Over the last 1.5 years, I have been trying to understand the largest processes shaping India’s energy sector. These variously support/weaken the growth of the principal forms of energy India depends on – and, consequently, determine the country’s energy transition.
Note: Regular readers of this blog — both of them, that is to say — will know how these processes were identified. India’s energy policy manages to simultaneously push renewables and fossil fuels. And so, in June 2020, I began taking a closer look at each form of fuel/energy used by India. What factors enable/disable their growth? Consequently, what sort of an energy transition is India likely to see?
Since then, CarbonCopy (where these articles are published) and I have published close to 40 reports. Some looking at energy sources (oil, gas, coal, hydel, solar…) and the rest looking at how India’s energy transition is coming along (net zero, decarbonisation, PLI, the country’s search for critical minerals, Adani/Hindenburg and the resulting impact on India’s green energy plans…).
There is more to come. I have to finish nuclear next, for instance. And then turn to grid storage, say. But for now, it seems like a good idea to decant some of the observations into a single blogpost. A sort of stock-taking, as it were. What is the bigger picture that is emerging?
1. Global fossil fuel majors are trying to enter the country, not for exploration but to access its downstream market. Cases in point: Rosneft acquiring Essar; Novatek tying up with Hiranandani; Tellurian making a hard push for an investment by Petronet; Adani with its tieup with Total, pushing imported gas through its CGD network. https://carboncopy.info/indias-great-fossil-fuels-push/
2. In other words, India is simultaneously welcoming renewable and fossil fuel investments. Which in turn indicates a larger policy incoherence.
“(Our) revised energy projections say India’s oil demand will double from 5.05 million barrels/day in 2020 to 10 million barrels/day by 2030. In the same period, gas demand will treble from the current 150 million standard cubic metres per day (mmscmd) to 500 mmscmd… Apart from that, India has an ambitious renewable energy target (450 GW by 2030, up from the current 86 GW of installed capacity); aims to boost hydel power to 70,000 MW by 2030, and an electric vehicle policy which wants all three-wheelers to go electric by 2023, two-wheelers by 2025, and a third of all cars by 2030.” https://carboncopy.info/indias-great-fossil-fuels-push/
3. One outcome is a possible glut in energy supply where price, not policy, drives the country’s energy transition. https://carboncopy.info/why-indias-ghg-emissions-are-about-to-rise-faster/
4. Another outcome is one where other countries, given their economic considerations, have an incentive to meddle with India’s domestic energy policy. As countries like Australia, the ones in the middle-east, not to mention Russia, try to monetise as much of their fossil fuel reserves as possible, they have an incentive to delay India’s energy transition. “Not only will oil, coal and gas majors manipulate prices to stay competitive over electric vehicles and renewables, the country will also see rising competition between fossil fuels (and, by extension, between the countries producing these).” https://carboncopy.info/why-indias-ghg-emissions-are-about-to-rise-faster/
5. If price will drive the transition, how do our principal forms of energy fare against each other? We started with Gas. And we found, despite the NDA’s rosy projections, pervasive gloom. “Right across its value chain — domestic exploration, LNG terminals that receive imported gas, the pipes that move gas, big industrial users, city gas distributors who supply gas to households, vehicles and smaller businesses – companies are struggling.” https://carboncopy.info/can-gas-account-for-15-of-indias-energy-mix/
6. One reason is political expediency (Also see 9).
“The cheapest gas in India is domestic gas. Till 2014, fertiliser plants had the first right over it. Then came LPG plants, power stations and then CGD networks. In its dying months, the Congress-led United Progressive Alliance government upturned that order. CGD was placed first, then came strategic sectors like space and atomic research, petrochemicals and – only then – fertilisers.”
