Meeting India’s NZE Objectives

Summary

At the COP26 held at Glasgow in November 2021, India announced the goal of  Net Zero Emissions (NZE) by 2070 along with several ambitious targets for 2030. This will necessitate huge shifts in numerous sectors and the induction of several new technologies. Corporates, new ventures, and startups are rapidly moving into emerging areas even as the economy gets transformed.

India’s Objectives for reducing carbon emissions 

At the Glasgow climate conference -COP 26- held in November 2021, Prime Minister Modi announced that India will target  NZE by 2070. He also announced four major targets to be achieved by 2030:

1. Install Renewable Energy (RE) capacity of 500 GW (up from 450GW)
2. Meet 50% of India’s energy needs using RE
3. Reduce projected cumulative carbon emissions by 1 Bn T between 2021 and 2030
4. Reduce carbon intensity of GDP by 45% from 2005 levels (against the earlier 33-35% target)

These are ambitious targets that require transformations in numerous sectors- but are essential to set the economy on the path to NZE by 2070.

 

Sectoral shifts needed

The pathways to NZE are linked with the objective of limiting global warming to 1.5 degrees C. This imposes a finite carbon emission budget available till NZE is achieved. And the imperative to front-end the reduction of emissions to 2030.

The focus needs to be on the sectors/activities responsible for the greatest carbon emissions ie. Power, Industry, Transport, Homes & Buildings, and Deforestation.  Breakthrough in carbon reduction in some of them by 2030 will create the momentum for achieving the NZE objective. Major shifts that are essential are outlined below.

1. Power: India’s objective of installing 500 GW of RE capacity by 2030 compares with a total installed power generation capacity of 393GW in Dec 2021. Renewable power plants, which include large hydroelectric plants, constitute about 148 GW of capacity. The Central Electricity Authority (CEA) estimates India’s power requirement to rise to 817 GW by 2030. Thus a huge increase in RE capacity is envisaged for the rest of this decade.
2. Industry:
   • Industrial subsectors with low-and medium-temperature heat requirements, such as construction, food, textiles, and manufacturing, would need to accelerate the electrification of their operations relatively quickly. Using RE, they can achieve over 90% abatement by 2030.
   • Process industries with high-temperature requirements, such as iron & steel, or cement (among the biggest CO2 emitters) along with chemicals, mining, and oil and gas, would depend heavily on innovation in hydrogen and clean fuels which may spill over beyond 2030. In the current decade, their thrust will have to be on energy efficiency & conservation, recycling, and alternative materials.
3. Transport: To decarbonize, this sector would need to shift rapidly to electric vehicles (EVs), using either battery charging using RE or fuel cells using green hydrogen. Biofuels would also contribute to road transportation. By 2030, almost all 3 wheelers and around half of India’s sales of scooters, motorcycles, and passenger cars will have to be electric. The Govt of India (GOI) has announced a set of incentives and subsidies (eg. FAME 2 and PLI) to bridge the cost disadvantage faced by EVs and fast-track this transition.
4. Homes & buildings: Millions of Indian households rely on solid biomass, mainly wood, or coal as cooking fuel. This will have to be replaced by cleaner fuels like gas (LPG, CNG, or biogas) and electricity. As urbanization continues, India will add the equivalent of a city- the size of Bangaluru- to its urban population each year along with associated residential, commercial, and industrial buildings. This presents an opportunity to build low-carbon, energy-efficient structures. Also, older buildings will need to be renovated over time with energy-efficient features and electric climate control using RE wherever feasible.
5. Forestry: Deforestation, including the burning of agricultural waste, is one of the largest carbon-dioxide emitters. This is because removing a tree both adds emissions to the atmosphere (as it involves clearing and burning) and removes that tree’s potential as a carbon sink. Any NZE pathway requires a drastic reduction of deforestation along with renewed efforts at forestry. This would require a combination of actions including regulation, enforcement, and incentives such as opportunity-cost payments to farmers.

New Technologies to support NZE

Beyond 2030, several new technologies, as outlined below, will play a vital role in the journey towards NZE.

