adani: Why are power packs not at the forefront of India’s energy transition?

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In recent months, the biggest players in the Indian private sector have made ambitious clean energy commitments. India Ltd announced cleantech investments worth Rs 75,000 crore; ArcelorMittal pledged Rs 19,000 crore for solar power; and Green raised Rs 9,570 crore in debt financing. Supported by Indian billionaires, these announcements herald a new chapter in the expansion of clean energy in our country. But why are our public energy companies (PSUs) not also at the forefront of India’s energy transition?

PSUs continue to play a vital role in India’s energy sector and the economy in general. Power sector power supplies represent seven of India’s 10 Maharatnas, companies with annual sales of over Rs 25,000 crore. More than 50 percent of the country’s electricity production is owned by the state. Only two PSUs produce around 90 percent of the country’s coal production. State-owned petroleum marketing companies are responsible for 57 percent of refining and almost all retail distribution. Since independence, these companies have been nation-building vehicles, creating millions of jobs and generating revenue for the government. But as the world moves away from fossil fuels, India’s energy majors unfortunately continue to invest in it.

A recent report by the International Institute for Sustainable Development (IISD) and the Energy, Environment and Water Council (CEEW) estimated that the seven major energy-related Maharatnas have invested in 183 projects with a total value of Rs 2.4 lakh crore between FY14 and FY20. However, their total investments in renewable energy (excluding large hydropower plants) were only Rs 25,000 crore, ten times less than their investments in fossil fuels.

In addition, these seven PSUs had a combined capital expenditure (CAPEX) of 1.4 lakh crore INR in FY20 alone. Although a breakdown of this CAPEX is not available, public announcements indicate that it is largely spent on expenses related to coal mining, oil and gas exploration and refining, and the production of coal. ‘thermal energy.

Winds of change

Some PSUs have recognized the need to adapt and have started to respond. The most notable example is NTPC Limited, which has arguably the best business case for diversification and has set a target of 60 GW of net renewable energy capacity by 2032. Likewise, GAIL has a target of reduction in greenhouse gas emissions and Coal India Ltd. is considering getting into the manufacture of solar wafers. Green hydrogen has also aroused the interest of Indian petroleum marketing companies. For example, the Indian Oil Corporation (IOCL) has announced plans to build the country’s first green hydrogen plant at its refinery in Mathura.

Yet PSUs show much less ambition than their private sector competitors and risk falling behind. If India is to achieve its national energy transition and decarbonisation goals, the PSUs must intervene with significant commitments in favor of clean energy. There is also a business case for doing so.

First, energy PSUs should take advantage of their strong balance sheets, which allow them to raise capital at favorable rates. They should also keep in mind that global investment trends have started to shift away from fossil-intensive projects. The UK has decided to stop funding overseas fossil fuel projects, and the US is looking to follow suit. The world’s largest fund manager, Blackrock, has announced plans to divest from fossil fuel-related assets and place sustainability at the heart of its business model. These developments indicate that companies with fossil-intensive portfolios will find it increasingly difficult to access foreign capital.

Second, energy PSUs that fail to divest quickly enough are likely to struggle with abandoned fossil fuel assets, face increased capital costs, and experience declining returns. They could also lose opportunities to attract lucrative environmental, social and governance investment funds, which are expected to reach a value of 350 lakh crore INR globally by 2025.

Third, energy PSUs have a mandate to deliver socially desirable outcomes, a requirement that sets them apart from their peers in the private sector. Since their inception and until recently, the PSUs have received priority access to natural resources in return for the promise of improving the quality of life of Indian citizens. Their business decisions will continue to affect the lives of millions of people.

The central government has a key role to play in persuading the PSUs to increase investment in clean energy. He has already asked them to increase their capital spending to support India’s economic recovery after COVID-19. But it must also provide a clean energy mandate in line with national goals, with an emphasis on actively reducing dependence on fossil fuels and developing new technologies such as green hydrogen, offshore wind. and clean non-fossil cooking.

No state-owned enterprise in a developing economy has successfully navigated the ongoing transition to a low-carbon future. But that should inspire rather than deter India’s energy PSUs. They have the social capital, political access and financial strength to become world leaders in the energy transition.


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