Energy Transition #5. On the large costs of decarbonisation sans a pathway

Talk about the energy transition and coal comes up immediately.

A number of researchers across the world are working on ‘just transition’ – to support the economies that run on fossil fuels. In India, ‘just transition’ is usually invoked in the context of coal. As its use falls, coal-producing regions will see revenues fall; sectors allied to coal will see closures and job losses.

What India is about to see with accelerating decarbonisation, however, is a bigger shock.

And that is the concluding piece in this series. I have been writing on energy/climate for a little over a year now, and some of the reports are starting to coalesce together in my head. See this thread that emerged as a result.

We are living through an epoch when the world is switching from one energy system (fossil fuels) to another (renewables). A period of green creative destruction, as @70sbachchan had told me for this two-part essay on why India should embrace net zero, and use the #EnergyTransition to build fresh competitive advantages.

1. Like, can we be a supplier of energy? In hydrogen, unlike solar/batteries, the race is yet open. And so, we took a look there.

2. Failing that, what is our value chains’ capacity to pivot to renewables? Here, something odd is underway. Despite the absence of any governmental push, firms like Tata Steel are running pilots on carbon capture and hydrogen.

3. This is odd. As Asam Rafi of CarbonClean told us, Carbon Capture technologies are expensive and need supportive policy like emissions trading, etc, to become viable investments. India doesn’t have those. And yet, firms are making such investments.

One reason? As the second story in our series said, between carbon border taxes and ESG, global markets and finance are “bypassing national governments and forcing decarbonisation upon value chains”.

This is a problem. India’s energy policy is badly muddled. Pushing renewables and fossil fuels simultaneously, the country barely has a roadmap for decarbonisation. By 2030, the ruling NDA government wants to double oil consumption as well as turn all 2/3 wheelers electric. That is not all. It wanted to treble gas while pushing renewables up-five-fold and doubling coal production.

4. Given such dissonance, price will drive the energy transition. And, so far, what we know is: imported gas is too costly to be competitive.

5. As for coal, its biggest customer – thermal power — was losing competitiveness to solar, resulting in Coal India looking to diversify and power producers like NTPC and Adani vertically integrating, spanning everything from coalblocks to discoms.

Three consequences follow. First, standalone power producers will slowly sell out to vertically integrated players. India’s power sector will see rebundling – it had been unbundled by the 2003 electricity act. As profitable discoms move to these firms, the remainder’s financial health will weaken – and so will the supply of power to less affluent regions. Three, the question — how long can vertical integration keep their power plants competitive against solar – is complicated by one fact. Solar tariffs are rising.

6. Between to the government’s make in India push + customs duty on chinese imports and hiked GST tariffs, the cost of solar equipment will rise.

Among other things, this also raises questions about India’s capacity to produce hydrogen cheaply.

7. See PM Modi’s statements against this backdrop. Can we get half of our electricity from renewables by 2030, while taxing solar more? Can firms decarbonise sans a policy framework? Or will we decarbonise sans a pathway?

8. The costs of decarbonisation sans pathway run deeper than those of losing the country’s coal economy. Our concluding report here:

Note: Three of these Energy Transition reports have also been cross-posted by the good folks at The Wire. Do read.


Value chains:

Costs of decarbonisation sans a pathway:

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