India's success in renewables can emerge as a global case study
In the last month's edition of ESG edge, we had written about the multibillion-dollar global decarbonization opportunity. In this edition, we talk about what it means for India. The initiatives that India drives on climate mitigation not only help the country but will be an integral element of the global movement on eliminating carbon emissions. Importantly, India's success in renewables can emerge as a global case study for other large developing nations that are looking at low carbon, but inclusive growth. Hence, India will need to do a lot more than just focus on ambitious renewable targets.
An 'Atmanirbhar' strategy on building green infrastructure can be a massive boost to domestic capital formation
Beginning now and stretching across the coming decade, we are likely to see some massive opportunities in the green energy ecosystem and green infrastructure. As a lot of the raw materials for this are currently being imported, going 'Atmanirbhar' (self-reliant) here will give a massive boost to domestic capital formation. The opportunities are immense in areas ranging from renewable energy and battery technology, to green hydrogen and carbon capture. According to the International Energy Association, India will soon become one of the world’s largest markets for a range of clean energy technologies.
To understand the decarbonization opportunity for India, let us take a look at India's Nationally Determined Contributions (NDCs) under the Paris Agreement. In the NDCs, India has committed to improve the emissions intensity of its economy by 33-35% compared to 2005 levels. The Prime Minister has also articulated seven focus areas for its energy economy, which include a move towards a gas-based economy, rapid scaling up of renewables, cleaner use of fossil fuels and a shift towards emerging fuels like hydrogen. There are specific targets to be achieved by 2030, including 450 GW of renewable power capacity, a 15% share of natural gas in the energy mix and a complete electrification of railways.
Storage technologies are set to be vital to India's electricity security. Battery storage will also have an important part to play. The government estimates that India will require 27 GW of grid‐connected battery storage by 2030 (CEA, 2019), and has established a National Mission on Transfomative Mobility and Battery Storage in 2019 with the aim of becoming a competitive battery manufacturer.
India projected to be on track to achieve the Paris Climate Agreement goals, led by its successes in implementing clean energy, but we still have a long way to go
According to the World Energy Outlook, based on a Stated Policies Scenario (STEPS), India could well exceed the goals set out in its Nationally Determined Contribution (NDC) under the Paris agreement. Under STEPS, according to the World Energy Outlook, the emissions intensity of India's economy would improve by 40% from 2005 to 2030, higher than the 33-35% set out in its existing NDC. The share of non‐fossil fuels in electricity generation capacity would reach almost 60%, well above the 40% pledged by India.
By far the single biggest driver of India's proposed success on achieving the NDC goals, lies in the leadership's commitment in the deployment of clean/renewable energy technologies and bringing down costs of implementation. The Solar Power sector is set for explosive growth in India matching coal’s share in the power mix over the next two decades, as per the STEPS of the World Energy Outlook. Solar accounts for less than 5% of India's electricity generation, and coal close to 70%. By 2040, they will converge in the low 30% level.
This dramatic turnaround is propelled by India’s policy ambitions, notably the target to reach 450 GW of renewable capacity by 2030, and the extraordinary cost competitiveness of solar, which out-competes existing coal‐fired capacity.
According to the International Energy Association (IEA), India will soon become one of the world’s largest markets for a range of clean energy technologies. In STEPS, the Indian markets for solar PV modules, wind turbines, lithium‐ion batteries and water electrolysers will grow to around USD 40 billion per year by 2040. Lithium‐ion batteries alone account for nearly a third of this total, with annual demand in 2040 equal to the output of more than 20 times the capacity of today’s largest Gigafactory. The IEA further estimates that for each product, India represents a sizeable share of the global market - around 10% for lithium‐ion batteries, 15% for wind turbines, and 30% for solar PV. In the Stated Policies Scenario, 1 in every 7 dollars spent on these three types of equipment in 2040 will be in India, compared with 1 in 20 today, illustrating the scale of the opportunity.
Given the size of the opportunity and the Modi administration's focus on achieving domestic self-sufficiency in manufacturing, India must articulate a well defined policy on harnessing the production of massive energy and green infrastructure ranging from renewable energy to electric vehicles, hydrogen and carbon capture. Such a policy will go a long way in not only allowing India to meet its climate objectives, but at the same time boost economic growth, capital formation and create much needed jobs.
India's markets for clean energy technologies grow rapidly in the STEPS, led by lithium-ion batteries. India’s solar PV market accounts for around 25% of the global total in 2040.
Sources: World Energy Outlook, IEA
Authored by: Abhay Laijawala, MD and Fund Manager, Avendus Capital Public Markets Alternate Strategies LLP