Balancing Energy Transition With Security

As India enters 2022, its energy sector will have the COP26 Climate Summit fresh in its memory. In a move that was not anticipated, Prime Minister Narendra Modi laid out India’s new climate pledges at the Summit in Glasgow on November, 1st, 2021. He announced that India would reach net-zero emissions by 2070, increase its installed renewable energy capacity to 500 GW (up from the previous target of 450 GW) by 2030 and cut its carbon-dioxide emissions by 1 billion tonnes by the same date. 

However, on the last day of the Summit, India demanded that a particularly contentious clause be changed. Instead of “accelerating efforts towards the phase-out of unabated coal power and of inefficient subsidies for fossil fuels”, India’s lead negotiator requested a call to escalate “efforts to phase down unabated coal power, and phase out inefficient fossil-fuel subsidies.” 

This last-minute change reflected the importance of the black stuff in meeting India’s energy requirements and a sense of historical injustice where India feels the West is trying to prevent it from attaining high levels of growth through its use. Union Minister for Environment Bhupender Yadav was quoted saying, “Fossil fuels and their use have enabled parts of the world to attain high levels of growth. Developing countries have a right to their fair share of the global carbon budget and are entitled to the responsible use of fossil fuels.” In the year ahead this is the balance that India would seek to maintain between its energy transition drive and ensuring its energy security. These announcements will enthuse fresh momentum in the renewable energy sector but at the same time sectors such as power, and oil and gas have other concerns associated with them. These include mounting debt of Distribution Companies (DISCOMs) and the threat of Omicron variant, keeping the global oil demand recovery uncertain. We look at five trends that will drive the sector across renewables, power and oil and gas in 2022.

Emphasis On Energy Storage 
Solar and Wind energy, at present, constitute the largest chunk (22.6 per cent) in India’s installed renewable generation capacity. These two will be the main driving force in India’s energy transition drive for years to come. However, their intermittent nature on the grid is well known and its storage is expensive. Union Minister for New and Renewable Energy RK Singh in an interview in October highlighted issues related to storage. He said, “Solar power, is available only during the day and has to be stored for it to be supplied at night. This storage is still expensive. I can't increase the cost for the people beyond a point. If the price of storage comes down soon enough, probably we are not going to be starting any new coal-based projects.” The development of affordable energy storage technologies will gain momentum to make the energy system less fragile.

Green Hydrogen Business To Gain Traction
In his eighth Independence Day speech, Prime Minister Narendra Modi announced the National Hydrogen Mission and highlighted that the plan involves India becoming a global hub for green hydrogen production and exports. Hydrogen, at present, is where solar was 15 years ago. The sector has high costs associated with it and lacks a developed ecosystem. However, in recent months, with the announcement from both Mukesh Ambani and Gautam Adani to invest in the sector, there is fresh interest in developing and manufacturing low-cost electrolysers to boost green hydrogen’s production and make it affordable.

Financial Health Of Distribution Companies (DISCOMs) To Deteriorate Without Reforms
The Government was supposed to table the Electricity (Amendment) Bill, 2021 in the Winter Session of the Parliament which aimed to bring in sweeping reforms for the distribution companies. Due to the opposition from certain stakeholders such as the farmers and the All India Power Engineers' Federation (AIPEF), the bill is once again in limbo delaying the much-needed reforms. Moreover, the government has dropped certain crucial clauses from the draft bill after consultation with these stakeholders. According to the Power Ministry’s PRAAPTI portal (Payment Ratification and Analysis in Power procurement for bringing Transparency in Invoicing of generators), as of December 2021, distribution companies owe more than Rs. 1.02 lakh crore to power-generating companies for both conventional and renewable energy. At the same time, 2022 will mark the end of the five-year GST compensation period. With the states already breaching their fiscal deficit estimates, the limit to which states can continue to support discoms will be tested.

Oil and Gas Majors To Invest More In Cleaner Sources of Energy
Global moves to reduce carbon emissions and to slow down climate change have led oil and gas companies around the world to invest in renewable energy to reduce their carbon footprint and diversify offerings. Globally, this trend is being seen among Oil supergiants such as TotalEnergies, ExxonMobil, Chevron, Shell. In India also, State-owned Oil and Natural Gas Corporation, GAIL, IndianOil, Hindustan Petroleum Corporation Ltd, NTPC among others have invested in these sources and are looking for further acquisitions to boost this up and we may very well see them doing that in the year ahead.

Oil Demand To Bounce Back But Omicron’s Threat Can Make It Uncertain
OPEC+ countries and other producers have decided to boost the output in the year ahead. The grouping expects the demand to reach pre-pandemic levels in 2022. However, these estimates were predicted before Omicron emerged. The International Energy Agency has taken into account the threat of the Omicron variant and has stated that demand could be lower than what is being expected. OPEC, on the other hand, still believes that the impact of Omicron will be mild and brief. Numerous countries have reimposed travel curbs which will hurt the aviation industry and consumption. 

With Union Coal Minister Pralhad Joshi stating that the Glasgow Climate Pact does not mandate the phase-down of coal power, in a written reply to the Parliament in the recently concluded Winter Session, India’s last-minute change at the COP26 summit has got more clarity. It has defined that new balance for itself where it will not only ensure its energy security but will also boost its energy transition drive to fight against the climate emergency.