“Till 2014, CGD networks had grown slowly. By 1997, they were up in Gujarat, Delhi and Mumbai. By 2007… India had 30. By 2014, India had added another 24. In the six years since, the NDA has auctioned 174 geographical areas, accounting for 70% of India’s landmass and 52% of the population. “Cooking gas has huge political significance,” a former member of the PNGRB, speaking on the condition of anonymity, told CarbonCopy. “The government wanted to switch urban consumers to piped natural gas (PNG) and divert LPG cylinders to rural areas.” https://carboncopy.info/why-indias-gas-boom-is-running-out-of-steam/
8. In tandem, as global gas prices benchmarked to oil, imported gas became more expensive than rival forms of energy (coal, etc). One fallout? All gas-based units suddenly forced to depend on imported gas shed competitiveness. https://carboncopy.info/why-indias-gas-boom-is-running-out-of-steam/
9. Political expediency redux. Why CGD, despite cheap domestic gas, is flailing as well.
“Availability isn’t reason enough for consumers to switch from LPG to PNG (Piped Natural Gas). It had to be cheaper. And so, the government capped PNG prices. “The average household uses 0.4 cubic metre of gas in a day,” says a former manager at Unison Enviro, a subsidiary of construction major Ashoka Buildcon. “In a month, that works out to 15 cubic metres. The administered rate for natural gas by the government is ₹28/cubic metre. That works out to ₹420 a month — cheaper than an LPG cylinder.” The cost of connecting a household to the gas grid, he adds, ranges between ₹14,000-₹15,000.” https://carboncopy.info/why-indias-gas-boom-is-running-out-of-steam/
In all, Gas had 15 years to establish itself as a bridge fuel. Nine of those years are gone now.
10. In a nutshell, two risks loom over India’s gas sector. Firms ignored by administered pricing suffer from price risk. Those favoured by it are haunted by political risk. Given this reality, what are the costs of India’s rosy plans to treble gas consumption – which means expensive imports — by 2030?
a. The burden of keeping gas attractive for users is falling on companies.
b. Most are struggling to raise funds from banks.
c. Most of the burden of keeping the sector afloat, consequently, is falling on state oilcos.
d. At some point, however, the cost of keeping gas attractive for users will reach the centre. “India’s economy is slowing. Its remittances and exports are both falling, creating a forex problem. Rising imports, therefore, will land India in one of two messes. We could go, says Mayaram, the Pakistan way. The country allowed users to freely convert their vehicles to gas. The result? While its domestic reserves fall, gas consumption continues to boom. “People got used to this cheap fuel. Pakistan’s power projects are starved for gas,” says Mayaram. “There are deep blackouts, but people continue to move around in cars.” India, too, could find a rising chunk of its cash going into servicing not just oil, but also long-term gas purchase contracts.”
“Alternatively, as gas prices soar, the country will be forced to intensify searches for domestic gas – or to fall back on coal and renewables. The first will result in exploration closer to places like Baghjan. The second will result in more air pollution.” https://carboncopy.info/the-four-hidden-risks-lurking-in-indias-gas-expansion-plans/
UPDATE: In April 2022, those fears about political and price risk abruptly materialised for city gas distributors. India, all of a sudden, froze the quantum of gas allocated to CGD players and then followed that up with a hike in the price of domestic gas. The sector is now contemplating consolidation.
11. Onwards to Coal. There is little demand for the coal blocks the NDA wants to auction. Coal India wants to pivot beyond coal mining. At the same time, a clutch of other companies in India’s coal-based power sector, including behemoths NTPC and Adani Enterprises, are not just foraying into renewables, they are also integrating vertically, remaking themselves into enterprises that have their own coal mines, power plants, transmission lines and distribution networks. https://carboncopy.info/strange-times-ahead-for-indias-coal-sector/
12. One reason for this flux, the economics of Thermal Power Plants – the biggest consumers of Coal in India — are nowhere as rosy as they were in the early 2000s. https://carboncopy.info/strange-times-ahead-for-indias-coal-sector/
13. And so, venerable Coal India is trying to build itself a fresh competitive advantage. It will no longer be a coal mining company. Instead, it will be a producer of cheap pithead power and get into industrial manufacturing – aluminum, polysilicon ingots, coal gasification. Even with these pivots, however, its consumption of coal will dramatically fall. https://carboncopy.info/peering-inside-coal-indias-ambitious-pivot/
14. Adani and NTPC are trying a different tack to stay competitive. They are becoming “vertically integrated power producers, spanning everything from coal-mining to power generation to transmission and distribution”. Effectively, close to 20 years after India unbundled the power sector, it’s rebundling again. The consequences need to be understood.
