To mitigate this climate risk, India has set ambitious renewable energy targets. The government has recognized that free solar and wind power, backed by batteries, and other clean technologies such as electric vehicles and green hydrogen, are necessary alternatives to high-emitting fossil fuel power plants. increasingly obsolete – coal, LNG and gas.
At COP26 in Glasgow, Prime Minister Modi announced 500 gigawatts (GW) of non-fossil fuel capacity and 50% energy from renewable sources by 2030, coupled with a net zero target by 2070 The response has been promising and has increased competition in the traditionally coal-dominated energy market. As a result, India’s energy supply growth is now driven by renewable energy capacity additions.
Figure 1: Coal vs Renewable Capacity Additions in India 2017 – 2022
Source: CEA, MNRE, IEEFA calculations * Until January 2022
Moreover, this supply growth is driven by private sector players, although it was initially led by the public sector. Major power generators with coal forming a large part of their portfolios, including Adani Group, Jindal and Tata Power, have announced major renewable energy targets and corresponding investments.
What prompted the private sector to focus on renewable energy?
India faced coal shortages from August to October 2021, which led to high prices on the power exchange. Then, in January 2022, Indonesia announced a coal export ban. The crisis has exposed price volatility and energy security risks for India, showing imported coal as an unreliable source of power generation and heavily dependent on a long supply chain.
The country’s largest companies have responded by changing course, turning to cheaper, cleaner and more reliable renewable energy. It shows that economics is driving these decisions, coupled with a much higher return on investment for renewable energy projects.
Globally, there has been significant global capital momentum away from thermal coal and coal-fired power generation in recent years. In total, the IEEFA has tracked over 187 globally significant banks, insurers and asset managers/owners who have implemented significant formal coal exit policies since 2013. The year 2021 saw 51 reports new or updated policies.
This flow of capital reflects the rapidly diminishing economic merits of thermal coal and the growing understanding that alignment with the Paris Agreement and 1.5 degrees Celsius invariably leaves many coal projects as stranded assets, unable to deliver a viable return over their useful life. A flood of international capital is competing for renewable energy assets and the pool of investors focused on economics, society and governance (ESG) is growing rapidly.
While India has the potential to attract much of this capital, inflows have not been significant to date due to concerns over “greenwashing” and the overhang of legacy thermal assets in financial accounts. major players such as NTPC and Tata Power. This trajectory is, however, changing following recent major announcements regarding the deployment of renewable energy over the next few years.
Figure 2: Current and target renewable capacity of the main players in the sector
Source: Company reports, IEEFA analysis
In July 2021, Tata Power announced that it would not build new coal-fired generation projects and is aiming for carbon neutrality by 2050. A week later, JSW, another leading thermal power producer, announced announced 20 GW of solar, wind and hydropower plants by March 2030 and an investment of 750 billion rupees ($10 billion) with the aim of also becoming carbon neutral by 2050.
In fact, 2021 has seen a surge in investment in renewable energy domestically and globally. India attracted an estimated $18.8 billion of this renewable energy investment, which is three times the investment seen in 2020. Additionally, 2021 has seen significant investments in renewable energy by large Indian private companies.
|Company||Rising||To do what|
|Addiction||$80 billion||By 2030-35, 100 GW of solar plants + giga for modules, fuel|
|Adani||50 billion US dollars||By 2030, investment in renewable energy|
|renew the power||9 billion US dollars||By 2025, new solar and wind projects|
The share price performance of these companies indicates that they are making the right decisions in turning to renewable energy. Over a period of 5 years, Adani Green Energy Limited rose massively by 6000% and Reliance by 350% compared to a 110% rise in Sensex.
Focus on solar and green hydrogen
Private players are now building the ecosystem by increasing domestic manufacturing of solar modules, cells, wafers and polysilicon, while reducing reliance on imports.
In October 2021, Reliance acquired REC Group of Norway for US$771 million. REC is a long-established solar module manufacturer with two facilities in Norway for the manufacture of solar-grade polysilicon and one in Singapore for the manufacture of photovoltaic cells and modules. Reliance has further invested US$29 million in German solar wafer manufacturer NexWafe GmbH and is entering into a strategic partnership to commercialize NexWafe’s product in India.
From now on, private players are also betting big on green hydrogen (the only “renewable” hydrogen) which will contribute to decarbonizing other sectors such as refining, fertilizers and the steel industry. Reliance has partnered with renewable energy pioneer Henrik Stiesdal to develop and manufacture hydrogen electrolysers. And Adani Group and Ballard Power Systems have teamed up to assess a joint investment in manufacturing hydrogen fuel cells in India. Green hydrogen is seen as the fuel of the future and the IEEFA notes that fuel cell manufacturing is likely to be a game-changer in India’s energy transition.
Private capital and electricity producers under the weight of non-performing thermal assets are causing a course correction. Apart from the 30 GW already under construction, no new thermal project should see the light of day in India.
The renewable energy momentum continues, and with the increasing competitiveness of ever-cheaper battery storage and the development of new energy technologies, this momentum is likely to escalate into a doubling of renewable energy growth by 2024.