India’s energy transition is a long arduous run

While Indian and other Asian countries set ambitious goals for greener and cleaner energy, giving up coal, might be harder than imagined.

Energy transition is firmly underway in Asia-Pacific (APAC) but the pace and degree vary across markets.

According to a new study by S&P, titled 'Energy Transition In Asia-Pacific: A Marathon, Not a Sprint’ coal will remain highly relevant in large markets in APAC like India and China for the next one to three decades given more than 60 per cent of electricity generation comes from fossil-fuel-based plants and is boosted by a growing power demand.

The report also states that even though absolute demand for coal will rise, in relative terms the share of coal in the generation mix should trend down towards 40 per cent by 2040. Wind and solar will likely grow faster than other fuel, given policy support, market preference, and technology/cost breakthrough.

Coal-fired capacities are relatively young and provide the base load in most Asian countries. A vast majority of the plants will not retire until 2040. New coal plants are still under construction in some markets. Coal generation and emissions will therefore rise.2030 may be the key inflection point when even APAC markets will stop adding new coal plants, accelerating energy transition.

Renewables

Cost of energy from renewable sources and cost-efficient storage solutions will be crucial for greater use of renewables. Growing environmental, social, governance risks for fossil fuel companies and an increasing global consensus for climate action could speed up the transition.

Most markets have supportive policies for renewables but limited policies to discourage use of coal. For example, Cash flow pain is likely for Australian integrated generation companies and retailers because renewables have curbed power prices. The lack of clear long-term federal policies have also hit investments and in Indonesia, subsidised electricity prices and policy requirement for renewables' costs to be 85 per cent of the current grid prices is a big hindrance.

Additionally, funding is shrinking for fossil-fuel companies and costs are rising while a rush for green finance is enabling renewable energy companies to raise funds at attractive prices.

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The Indian story

According to the S&P study, India is set to miss its 2022 emission targets due to delay in rollout of new capacity additions and the imposition of duties on imported panels. Currently, per capita energy consumption is only 0.6 tonnes of oil equivalent (toe) as compared to the global average of 1.8 toe per capita. According to the International Energy Agency (IEA), India’s total fuel consumption increased by 50 per cent in the ten years leading up to 2017 resulting in an increase in total primary energy supply from fossil fuels, the core of which is made up of coal and oil.

According to Srinivasa Rao Patnana, Partner, Infrastructure, Government and Healthcare, KPMG, India over 80 per cent of India’s oil demand is met through imports, while ~25 per cent of coal is met through imports. Therefore, in the near-term, India faces the daunting task of meeting its fast-growing energy demand while reducing its carbon emissions and ensuring energy security for the future.

As per industry estimates, China will need to invest 9 trillion dollars for energy transition by 2060, India will have 500 billion dollar investments in renewables over the next decade and Indonesia will invest 41 billion dollars over the next five years. The S&P study also states that cash flows of regulated utilities may benefit from protected returns even though policy transition risks cannot be ignored. However, network investments will need to increase to support uptake of renewables and reduce risk of curtailment.

For the unregulated segment, new carbon policies could hurt fossil-fuel companies and is already resulting in significant consolidation among China's coal miners. Renewable energy providers may strengthen their business profile, but leverage will likely stay high due to elevated capital expenditure. What countries need is a mix of solutions, including energy savings and transition financing, to allow coal-fired generation to get cleaner before a long-term clean baseload solution is implemented.

*This story contains excerpts from ANI