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India's energy sector companies: riding on a new wave of growth

May 03, 2022
Shantanu Srivastava
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Key Findings

The Indian government is rolling out “Big Bang” clean energy policies and reforms including the green hydrogen and green ammonia policy, production-linked incentive schemes in solar module and battery manufacturing, market-based economic dispatch, general network access, green energy corridor schemes and privatisation of state-owned assets across distribution, generation, and transmission.

Key trends among large power sector companies include diversifying across the value chain, leapfrogging the competition to adopt zero-emissions technologies, and value-added products and services such as peak power supply, round-the-clock supply and corporate decarbonisation solutions.

Boosting clean energy investments requires clarity and integrity on the policy front and the availability of cost-effective, long-term financing for infrastructure.

Executive Summary

The United Nations climate science body, the Intergovernmental Panel on Climate Change (IPCC), recently released its Working Group III report with a grave warning for the world. Unless there are immediate and deep emissions reductions across all sectors, 1.5°C is beyond reach.1 A major part to be played here is by the energy sector where massive transitions are required to limit global warming, including reduction in fossil fuel use, widespread electrification, improved energy efficiency, electric vehicles, large scale deployments of renewable energy infrastructure supported by grid modernisation and use of alternative fuels such as green hydrogen.

India, as one of the fastest growing large economies, will play an important role in helping put the world on track to meet climate goals. The country’s energy needs will grow exponentially in the coming decades, to feed the burgeoning economy. With rampant imported fossil fuel inflation, energy security is a key national priority. In managing these challenges, India is leading from the front in tackling climate change through ambitious domestic clean energy targets and bold policies and reforms to support them. With a doubling of annual new capacity adds in FY2022 to a record 15.5 gigawatts (GW)2, domestic and international financial institutions are rapidly scaling up Indian renewable infrastructure capacities and are preparing for the next wave of sectoral reforms.

The next step required is massive, predicated on new renewable energy capacity adds required to double again, and India’s government plans to roll out several big bang policies and reforms to accelerate the transition to a more resilient and sustainable energy economy while also harnessing the investment, employment and import replacement opportunities involved.

India is leading from the front in tackling climate change through ambitious domestic clean energy targets and bold policies.

Some major themes observed among larger industry players include commitments to diversify across the value chain, leapfrog the competition in adopting still-evolving new zero emission technologies, and increase the range of value-added products and services. Below is a list of some government reforms enabling the clean energy wave and pertinent business plans.

On the green hydrogen front, a growing number of energy companies are betting on the rapid decline in production costs to exploit its use in energy storage, mobility, fertilisers, refining and industry while also foraying in manufacturing of electrolysers, used to produce green hydrogen from renewable energy (RE). In energy storage, numerous industry players have been betting on the emergence of technologies being aggressively pursued in leading global markets (but yet to be commercially deployed domestically) such as pumped hydro, virtual power plants, demand response management and battery storage, to provide dispatchable and controllable RE and grid reliability. In a bid to diversify upstream in the solar value chain and build India’s domestic supply chain security, players have participated wholeheartedly in the government’s solar module PLI scheme while also acquiring stakes in state discom businesses, integrating the last link of the power sector value chain. In transmission, operators have been vying for both greenfield and brownfield regulated assets as government agencies plan to evacuate the large RE generation capacity planned to be set up in the country. As the power markets become more democratised and nationally integrated, companies see opportunities in power trading through exchanges and contracting with customers through open access and merchant capacities.

For India to accelerate its transition path, it is imperative to build the momentum in clean energy investments through policies and corporate actions listed above. This in turn depends on clarity and integrity on the policy front and the availability of cost-effective, long-term financing to fuel the ambitious long-dated infrastructure plans of industry players. Domestic and global capital providers, for both debt and equity, have provided the latter. Over the years, RE financing has transformed significantly, with the entry of varied sources of funding such as banks, bond market (domestic and global), international lenders and development finance institutions (DFIs) vying to participate in the growing sector.3 Accompanying this, companies have improved their environmental, social and governance (ESG) disclosure profiles to attract the massive pool of global capital aligned to ESG investing.

The coming decade will be among the most transformational periods for global energy markets. In this paradigm change, new leaders will emerge, and current corporate giants stand to become obsolete if they do not engage in the transition to the new energy economy. Developing economies such as India have an enormous opportunity to both build energy independence and grow in a climate resilient manner and in the process create a thriving corporate sector that best leverages these increasingly prominent global financial capital market priorities, and funding capacities.
 

1IPCC. Climate Change 2022: Impacts, Adaptation and Vulnerability.28 February 2022
2CEA, MNRE, IEEFA calculations.

Press release: India’s lead role in the new wave of energy sector growth
 

 

Shantanu Srivastava

Shantanu Srivastava is an energy finance analyst working with IEEFA’s India team covering listed companies in the Indian energy sector, analysing their transition and growth strategy, their financing needs and ESG profiles.

Shantanu’s aim is to research India’s financing needs and sources of capital in domestic and global markets, to help the country achieve its energy transition goals.

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