Renewables Take Centrestage But Fossils Linger

Last year when we wrote the outlook for the energy sector, it was in the backdrop of the COP26 Summit in Glasgow, where India made a slew of climate pledges. From announcing 2070 as the net-zero year, a commitment to increase its non-fossil fuel capacity to 500 gigawatts (GW) and meeting 50 per cent of its energy needs from renewable sources by 2030, India's renewable energy industry had a lot of momentum.

In February 2022, when Russian President Vladimir Putin launched his offensive against Ukraine, the global energy markets jittered. Oil touched its highest level since 2008, gas prices soared, and both developed and emerging economies looked for cheaper sources of energy, such as coal.

Amid heatwave conditions in India during April-May 2022, the country went through a severe power crisis, highlighting its energy mix's limitations and dependence on coal. This power crisis came in as a reality check for the nation and showed that India still has a long way to go to 'phase down' coal despite making significant strides in renewable energy capacity additions in recent years.

The war in Ukraine and the subsequent energy crisis have forced countries to reconsider their energy policies and drive them to ensure energy security, self-sufficiency, and diversification of the energy mix through the transition to cleaner energy sources.

The International Energy Agency (IEA) sees global renewable power capacity to double over the next five years, and this new forecast is about 30 per cent higher than last year's. The global energy watchdog says that renewable power technologies have become more attractive since the war broke out in Eastern Europe.

2022 saw India making significant strides to adjust to the current realities, focusing on green hydrogen, round-the-clock (RTC) renewables and offshore wind. We look at five trends India will build upon in the year ahead to boost its clean energy transition.

Local Manufacturing To Get Continued Policy Support
Solar continues to remain the king in India’s renewable energy story, with capacity additions more than any other renewable energy source. Hence, continued policy support for the sector is expected to continue in the year ahead. The industry has long been dependent on imports from China and other countries. The government in April 2022 imposed a basic customs duty of 25 per cent and 40 per cent on solar cell module imports to give a fillip to local manufacturing. At the same time, there was the production-linked incentive scheme (PLI), with two tranches in the year, with the latest in September 2022. With this, it is expected that about 65,000 MW of manufacturing capacity will be operated annually.

Offshore Wind Projects To Pick Up
For the past few years, the Wind sector has got less government attention, but 2022 saw a considerable revival of the government’s thrust on the industry. Among the most notable were the announcements for the offshore wind segment. Union Power Minister R. K. Singh announced that bids for offshore wind energy blocks of 4 GW would be issued yearly for the next three years. “India plans to have a capacity of 30,000 MW of offshore wind power,” Singh said at an industry forum.

Green Hydrogen Rising
In February 2022, the government launched the first phase of the green hydrogen policy and kickstarted the ecosystem with public and private sector players announcing huge investments. The sector in the year ahead will await the second phase of the policy and incentives to promote domestic manufacturing of electrolysers. Research firm BloombergNEF states that electrolyser shipments will rise from 1 GW at present to 2.4-3.8 GW in 2023, mainly from Asia. The Indian startup space is also eyeing to capture this space. For example, homiHydrogen plans to manufacture 98 per cent of ‘Made in India’ electrolysers by the end of 2023.

More M&A Activity
2022 saw a lot of merger and acquisition (M&A) activity in the sector. India’s renewable energy market is quite competitive, which makes it very difficult for smaller players to sustain, leading them to sell their assets to deep-pocketed buyers who want to expand their portfolios.

“The flurry of M&A activity last year demonstrates the trend of consolidation gaining momentum in the renewable energy industry. With major conglomerates and other established entities aiming to increase their capacity, the sector is increasingly tending to shift into the hands of organised players. Despite the intense competition, corporates aiming at consolidation must undertake robust diligence of smaller players and have a focused strategy that would enable smooth integration and operational efficiency,” says Sahil Arora, Partner, M&A and Regulatory, Saraf & Partners.

Nuclear Starts Getting Attention
To augment clean energy production, the government is now looking towards nuclear power production as well. In the recent Winter Session of the Parliament, the government informed the Lok Sabha that India plans to commission 20 nuclear power plants by 2031, adding nearly 15,000 MW in power generating capacity. Nuclear is seen as a potential energy source to tackle the intermittency of renewables even though the government is focusing on storage and RTC renewable projects.

While the IEA has presented an optimistic outlook for growth in global renewable capacity, it also says that global coal consumption will rise to an all-time high in 2022 and remain at similar levels for the next few years. It added that the most significant increase in coal demand is expected to be in India, followed by European Union and China. India will continue to find that right balance between climate considerations and preserving its energy security.