India’s Three Battles To Lose

What, and how India sets about achieving climate goals in the decade to 2030 matters. Not just for the impact it will have on doing our bit on global warming, but also for what it does to shift the country decisively away from our current energy pathways. The decade to 2030 also seems to be growing more relevant due to the rate at which the world is being forced to reconsider targets set for say, 2050. Suddenly, those targets don’t seem ambitious enough, considering the damage extreme events linked to climate change have started causing. Consider the unprecedented assault on coal and thermal power in the west, where, thanks to developments in solar, wind and storage, many countries will achieve their goals to reduce by 2030 by 2025 itself. That means the pressure will soon shift to other markets, as it has by way of restrictions on financing fresh coal projects by large private and multilateral institutions like the World bank and more.

The good news is that India’s performance, outlined by Prime Minister Narendra Modi, based on the estimated present reduction of emissions intensity by 21% over 2005 levels is on track, for now. Even the Emissions Gap Report 2020 of the United Nations Environment Programme(UNEP) includes India among nine G20 members who are on track to achieve their unconditional commitments under the Paris pact, based on pre[1]COVID-19 projections. These targets are based primarily on twin pillars of renewable energy and expanding our forest cover to act as a carbon sink of 2.5 to 3 billion tonnes by 2030.

But challenges loom. As the country seeks to kickstart a massive effort to industrialise, urbanisation has picked speed, even as agricultural land continues to command a premium to feed a vast population. That means higher energy needs, and targets like expanding forest cover will be increasingly harder to reach.

DEMAND PROJECTIONS

According to the International Energy Agency (IEA), energy use has doubled in India since 2000, with most of that demand met by coal and oil. This is set to grow about 35 per cent until 2030, down from 50 per cent before the coronavirus pandemic. IEA predicts primary energy consumption almost doubling to 1,123 million tonnes of oil equivalent as the Gross Domestic Product (GDP) expands to USD 8.6 trillion by 2040. By 2030, India will overtake the European Union to move up to the third position in energy consumption, worldwide. With imports accounting for 84 percent of its current oil consumption for fuels and related sectors, for the country, finding greener, better options is not just good for the environment, but a very strong economic case too.

India’s Response

Today, it has become clear that India is responding to the challenge with a mix of strategies. Right on top is the ascendance of solar power, which, together with wind, will be competing on equal footing with thermal power for share of contribution to the national power mix. Second, and equally important, are two multi billion dollar initiatives, that seek to not only cut down the country’s dependence on fossil fuels and its import bill, but also achieve multiple objectives along the way. These are the Ethanol blending targets for 2025, and the Compressed Bio Gas (CBG) initiative to have 5000 CBG plants by 2025. Track progress on these three, and it’s safe to say, you have a marker on India’s overall progress towards its climate goals. So let’s go right in.

Solar Power: Why It Matters, and The Risks

According to the Ministry of New And Renewable Energy (MNRE), India’s solar capacity at the end of May 2021  was at 41.09 GW, with Wind Energy at 39.44 GW. The report adds that 50.89 GW of projects are under implementation, while 29.52 GW are under bidding process. Those numbers bely the actual state of affairs by a margin. A significant part of the projects under implementation are suffering from huge delays, while projects under bidding process are in even deeper trouble. Readers will notice that adding up all the numbers above takes us very close to the 160 GW that was the original solar+wind target for 2022. That target, which was looking eminently doable in 2017, 3 years after being declared, is now simply not going to be met. Blame that on a huge miss in the rooftop solar category among other issues, where, against a target of 40 GW , we stand at barely 6 GW today.

That is not the primary cause for concern though. The bigger issues that we have covered extensively in previous issues, is that the underlying reasons for the delays have yet to be tackled in any meaningful way. This includes our policy on protecting and encouraging domestic manufacturing , while not doing it at the expense of solar growth. Or weeding our inefficiencies in the existing power purchase environment, which has forced discoms to try and beat down solar prices beyond levels that would have been considered impossibly low when solar targets were set. That is taking its own toll on long term quality and sustainability.

These issues, along with various state level issues, have combined to make financing for large solar projects difficult for all but the largest developers, domestic or foreign, forcing a consolidation in the sector that is too early , and unhealthy. Fewer players, be it on the developer side or the manufacturing side, risks making policy making hostage to their needs, at the cost of the end consumer. That will never be an optimum solution. With almost 20 GW per annum of fresh capacity and installation needed for the next 10 years, solar’s challenges for the next decade need to be fixed now, before the 2030 target also looks ridiculously over-ambitious.

Ironically, it might take the massive plans of oil to retail conglomerates like Reliance Industries, to keep solar on track now. State owned firms like NTPC, which have recently announced a doubling of its own Renewable energy target to 60 GW by 2032, are other key players shouldering the hopes of the sector.

