Dawn of a Renewable Era

Despite severe headwinds, India remains committed to the net zero transition. 

For many, the climate crisis still feels like a far-off nightmarish Armageddon. Large swathes of the global population are not so lucky.  

India has been struck by another scorching heatwave, with temperatures reaching 49.2°C in Delhi this week – the capital city’s fifth heatwave since March, with average maximum temperatures reaching their highest levels in 122 years.  

“India is one of the most at risk economies in terms of exposure to heat stress, water management risk, flooding and rising sea levels,” says Nishad Majmudar, Analyst in the Sovereign Risk Group and Credit Strategy & Research at Moody’s Investors Service 

With the UN estimating its population will reach 1.5 billion by 2030, thus increasing pressure on existing resources, India has huge incentive to transition to net zero greenhouse gas (GHG) emissions as fast as it can.  

In a year marked by an ever-increasing sense of climate urgency, India appears to understand the need to maintain momentum.  

“There is no question that India is making progress and that the government and public are acutely aware that climate chaos is here, now,” says Assaad Razzouk,  CEO of Gurin Energy.  

At COP26, Indian Prime Minister Narendra Modi pledged to reduce the country’s emissions by one billion tonnes by 2030 and promised to raise the percentage of renewables in its energy mix to 50%, growing India’s non-fossil fuel energy capacity to 500 gigawatts (GW) by the end of the decade, achieving 175 GW by the end of 2022.  

According to the Climate Change Performance Index, India is on track to meet its 2030 emissions target, which is compatible with a well below 2°C scenario, and is also close to achieving an energy mix with 40% renewables – eight years ahead of schedule.  

Given the pace of change, it’s entirely possible India will achieve net zero earlier than its 2070 target. 

The World Economic Forum noted that India’s net zero transition will unlock US$1 trillion in sustainable investment opportunities by 2030 and as much as US$15 trillion by 2070, creating over 50 million jobs. 

“India certainly isn’t resting on its laurels,” Nick Parsons, Head of Research and ESG at specialist infrastructure investment firm ThomasLloyd, tells ESG Investor. 

Short-term obstacles 

But progress is never linear. The ongoing energy and food crises have put a spanner in the works for many countries, slowing their transition progress as they look to mitigate volatility in the short-term. India is no exception. 

Worryingly, the energy crisis has led to India backsliding deeper into its already heavy dependence on coal. 

“The biggest challenge for Indian companies is having so much coal in the grid,” says Munib Madni, Founder and CEO of sustainability-focused fund manager Panarchy Partners. “When there is so much dirty energy, it’s really hard for companies to actually go and achieve their own net zero targets.” 

India already uses a billion tonnes of coal to meet its annual domestic energy demand, and it mined 777 million tonnes in the fiscal year ending March 2021. The rest was imported from Indonesia, Australia and South Africa. It’s expected India’s usage of coal will increase to at least 1.2 billion tonnes between 2023-24, to support India’s post-pandemic economic recovery.  

At COP26, India controversially pushed for a softening from “phasing out” to “phasing down” coal, arguably providing a loophole for the continued use of the dirtiest fossil fuel for years to come.  

Earlier this month, India’s Environment Ministry allowed a ‘special dispensation’ for the Ministry of Coal to relax environmental rules, as spiking energy demands created a 25 million tonne shortage. Coal mines will now be able to operate at increased capacities, with coal mining projects previously operating at a 40% capacity now able to operate at 50%, without undertaking additional environment impact studies.  

The government also launched a scheme to lease abandoned state-owned coal pits to private mining companies, with the assurance environment approvals would be fast-tracked.  

“India is viewing its energy security through the lens of capping the cost of living and keeping inflation under control, as this will hit the poorest the hardest,” says Parsons. “It’s understandable that India has responded this way in the short term.” 

Rising temperatures and geopolitical tensions have also prompted a food crisis, with wheat prices rising by 5.9% to US$12.47 a bushel as India banned the export of its staple cereal. Global wheat prices have risen by more than 60% this year, largely driven up by Russia’s invasion of Ukraine, the so-called breadbasket of Europe. 

The growing cost of fertiliser is also compounding the issue, Parsons notes, with nitrogen-based fertiliser prices increasing from £300 per tonne to £1,000.  

“There is absolutely no happy ending to this in the near term,” he admits. “It’s going to be very difficult for millions, if not billions, of people. And Indian policymakers are acutely aware.” 

Utilising solar 

These challenges do not signal a change of pace in the transition, say experts. India has demonstrated a “solid track record of expansion of renewable energy capacity”, according to Moody’s Majmudar, but the country must outstrip past performance to meet long-term goals.  

Solar needs to be massively upscaled if it is to produce the renewable energy necessary to support India’s huge population. Solar-based electricity generation capacity must increase to 1,689 GW by 2050 and 5,630 GW by 2070, according to a 2021 report by the Council on Energy, Environment and Water (CEEW), a non-profit policy research institution based in New Delhi.  

For global investors, India is the third most attractive renewable energy market in the world due to its huge growth potential, according to insurance firm Allianz, with these solar and wind markets currently producing less than 10% of expected future capacity.  