a. As firms like NTPC pair expensive thermal power with cheaper solar, expect the lifespan of thermal projects to lengthen.
b. With integrated players more competitive than standalone ones, expect India’s power sector to move towards an oligopoly. “By introducing fresh synergies, vertical integration allows firms like NTPC and Adani to sweat their assets longer, and prolong their use of coal. In that sense, standalone players will go to the wall first. NTPC and Adani will be the last. In the short to medium term, their thermal power plant portfolios, riding on distress sales by independent players, will probably grow.” https://carboncopy.info/indias-thermal-power-generators-are-gearing-up-for-a-rebundled-future/
c. As power generators pick up discoms, equity in access to electricity will suffer. “As DISCOMs get privatised, a two-tiered system, similar to what India has seen with City Gas Distribution, will take shape. Competition will be keener for larger (or more efficient) power centres than smaller ones…. This creates an outcome where, in the short term, state DISCOMs will struggle as their most remunerative markets are privatised. The impacts will fall on their residents in the form of greater load-shedding, or higher power rates. Effectively, power distribution in the country will cleave into two categories: higher service delivery in circles controlled by ‘rebundled’ players; dramatically lower service in areas serviced by state DISCOMs.” https://carboncopy.info/indias-thermal-power-generators-are-gearing-up-for-a-rebundled-future/
And now, a question. How long can vertical integration keep thermal power projects cost-competitive against renewables, especially once storage comes in? The answer to that depends on how renewables fare.
15. Solar is struggling. Signs of disarray everywhere.
a. Even as tariffs crash, investments into the sector are slowing.
b. The rate of capacity addition has slowed as well.
c. A bunch of firms are cutting overheads, selling off parts of their business, even exiting.
A clutch of hypotheses seek to explain why the sector is slipping. The high cost of rural land has pushed up project costs. So has a rise in module prices and shipping and freight charges. The slowdown in the economy–exacerbated by COVID-19–and the government’s response to it, has depressed demand. The rooftop sector has slipped into crisis as DISCOMs, wary of losing their most profitable customers, push back. DISCOMs, badly cash-strapped, have also delayed payments and fresh PPAs (stranding about 17-18GW worth of projects), pushing developers into their own cash-flow crisis. At the same time, falling tariffs have put margins under additional pressure. That is one reason why SoftBank decided to exit. It wanted higher returns.
In tandem, the industry is seeing the entry of newer players with access to cheaper money. This includes global pension and sovereign funds, a handful of Indian business groups and fossil fuel energy majors trying to create a renewables business. Unable to compete with them, older firms are trying to reduce costs, restructure operations or just leave. There is truth in all these explanations. And yet, as CarbonCopy found while working on this series, they do not capture the complete story. They do not explain why, for instance, unlike EPC firms and developers, solar manufacturers in India are bullish on the sector. Private companies are racing to set up fresh manufacturing lines, as are public sector enterprises like BHEL and Coal India.
It adds up to a paradoxical moment. Developers and EPC firms are bearish. The solar manufacturers selling to them, however, are bullish. https://carboncopy.info/how-dissonance-is-leading-to-chaos-and-tumult-in-indias-solar-sector/
16. The fruits of bad planning and poor market design are showing up.
Riding on cheap imports, falling cost of money and aided by state programmes, India’s solar sector posted its massive gains on competitiveness. Bad planning and bad market design are now undoing those gains. Take Rooftop solar. It was pushed without factoring in its impact on discoms. The result? Unwilling to lose their most profitable customers, discoms are choking rooftop solar. https://carboncopy.info/rooftop-solar-and-discoms-a-case-of-putting-the-cart-before-the-horse/
17. As for ground installations, the Make In India push is hurting them. A slowing solar market, in part due to the crackdown on rooftop solar, caps the scale manufacturing units can add. Most growth now has to come from ground solar. Its growth, however, depends on tenders from state bodies like NTPC and SECI. “A market that depends on government tenders for growth will not have a rhythm,” said Santosh Khatelsal, the former managing director of Enerparc Energy, a Bangalore-based developer. “Manufacturers will prefer to set up smaller units so that there is higher capacity utilisation.” With low scale come lower toplines and smaller R&D spends – making it harder for the country to leapfrog the Chinese in terms of technology. In contrast, exporting to the world, Chinese manufacturers run plants with as much as 18 GW of manufacturing capacity. If Indian units have to buy local, they will end up paying higher rates. Which means higher solar tariffs. https://carboncopy.info/the-fall-and-rise-of-solar-costs-in-india/
18. Bad planning and market design. This piece ties all these threads together. https://carboncopy.info/india-paying-the-cost-for-its-poorly-designed-the-solar-market/ In all, coal might be viable a while longer. That is just one fallout, however. See 20.