Compressed Bio Gas (CBG)

If Ethanol hopes to chip away at India’s dependence on petrol, CBG tries to take the battle to that other automotive fuel, Diesel. On paper, the government has set a very ambitious target of 5000 CBG pants by 2025, entailing an investment of 200,000 crores, or Rs 40 crores per plant. To produce 15 MTA of the gas, which is about 40 percent of current CNG consumption, generating direct employment for 75,000 people and producing 50 million tonnes of bio-manure. Being equivalent to CNG, where we already have a well developed ecosystem and infrastructure, CBG integration is likely to be the easiest to manage. A huge bonus from an optics perspective on CBG is that it can also use up residues that are otherwise burnt, and cause very visible air pollution.

CBG, though similar to CNG, offers better calorific value and can be used as green fuel in automotive, industrial and commercial sectors. With a procurement price of Rs 46 per unit till 2024, along with a buying commitment for 10 years, it has a lot going for it. All of this is under the National Biofuels Policy 2018 and Sustainable Alternative Towards Affordable Transportation (SATAT) initiative.

CBG production necessarily is expected to be lower cost, lower scale and more spread out. By using agri residues and other bio waste, it also promises to make a serious contribution to the Swachh India Movement. However, this segment has probably taken the biggest hit from the covid pandemic. That means the existing targets are not going to be met. Even though the Petroleum and Natural gas ministry reports that Letter of intent for 600 CBG plants have already been given and MoUs for 900 more plants signed, a total of 1500 CBG plants are at various stages of execution. Rs 30,000 Cr of investment is envisaged in these 900 plants.

A typical period for manufacturing these plants would be 15-18 months according to industry players we spoke to. This includes the time taken to get environmental clearances, which can go upto 6-9 months. One area where the government can work more proactively to speed up the process. Like Ethanol, CBG has the advantage of enough firms that can supply the machinery, and the technology. Be it Indian firms like Praj Industries, to global experts like Evonik, which has a large Indian presence. The Reserve Bank of India has done its bit too, by making financing of CBG plants part of priority sector lending.

The Ethanol Rush

The Ethanol blending program, which just saw a major push after Prime Minister Modi brought forward the target to achieve 20 percent blending with petrol to 2025 from 2030 has two key objectives. To cut down imports of fossil fuels, and to provide a remunerative option for farmers from agricultural residues, especially sugarcane. Of course, ethanol, when used as a blend with petrol, also helps cut down pollution, since it does not release any carbon.

The current blending level for ethanol in India has crossed 7.4%. The new target is expected to create a demand of additional 10 billion litres of ethanol per annum. On a current production base of 4 billion litres. In a key move to encourage ethanol production, permissible feedstock options have been expanded by adding starchy feedstocks to the list in the form of surplus grains. That means, states like Bihar and Chhattisgarh have introduced state specific ethanol production policies to attract investments. That is welcome in a situation where just three states, Uttar Pradesh, Maharashtra and Karnataka were looking set to dominate ethanol production. More importantly, it changes the nature of the industry from a location driven, seasonal production sector to one that is potentially more spread out, with supplies through the year.

A huge plus for the ethanol push is the fact that it has been entrusted to the Oil Marketing Companies (OMC’s) to establish production as well as support other producers with long term purchase agreements. Prices, at Rs 62 per litre are also considered remunerative enough to draw in investors willingly, although interest subsidies have also been provided. The OMC’s, that are usually cash rich, provide a strong measure of comfort to the biggest investors , sugar firms that will expand or build fresh capacities now. With clear demand visibility for the next 5 years, the pathway is really clear, and in this case, has every chance of being achieved, with significant positive impact across states .

Surprisingly, a challenge might come from CBG. With CBG plants being much more cheaper to build, and using up a large part of the same residues, Ethanol plants might find themselves outpriced in time, especially if the auto sector does not make the right moves to offer flex engines that can burn ethanol as a fuel. While ethanol blending till about 10 percent is possible or requires minor changes, going beyond that requires special engines that can handle the change. That change, if not started now, seriously risks the country being saddled with too much ethanol, which is too high priced to be exported too.

Already, the OMC’s have shifted from trying to build massive 2G ethanol plants to 1G plants, which are much more low cost to build. 1G plants are optimised to use sugarcane residues better, while 2G plants can use cellulose and hemicelluloses. These are found in feedstocks such as wheat straw, corn, wood, agricultural residues and municipal solid waste. This extra flexibility comes at a much higher cost though. Oil firm officials inform us that the cost for a 1G plant are around Rs 120 crores for a 5000 litre per day capacity. As opposed to that, a 2G plant can cost over Rs 1000 crores to set up, distorting the reward-returns matric significantly.

Conclusion

We fund it worthwhile to highlight, and place on record the importance of these three initiatives, as a proxy for India’s progress on its key climate goals. All three are linked deeply to sectors that are decisive to ensure India moves ahead. All three make their own case for support, and offer benefits that go beyond just cost savings, import substitution, or a cleaner environment. Interestingly, with Ethanol and CBG impact primarily on the transportation sector, they will eventually run into the other key transition in its early stages, Electric Vehicles. Thus, one could say there is a strong case for planning alternative uses for these fuels , be it in power plants or otherwise, to ensure policies do not become a captive to saving these, as we have seen with coal.