1. Green Hydrogen: High-energy density and zero-carbon combustion make hydrogen well suited to address emissions across sectors as diverse as aviation and shipping, industry, buildings, and road transport—that would be hard to abate with electricity alone. Hydrogen could ultimately satisfy 15 to 20 percent of energy demand. If green hydrogen (made using RE) could be made for less than $1 per Kg by 2030, major end uses would become economically viable eg. long-haul road transport with fuel cells, green ammonia, steel production, and aviation. GOI has just announced a policy push for hydrogen.
2. Redesigning the Power Grid: Modernizing and decarbonizing the power grid involves three main tasks. One is speeding the installation of renewable generation capacity. Another is adding energy-storage capacity to manage the intermittency of solar and wind. Last is upgrading the transmission and distribution network to accommodate more generation and consumption nodes with fluctuating energy flows. The following technologies could help create a zero-carbon grid.
   • Long-duration storage – which can store enough power to supply a network for two weeks or more. Multiple storage technologies are emerging, including power-to-gas, flow batteries, mechanical systems, modular pumped hydro, and compressed or liquefied air. At a levelized cost of less than $20 per kilowatt-hour, long-duration storage would make 100 percent renewable systems cost-competitive.
   • Vehicle to grid integration: Every million e-cars in India would hold about 30 GWh of energy which could be connected to the grid to provide storage capacity.
   • Building to grid integration: Buildings with energy storage or cogeneration could feed power into the grid when called for, and help in demand management -producing income for their owners.
   • Next-generation Nuclear: It is emissions-free and can cater to the baseload. Nuclear generation is seeing a revival with technologies like sodium-cooled, molten salt, and helium-cooled reactors known as “GenIV”; small, sealed, modular, factory-built reactors; and fusion energy.
   • Advanced controls, software, and communications: As more renewables and storage systems are deployed at the grid edge, in homes and commercial sites, power grids will become more complicated to operate. Resilience, flexibility, safety, and efficiency can be improved using solid-state devices, ultra-fast communications, network-wide instrumentation, distributed energy management software, and AI.
3. Carbon Capture Use and Storage (CCUS): CCUS is necessary to decarbonize hard-to-abate sectors (eg. cement or power plants using coal or biomass) and to remove CO2 from the atmosphere (“negative emissions”). Presently, the use of CCUS is minimal. Costs remain prohibitively high—typically $50 to $100 per ton of CO2 (tCO2)—and CCUS equipment consumes a lot of energy. But if the full cost of CCUS were to fall below $50/tCO2, it would make many applications economical.

Most of these technologies are still at an early stage. This presents a unique opportunity for India to take the lead leveraging our growing demand, huge scale, low-cost RE, and entrepreneurship. We could be at the cusp of a golden age of innovation and technological breakthroughs.

 

Moves by Indian Cos

The sectoral shifts outlined above and the new technologies on the horizon are creating enormous opportunities for investment and growth- for existing firms, new corporate ventures, and startups.  All firms need to evaluate where and how they will play. Several Indian groups have already announced major moves into emerging white spaces.

1. RE: Meeting the 2030 target of 500 GW will entail adding 352 GW additional capacity costing about $ 240Bn.
   • Reliance plans to invest $ 10 Bn over three years to set up 20 GW pa manufacturing capacity for solar PV modules and advanced batteries. This will enable 100 GW of solar capacity by 2030.
   • Adani Group has announced plans to invest up to $ 50 Bn by 2030 in RE- covering generation, transmission, and distribution. From a portfolio of 25GW at present, they intend to become the largest player in RE globally.
   • Tata Power, the country’s largest integrated power company, plans to phase out coal-based capacity and expand its clean and green capacity to 15 GW  by FY25. It is expanding across the entire solar value chain -module and cell manufacturing, EPC, and operations and maintenance (O&M). The company also has a presence in battery storage technology.
2. EVs: With growing consumer interest in EVs, several firms are positioning themselves for future growth.
   • Tata Motors has spun off its e-cars business and plans to invest $ 2 Bn and introduce 10 EV models over the next 5 years.
   • Reliance, apart from battery manufacturing,  has invested in an E3W startup – Altigreen.
   • Bharat Forge has acquired a 60% stake in Tork Motors- an E2W startup. It has also introduced a range of power electronics and other components targeted at EV makers.
   • Two-wheeler manufacturers like Bajaj, Hero, and TVS Motors have announced major investments and new models in E2Ws and E3Ws. Several new entrants like Ola, Ather, Okinawa, and Ampere too have aggressive plans in EVs.
   • Tata Power has set up a nationwide network of over 1000 public charging stations and plans to expand it to 2500 by 2022 and further to 10,000 in the future.
3. Green Hydrogen: As part of its push into the RE value chain, Reliance plans to make electrolyzers and fuel cells. It intends to reduce the cost of green hydrogen to $1 per KG by 2030 against $5 at present.

Transition in Disrupted Sectors

Any NZE pathway will bring challenges and tradeoffs. Especially serious will be the impact on investment and employment in the entire ecosystem associated with fossil fuels. There is a critical need to plan a just transition so that communities and livelihoods are helped to adjust and productive assets are not stranded.

Towards an NZE Economy

Achieving the targets set for 2030 and 2070 will be a Herculean task involving major sectoral shifts and disruptions. But given the imperative of limiting global warming to 1.5 degrees, it is a necessity. There may be several alternative pathways to NZE depending on how new technologies and their cost structures evolve. GOI will have to proactively make policy changes to incentivize shifts and subsidize cost disadvantages while transitioning to new technologies. Likewise, consumers will have to make changes in their habits and behavior- at home, at work, and while traveling- to reduce their individual energy footprints.

The coming years will present enormous opportunities for firms- existing as well as startups- as entire sectors get restructured and new technologies evolve. Simultaneously, disruptions will create challenges for incumbents in many businesses. Companies have to skillfully navigate through these uncertain times so that they emerge as leaders in a transformed, decarbonized economy.