Against this messy picture of stasis and incoherence came the notion of Net Zero.
19. CarbonCopy and I argued that India should see Net Zero as an opportunity and commit to it. “At its core, net zero is green creative destruction, according to Tim Sahay, a policy manager at the US-based Green New Deal Network.” It will present the world economic order with a potential reset. Can we use Net Zero to fashion fresh competitive advantages for the country? https://carboncopy.info/sensing-an-opportunity-why-indias-should-accept-not-resist-decarbonisation/
20. Can we become an energy exporter? We looked at hydrogen. Here too, the government’s talking a lot about hydrogen but its thinking lacks clarity. It talks about exporting hydrogen but barely specifies whether we are talking about the technology, the electrolysers or the fuel itself. On the first, we lag. On the third, hydrogen is an expensive fuel to move around and so, we cannot export to the world. Our rising solar costs are another reason why we will not be highly competitive. On electrolysers, however, thanks to firms like Reliance, we have a chance. https://carboncopy.info/india-needs-to-step-on-the-gas-to-win-global-green-hydrogen-race-2/
21. Given its investments in solar and hydrogen, there is talk that Reliance will get into distributed power generation and storage. This will be a game changer. Not only will this, however, come with fresh threats for discoms, it will also torpedo any hopes that the new green economy will also be a more just economy. Given Reliance’s large investments — not to mention the NDA’s PLI programme — India’s new energy landscape might be dominated by a small handful of firms. https://carboncopy.info/india-needs-to-step-on-the-gas-to-win-global-green-hydrogen-race-2/
22. And yet, decarbonisation cannot be avoided. Even if firms/countries cannot capitalise on Net Zero, they will have to clean energy to protect (or gain) access to markets like Europe. There is a punitive element here. Which is ESG. “For the longest time, developing economies have resisted emission reduction. What we are seeing now, if not by design then by outcome, is a large chunk of global finance bypassing national governments and forcing decarbonisation upon value chains.” Its logic is simple. It wants to avoid future NPAs.
And so, Tata Steel is one instance of a firm decarbonising before any national mandate to do so. Smaller firms, cash-strapped that they are, are unable to make these investments. They — and the states where they are based — will be the losers. https://carboncopy.info/what-tata-steels-attempts-to-decarbonise-tell-us/
23. What complicates this picture is the absence of state support which softens the burden of decarbonisation. Companies are being compelled to adopt expensive technologies like carbon capture even before the supportive policy—like carbon offsets and emission markets—come up. It isn’t clear, ergo, how competitive even Tata Steel’s Indian operations will be after taking these hits to the bottomline.
24. While those reports were trickling out, Prime Minister Narendra Modi made an aggressive global commitment towards decarbonisation. By the end of this decade, he said, India will meet 50% of its energy requirements from renewable energy; installed capacity of non-fossil-fuel energy in India will stand at 500 GW; emissions intensity of the country’s GDP will drop by 46-48% from 2005 levels; and that its carbon emissions will be lower by one billion tons. https://thewire.in/government/at-cop26-has-pm-modi-dragged-india-onto-path-of-decarbonisation-before-its-ready
25. The big risk in all this – India’s muddled energy policy, the rising global push for decarbonisation, ESG, Modi’s announcement – is decarbonisation without a pathway.
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.
Units based on the fossil fuel economy will obviously come under strain, for example India’s automotive sector. As the world moves to electric vehicles, firms making internal combustion engines will be in a fix. As Tata Motors’ electric vehicle deal with TPG Rise Climate and ADQ (Abu Dhabi Developmental Holding) shows, larger firms might survive, but smaller firms will struggle. As things stand, electric vehicles need fewer parts than internal combustion engines. Firms in such supply chains will be hit.
