India’s road to electric future
“The electricity sector is witnessing its most dramatic transformation since its birth more than a century ago.” ~ Dr. Faith Birol, IEA Executive Director
Present global CO2 emission are estimated at 34Gt per annum. To meet the Paris climate goals and keeping the temperature rise well below 2 degree above pre-industrial levels, carbon emissions need to fall by around 45 per cent from present levels by 2040.
This is the backdrop of global economic growth where it is not just about slowing or containing carbon addition but about reversing the direction of carbon accretion. For this, electrification is an imperative.
Broad trends across the globe point to rapid electrification of consumption being underway already, driven by efficiency, cost and climate consideration. It is not just about the electrification of mobility but also the static applications of energy are turning electric at a rapid pace in industries and households.
It is imperative to understand that where and how energy is going to be consumed is going to change massively. Global GDP is expected to double by 2040, led primarily by non-OECD countries in Asia-Pacific and Africa with an expected 33 per cent growth in energy demand.
Along with this, the pickup of renewable energy has just about started. According to the BP Energy Outlook 2019, renewable energy accounts for the fastest growing energy sector, which is estimated to grow at 7.1 per cent annually. Its share in global primary energy is expected to grow almost fourfold to 15 per cent by 2040 from its current share of 4 per cent. In terms of contribution to the electricity generation basket, renewables are set to grow above 40 per cent, reversing positions with coal. In India, the new targets for the renewable energy by 2030 could be in order of 350 to 500GW. Coal is expected to continue to as the major fuel source for electricity generation in India. However, the share of electricity generated from coal is expected to decline and the share of electricity generated from renewables is expected to increase from 16 per cent in 2017 to 38 per cent in 2040.
Another critical aspect is for storage and new energy technologies to develop in tandem with renewables. As renewable energy penetration increases, there will be need for storage requirements (battery, pumped hydro, other alternative forms), the extent of which will be known in the years to come and will be greatly linked to the cost of storage. It is also variously foreseen that costs of battery storage systems, in particular, will continue to decline as shown in the adjacent graphic.
There are other advancements in new energy technologies like carbon neutral fusion power reactors which may prove to be resilient and an efficient alternative in the future. A new private company names Commonwealth Fusion Systems in collaboration with MIT has already attracted the investments of $115 for the development of this technology with the objective to produce a working pilot plant within 15 years, where one of the investors of CFS is Breakthrough Energy Ventures (BEV) led by Bill Gates, and supported by global HNIs including Mukesh Ambani, Jeff Bezos, Richard Branson, Jack Ma and Masayoshi Son.
The implications of the transition for India have many dimensions. As India is set to become the most populous nations in the world, there are challenges related to employment, value addition, standards of living, technological leadership, environmental responsiveness, etc. However, the challenges can be converted to opportunities and propel the country to global energy leadership.
It is critical that following key imperatives need to be understood and appropriate strategies are adopted by the stakeholders:
1) Coal fired plants will need to become flexible
2) A new wave of energy efficiency measures will be needed
3) Circular resources economy will need to evolve simultaneously than as afterthought
4) Businesses within and outside energy sector will be impacted and will need to transform
5) New institutions capable of delivering change will have to evolve
6) Governments will need to work to facilitate energy financing
7) Macro-economic impacts on imports, remittances, employment, taxation structures will need attention
The imperatives for India as a country go well beyond carbon. In the end, it comes down to the basics: does it have the right products and services for the market; is the pricing right; are the delivery channels for the age that it lives in.
These imperatives include:
1) Energy goods must be substantially produced in India to take advantage of the large consumption base
2) Energy prices for the producing sectors must be lowered and artificial cost build-ups removed
3) Energy services must be modernised to allow for efficiency and innovation in consumption
4) Energy markets must be furthered to allow for flexibility and lowering of transaction costs
As the country moves towards renewable energy from conventional resources, there are massive economic implications of the pathways that it chooses for technology development, manufacturing, supply and pricing. India just cannot miss the fact that it needs to build a producing economy rather than just being a consumption centre.
In the coming years the investment required in energy projects will be to the tune of INR 200,000 crores per annum or more, through the electricity chain as per National Electricity Plan, January 2018.
Originally published in: https://assets.kpmg/content/dam/kpmg/in/pdf/2019/11/electric-future-enrich-2019.pdf
