 6, which is much higher than the cost of generation at around Rs 3. The DAM also provides more flexibility in procuring power on a day-to-day basis. Furthermore, favourable policies and regulatory mechanisms are frequently introduced to further boost the supply side. For instance, going forward, merchant power plants can bid under SECI’s tenders, and supply power to discoms and the C&I segment. These power plants will also be able to reap the benefits of the carbon and RPO markets. Therefore, there is a wide spectrum of opportunities for businesses in terms of demand, obligations, supply opportunities and allied services.
Challenges
Clean energy transition is on the agenda of most businesses and industries today. However, it is important to realise that there may exist a huge gap between the goals that have been set on paper and their actual delivery on ground. To fill this gap, several challenges need to be addressed. The biggest challenge is the great dependency on fossil fuels that India will face over at least the next decade or two. Meeting India’s ever-rising energy demand through green sources would require consistent action by all stakeholders, including but not limited to the government, businesses, industry leaders, policymakers and end-consumers.
Establishing India as a manufacturing hub is also crucial to reduce its dependency on imports, improve energy security and create a relatively stable cost environment for green energy businesses in the country. At present, India does not have the manufacturing bandwidth to meet its climate commitments for 2030 and later. Adequate domestic manufacturing capacity for solar panels, batteries, green hydrogen, electric vehicles, etc. would be a game changer in India’s energy transition journey. Carbon capture, usage and storage technologies will also be crucial enablers of greening for carbon-emitting industries and businesses as they will create a sink for their carbon emissions.
Moreover, there are metal supply chain constraints in India, as it is not home to many of the crucial minerals that are being utilised in the renewables industry. Identifying and developing alternatives to these is also important going forward. The initial cost of investment may be high for many emerging segments, creating a sense of hesitancy among potential entrepreneurs. The initial risk must be balanced using government support and adequate financing tools for new entrants in the market. Therefore, the need of the hour is to aggressively ramp up the manufacturing capacity in the country, supported by innovative business models curated to meet climate goals, while maintaining the profitability of businesses.
The way ahead
India has recently overtaken China as the most populous country in the world. The country will see a surge in energy demand as the economy continues to grow over the coming years. According to the World Economic Outlook of the International Energy Agency, India is expected to witness the largest increase in energy demand between 2021 and 2030. The rise is anticipated to be 3 per cent annually until 2030, driven by urbanisation and industrialisation. Meeting this demand using only non-fossil fuel sources is not possible. While investments in renewable energy will continue to gain traction, the importance of coal and oil cannot be ignored. This is evident from the fact that in 2021, over 50 per cent of carbon emissions came from Asia. Therefore, achieving the global target of climate neutrality will require far-reaching action from countries such as India and China over the coming decades.
Today, the world is facing an unprecedented oil and energy crisis, coupled with incidents of political and social unrest, especially in some parts of Europe. In the midst of this, several countries and businesses are rapidly promoting their energy transition agenda and embracing green energy solutions to adopt more sustainable operations. Making small incremental changes to lower emissions in industries that emit large amounts of carbon can play a significant role in achieving the global goal of net-zero emissions within a reasonable time frame. Financing is also shifting from core mining activities towards green energy and green businesses. This not only serves as an integral step towards mitigating climate change but is also a massive entrepreneurial opportunity for existing and new businesses in India. Moreover, businesses involved in non-renewable energy sectors should increasingly focus on reducing carbon intensity of their existing operations and ventures.
Therefore, with appropriate climate-focused strategies, enabling investments and policy assistance, it is an opportune moment for businesses to move beyond short-term goals and establish a broader picture with the ultimate objective of carbon neutrality.
By Kasvi Singh
