Relevance: GS-3: Infrastructure: Energy; Conservation, Environmental Pollution and Degradation

Key Phrases: achieving net-zero emissions by 2070; climate action and an energy transition as pillars of economic development; holistic transition; IREDA; Panchamrit.

What is the context of this article?

• At CoP 26 Glasgow summit, Prime minister Narendra Modi announced India’s target of achieving net-zero emissions by 2070.
• Finance Minister Nirmala Sitharaman highlighted climate action and an energy transition as pillars of economic development in her budget speech.
• The key message from both these endeavours is that climate sustainability is integral to India’s economic policy.

Key Highlights

• Energy transition will have far-reaching implications for energy security,
  • The recent crisis in Ukraine highlights the need of Atma Nirbhar in energy needs.

Steps required for this Energy transition to happen

Three parallel transitions will propel us on our journey towards a low-carbon future.

• First transition is about power generation.
  • A shift from fossil fuel-based power generation to renewable energy-based (RE) generation.
• Second transition is related to vehicles.
  • A transition from petrol and diesel-powered vehicles to electric vehicles (EVs).
• Final transition is about change in sector of Economy.
  • A shift from fossil-fuel-powered industrial manufacturing to that powered by green hydrogen.

Each shift is at a different phase, and a holistic transition requires them to intersect.

Five considerations/ challenges in achieving this energy transition

• Investment challenge
  • India’s long-term RE commitments require ₹1.5-2 trillion annually
    • As per the 21st report of the Standing Committee on Energy (2021-22) on financial constraints in the renewable energy sector.
  • Actual investments in the last few years have been around ₹75,000 crore.
  • A study by the CEEW Centre for Energy Finance estimated that our power, mobility and industrial sectors would require investments of $10.1 trillion for India to achieve net-zero by 2070.
    • It highlighted that conventional sources would only be able to muster $6.6 trillion.
• Requirement of differentiated interventions.
  • Growth in the RE sector has been due to
    • Policy pushes
      • Including power purchase agreements (PPAs),
      • Solar parks
    • Reverse auctions for tariff discovery.
  • Electric mobility is primarily driven by individuals but lacks consumer confidence.
  • For green hydrogen unfamiliarity with the technology means interventions may also be required at the lender level, something EVs could benefit from as well.
• Treating the investment challenge as an opportunity.
  • Which has struggled to take off to the level
• Lack of level playing field for private investors and companies in the renewable energy market due to policy uncertainties.
• Lack of Broader market for Carbon Credit
  • RECs (Renewable Energy Certificates) would also face a supply shortfall if discom RPOs were strictly enforced

Way forward/ Steps Taken

• Capital Availability
  • Indian RE developers in international bond markets in 2021 have raised $5.1 billion through fund-raising.
  • Capital infusion into the Indian Renewable Energy Development Agency (IREDA), which will reportedly allow it to lend an additional ₹12,000 crore is also a step forward in this regard
• Differentiated Intervention
  • In case of RE power generation
    • Incentives for domestic manufacturing,
    • New power sources such as offshore wind,
    • New tariff and tender designs, and
    • Grid integration would drive the growth further.
  • In case of EV Mobility
    • The recent budget proposals on battery swapping and interoperability builds consumer confidence
  • In case of Green Hydrogen
    • Blending and exports offer the possibility of PPA-type contracts with highly rated off-takers, opening up financing options.
• Treating Investment challenge as an opportunity
  • Budget announcement related to Sovereign Green Bonds which should be serviced by rupee revenues, with rupee-denominated end-use.
    • This makes a strong case for domestic as well as ‘masala’ bond issuances overseas.
  • The budget speech also emphasised further development of Gift City, home to the India International Exchange (India INX).
  • Several Indian corporates have tapped India INX to raise capital from international investors.
  • India’s immense requirements for green finance could be turned into an advantage to develop a homegrown but world-facing capital market.
    • This could establish India as a gateway for emerging economies in Asia and Africa looking to raise international capital for their own transitions.
• Designing a playing field that’s more transparent and level.
  • As investors pour capital into green, climate, and sustainability-related themes, they would demand accountability.
  • Companies should be expected to be fairly rewarded for achievements.
  • SEBI:
    • Directed India’s 1,000 largest companies to mandatorily publish business responsibility and sustainability reports with effect from 2022-23.
    • Released a consultation paper on a framework to regulate environmental, social, governance (ESG) rating providers.
  • What’s left? A classification system, or taxonomy, that allows all stakeholders to uniformly determine the green, climate or sustainability-related attributes of businesses.
• Ensuring broader market for carbon credits
  • This will ensure a proper system of rewards.
    • To an extent, Renewable Energy Certificates (RECs), which allow buyers to purchase the zero-carbon attributes of RE, fulfil this role.
  • Renewable Purchase Obligations (RPOs) extend primarily to discoms; firms and industries are generally exempt.
    • Their volumes have been notable, with ₹9,266 crore worth of RECs sold on exchanges until trading was suspended in July 2020 (resumed November 2021).
    • RECs would also face a supply shortfall if discom RPOs were strictly enforced. Therefore, a broader market for carbon credits is critical for India to tie various transitions together.

Conclusion

• There appears to be no turning back on the path of decarbonized economic growth for India. The recent Union budget has made this sufficiently clear. The scale of the challenge is also balanced by an opportunity. It’s the execution that will now determine the pace at which we proceed along that path.

Source: Live-Mint

Mains Question

Q. Enlist the challenges and suggest a suitable way forward to achieve energy transition in India.