Even industries not at risk of obsolescence will see losses. Take India’s steel sector. In a bid to retain access to export markets, bigger firms are trying to decarbonise. As the second story in our series showed, Tata Steel is mulling over hydrogen and carbon capture. Smaller companies, however, are too cash-strapped to remake themselves.
And yet, these two changes are just the proverbial tip of the iceberg. Cost of energy is a major determinant of where value chains locate themselves. Now, as renewable energy and innovations like carbon border taxes gather pace, the world will see global manufacturing chains redeploy themselves. “Till now, the West had outsourced most of its manufacturing to developing countries,” said economist Jayati Ghosh. “Most of its emissions are produced from consumption. In contrast, most of the Global South’s emissions emanate from manufacturing, not from consumption.” Now, she said, “we will have to see which of these value chains stay in the third world and which ones move back.” https://carboncopy.info/why-india-should-brace-for-decarbonisation-impact/
26. Next up, Hydel. India is in the middle of another dam-building drive — this time, led by the public sector. With renewables’ share growing in power generation, we want to use hydel for grid-stabilisation and storage. The catch is: batteries and electrolysers are vying for the same pie. https://carboncopy.info/does-hydel-have-a-role-in-indias-decarbonisation-plans/
27. This raises a new question. India’s storage and grid-stabilisation market is evolving. We might see battery storage and electrolysers evolve into grid-scale utilities — and we might see the rise of distributed storage. Either way, hydel will have to compete with newer forms of energy storage. https://carboncopy.info/hydel-faces-questions-about-viability-in-indias-three-way-energy-storage-race/
28. As we found while writing on coal, a clutch of Indian generators are investing in renewables to round off their portfolios. This trend is seen in hydel as well. We also see companies tying up with hydel projects to ensure round the clock power. https://carboncopy.info/measuring-the-viability-of-indias-hydel-power-plans/
29. Projects that become a part of such a bundled unit will be more competitive than a standalone project. The latter might have to be bailed out by the centre or state governments, as has happened in the past. https://carboncopy.info/measuring-the-viability-of-indias-hydel-power-plans/
And now, a note from your long-winded reporter: These hydel reports have been more about the economics of energy storage — as opposed to talking about dams. It makes me think. I started work on these energy/climate reports by taking a closer look at each of India’s principal forms of energy. Some weeks ago, when I wrote this post trying to see the bigger picture all these discrete reports cohere into, I was left underwhelmed. The dominant themes showing up are all rather predictable — government policy is incoherent; each of the carbon-based fuels is trying hard to retain a price advantage; but little else more.
From here on, I think, we will go a little more forward-looking — and focus on India’s response to climate change. PLI, next.
And now, a second note from your long-winded reporter: Then came Russia’s invasion of Ukraine. In the middle of June, Russia dramatically slashed gas supplies to Europe further. As Europe hoovered up Gas supplies, spot Asia LNG rates went three times higher than normal. Pakistan (which relies on imported gas to generate power and run industries) slipped deeper into trouble. Sri Lanka is facing energy shortages as well. Similar trends are visible in India. With crude prices rising — and the Indian government unwilling to hike petrol and diesel prices – oilcos are losing as much as Rs 20-25/litre on diesel; Rs 14-18/litre on petrol. As gas prices surge, a rising number of families are again using firewood and cowdung for cooking. In tandem, as the media has reported, the heatwave is expected to lower farm output this year.
Much of this is the story world over.
What will this triumvirate – energy and food shortages coupled with high debt, especially in the global south – create? Given high food and energy costs, not to mention fear of ballooning debt, nations might want to burn the fuels they have at hand. Germany is already thinking of restarting its coal plants. India too might want to use coal longer – by burning it directly, or mediating it through technologies like gasification.