“Investors should continue to look at the great opportunity these countries provide in upscaling these technologies,” says Madni.  

Policymakers, too, have recognised the investment opportunities of scaling solar power in India. 

Weeks before COP26, US Presidential Special Envoy for Climate Change John Kerry addressed the International Solar Alliance (ISA), noting that India is the “red hot investment destination” for solar. 

India and France co-launched the International Solar Alliance (ISA) in 2015, to mobilise US$1 trillion of investment in solar energy solutions by 2030 and installing 1,000 GW of solar energy capacity globally. 

In 2016, the EU and India established the Clean Energy and Climate Partnership (CECP), which aims to promote joint access to and development of clean energy and other sustainable technologies. Current areas of collaboration include offshore wind energy, roof top solar and solar parks, and energy efficiency in buildings. 

Following Russia’s invasion of Ukraine and fears that the EU is too dependent on China for solar panels, Ursula von der Leyen, President of the European Commission, addressed the ISA in April. She called for a strengthening of EU-India cooperation in the development of solar and other renewable energies.  

There are many existing projects in India, such as the Bhadla Solar Park in Rajasthan, the world’s biggest, stretching across 14,000 acres with capacity to produce over 2 GW of solar-powered energy.  

India’s Minister of State for New and Renewable Energy Bhagwant Khuba recently called on global investors to invest more in India’s clean energy industry, noting that renewable projects worth a total of US$196.98 billion are already underway. 

In January 2021, ThomasLloyd invested in Uttar Pradesh, a 75 megawatt (MW) solar power plant, developed by Delhi-based SolarArise India Projects. Despite the disruption caused by Covid-19, the project underlined India’s commitment to transitioning to renewables, Parsons says, with the government taking extra measures to ensure permits for the movement of machinery, raw materials and labour during the building process.  

“This shows the strategic importance of the renewable energy industry in India and underlines how the government is committed to delivering on it,” he notes. 

Last month, European energy giant Shell brokered a deal to purchase Indian renewable energy supplier Sprng Energy for US$1.55 billion, which will, if it receives regulatory approval, triple Shell’s renewable energy capacity in operation. 

Indian renewable energy company Adani Green Energy Limited (AGEL) raised a US$1.35 billion debt package for its 1.69 GW renewable asset portfolio of solar-wind hybrid projects in Rajasthan.  

Further, power producer ACME Solar raised US$334 million for its 12 solar projects through offshore green bonds. 

Overall, India’s renewable capacity additions more than doubled in 2021, the International Energy Agency’s 2022 renewable energy market update noted, despite the fact the Covid-19 pandemic slowed down the commencement of new projects. 

And the future continues to look bright, according to IEA’s 2021 Indian energy market outlook. Solar power, which made up 4% of the nation’s power supply last year (compared to 70% coal), will grow 18-fold by 2040, the IEA said.  

“New records for renewable capacity expansion are expected to be set in 2022 and 2023 as delayed projects from previous competitive auctions are commissioned, especially for solar PV,” the IEA noted in its 2022 market update.  

Branching out 

Solar power isn’t the only avenue into renewable investing in India. 

A CDP report noted that India has consistently ranked amongst the top ten countries for climate technology investment over the last five years, with venture capital funding surpassing US$1 billion.  

India is further looking for ways to transition from grey hydrogen (fossil fuel-generated) to upscaling solutions green hydrogen (renewable power-generated).  

Last week, Gail, a state-owned Indian gas transmission and marketing company, awarded a contract for setting up proton exchange membrane (PEM) electrolysers to produce green hydrogen by the end of next year. The project is expected to produce 4.3 tonnes of hydrogen a day – the equivalent of a 10 MW capacity – and will be operated on renewable power.  

The CEEW report noted that investment is needed in India’s wind-based electricity generation capacity, which needs to increase to 557 GW by 2050 and 1,792 GW by 2070. The country currently has the fourth highest wind installed capacity in the world, with 39.25 GW as of March 2021.  

One of India’s largest oil and gas producers, Oil and Natural Gas Corporation (ONGC), is investing in onshore wind power, targeting a 2 GW capacity by 2030. In 2020, the company also signed a Memorandum of Understanding with electricity generator NTPC to explore developing offshore wind projects. 

The Intergovernmental Panel on Climate Change’s (IPCC) recent report on climate adaption and vulnerabilities highlighted the importance of investing in improving the climate resilience of built environments, to prevent incurring damages costs down the line. In high-growth, high-population countries such as India, new buildings need to be energy efficient as well as resilient to reduce reliance on burning fossil fuels to power them.  

“Seventy-five percent of India’s 2050 infrastructure has yet to be built, presenting investors with a huge opportunity to fund sustainable developments,” says Jaya Dhindaw, Programme Director of Integrated Urban Development, Planning and Resilience at WRI India.  

In India, it’s vital that new buildings have effective cooling systems to manage heat waves and are resilient to flooding.  

For investors focused on the social-related impact of their capital, investing in the development of community cooling shelters is also a worthwhile investment venture.  

“Investors outside of the impact space need to step out of their comfort zone and see some of these other solutions as good investment opportunities,” says Dhindaw.  

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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