30. In the Net Zero series (See 19 and 20), CarbonCopy and I had argued that India should see Net Zero as an opportunity — and use it to build fresh competitive advantages for the country. In other words, can the three big departures of India’s Production-Linked Incentive scheme — disability cost, sectoral champions and a focus on localising entire value chains — make India a manufacturing alternative to China + put the country at the forefront of emergent sectors like semiconductors, polysilicon, and advanced chemical batteries. Part one sets the context.
31. One way to understand how the PLI scheme is working in practice? Take a closer look at the PLIs for solar modules and advanced chemical cell batteries. Which is what we did.
32. That dive left us with five large questions which will determine outcomes from the PLI scheme:
1. Is India choosing sectoral champions well?
2. Is PLI support significant?
3. Can one firm dominate a value chain?
4. Can import substitution yield export competitiveness?
5. Could India have used this money better?
Other questions — like the lack of emphasis on R&D while rabbiting on endlessly about creating the technological leaders of tomorrow + this notion of disability cost — are woven into these.
33. One reads these reports and is left wondering. If the government is pushing fossil fuels and renewables, what kind of assets is India creating on the ground — more carbon infrastructure? Or more renewables? The answer is cheery, as I found while writing for The Third Pole. Capex on renewables is now higher than oil +coal + gas.
34. Then came a bombshell. Hindenburg announced its devastating report, explaining why it was shorting Adani. The company’s shares and bonds have been seeing a repricing ever since — raising large questions about its capacity to raise funds as before. The group has responded — to what is an existential threat — by announcing it’s cutting back on capex. This raises a larger question. Adani straddles India’s energy sector — from coal to renewables to hydrogen to PLI. As he mulls cutbacks, where will be the axe fall? What does this mean for India’s clean energy drive? Hint: it means good things.
35. In the past, CarbonCopy and I have quoted @70sbachchan as saying Net Zero is a global reset, a chance for energy importing nations to refashion themselves as exporters of new energy technologies, or of the machines/equipment that produce renewable power, or exporters of renewable power itself. One pre-requisite for becoming a global manufacturing hub for renewable energy materials — apart from insulating oneself from geopolitical risk — is to secure critical mineral supplies. Like a bunch of other countries, India too is trying to do so. How is it faring?
36. It’s a hard question to answer. The answer is partly about geopolitics, partly about India’s capacity to ink these deals, and partly about our capacity to indigenise renewables manufacturing (If we keep importing, say rechargeable battery components, dependence on other countries remains). And yet, in the second part of our series, we conclude that India has multiple pathways towards securing supplies of critical minerals like lithium. The problem lies elsewhere, in the demand side.
37. For meaningful insulation from global critical mineral shocks, India has to also localise RE manufacturing. If the country’s, say, battery plants merely import components, India’s dependence on other countries will continue. And so, how are India’s plans to localise RE manufacturing faring?
That question illustrates the bigger point we wanted to make. As a relatively industrialised developing country, India wants to secure its critical mineral supplies. A clutch of factors — geopolitics, institutional capacity of bodies like KABIL, local research capacities, demand for EVs in the local market (which will determine if firms can profitably source locally)… — determine if the country can become secure its critical mineral flows. The devil, as they say, lies in the details.
As we say at the end of the series.
38. Writing about these fuels, the question about the role of nuclear energy has often come up. And so, in April this year, CarbonCopy and I began taking a look at India’s plans for nuclear energy. We found there is a push for boosting nuclear power as well. And that, given that past nuclear buildups have failed to meet their targets, the new push substantively differs from previous ones in two important ways. Instead of building reactors on its own, NPCIL will form JVs with fellow PSUs like NTPC — and jointly erect “fleets of reactors”. In tandem, India is very bullish on small and modular reactors.
39. Both these divergences, as we saw in the second part of our report, are untested. NPCIL will be working through a JV for the first time — and, so, questions have to be asked the capacity of these two firms to work together; and if the JV can sidestep past reasons for cost- and time-overruns. Turn to SMRs and such questions deepen further. There are no working prototypes of SMRs anywhere in the world. Claims — that SMRs will be cheaper than large reactors — are contested as well. And so, one wonders why the Indian State is so bullish on them. There is, however, a lot of lobbying. Enron comes to mind.
We are now wondering if we should examine the feasibility of 100% renewable grids.
Fractured/Earth 
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