India’s Clean Energy Transition Offers Opportunities for Domestic and Foreign Investors

India’s commitment to achieving net zero emissions by 2070 might look over-ambitious but not out of sight.

Many professionals in the hydrocarbon industry strongly believe that energy transition is a much-hyped fad. Such professionals argue that hydrocarbons are long-term bankable solutions. The basis of such arguments is driven by historical evidence that nothing really came close to hydrocarbons –the complete replacement of coal and petroleum is a distant dream. Let’s talk about power generation in India. Although renewable installed capacity has been constantly expanding the low capacity of utilisation remains one of the biggest concerns. Over the years renewable power generation has been making steady progress. In January 2023, India’s renewable power generation stood at 17.74 billion units (BU) compared to 13.15 BU in January 2022. The contribution of renewable power was low compared to 118.62 BU of conventional power generation. Even the conventional capacity addition (660 MW) was slightly higher than the renewable capacity addition (649.37 MW) in January 2023. With reference to installed capacity; coal and lignite-based plants (211 GW) constituted 51 percent of the total installed capacity (411.6 GW). The facts confirm that coal predominantly rules the power generation game. Similarly, the road transport sector is completely dominated by fossil fuels. Shipping and waterway transport is heavily dependent on fossil fuels. The aviation sector doesn’t have any commercially viable alternative to aviation turbine fuel. Indian Railways has been gradually shifting towards better alternatives than diesel. Electric rail engines are in the process of replacing diesel engines. However, thermal based electricity doesn’t offer a completely green solution to rail transport.  Indian Railways has shown a greater level of adaptation to greener solutions. Indian Railways intends to gradually switch to hydrogen-driven power trains. The first hydrogen train is expected to run by 2024. 

The government’s support to fast forward India’s energy transition is admirably high. However, energy transition through only public funding is far from reality. Private participation in the clean energy transition process is not only desirable but also a must. In the last 5-7 years the strategic intent of the Indian private entities like Reliance Industries, Adani Group, Suzlon, JSW Energy, and ReNew Power has been clearly towards sustainable energy transition. These entities have been trying to complement the public sector undertakings like Indian Oil Corporation Limited (IOCL), Bharat Petroleum Corporation Limited (BPCL), Hindustan Petroleum Corporation Limited (HPCL), National Power Thermal Power Corporation Limited (NTPC), GAIL (India) Limited, and Oil India Limited (OIL) to decarbonize the economy. 

India’s economic ascendancy and business transformation success stories have attracted plenty of multinationals to seriously explore business opportunities across the spectrum of economy including in the clean energy value chain. Adani Group’s strategic partnership with TotalEnergies created plenty of excitement in the market before the Hindenburg brought disruptions. Media reports are too critical of Adani’s slide in the recent past. Far too many people in India and outside are casting aspersions on Adani’s business strategies and regulatory failures to prevent investors' losses. The Hon'ble Supreme Court has already appointed an expert panel headed by its former judge Abhay Manohar Sapre to investigate the possible regulatory failures and develop “regulatory mechanisms to ensure the safety of investors”. Adani Group Chairman welcomes the move and anticipates that the investigative outcome will bring back the confidence of the investors in a finite manner. The highly learned committee is expected to unearth any discrepancies and regulatory violations which eroded investors’ confidence. Most importantly, investigations by the Security Exchange Board of India and the Supreme Court-appointed Committee will bring down volatility in the securities market. The foreign partners would be expecting that Adani Group proves Hindenburg wrong. On the other hand, Adani would be praying that everything falls in place to restore its brand image, reputation, and more importantly market ascendancy. 

TotalEnergies with its long-term vision and strategic outlook should trust Adani Group. Patrick Pouyanné TotalEnergies SE - Chairman & CEO assured that Adani Green Energy Limited (AGEL) and Adani Total Gas Limited are in safe hands with independent and smart CEOs. It is reassuring to hear from Patrick that the business relationship between Adani Group and TotalEnergies is not on shaky ground. While addressing investors on 8th February 2023, Patrick reminded the investors that Adani’s business model is sustainable with $1 billion annual revenue with $ 5 billion debt. TotalEnergies is not much worried about the $3.1 billion exposure to Adani. Despite that for the time being TotalEnergies put the hydrogen project with Adani Energy Limited on hold until clarity emerges from the shadow of the Hindenburg allegations. Patrick believes that the electricity market has local challenges and risks, therefore local partners are a better choice for de-risking business. It is time for Adani Group to exercise all the confidence building measures to strengthen partnership with TotalEnergies. Adani and TotalEnergies collaborative efforts hold the key to green hydrogen value chain development in India. 

Adani was emerging as one of the biggest players in the clean energy domain. Adani’s business diversification and expansion very well supported India’s clean energy ambitions. The erosion of Adani’s market capitalization with rising concerns for the company’s debt risks would bother supporters of the energy transition. Of course, corporate behemoths like Ambani’s and Tatas are standing tall to take the transition forward. In the past, market manipulators created disruptions but never succeeded in derailing the capital market. Indian capital market has the capacity to bounce back, and investors have the resiliency to absorb the temporary shock.

RIL’s strong push for clean energy alternatives is visible with their realigned focus on battery and green hydrogen manufacturing. RIL reinforced its way to the renewable solutions market with a flurry of acquisitions. RIL’s strategic acquisitions of Lithium Werks, Sterling & Wilson Solar, Ambri, REC Solar, and Faradion could bring revolutionary storage solutions to boost the renewable energy market in India. Faradion’s sodium ion technology, if commercially available at an appropriate price point, might be a game changer. Lithium Werks, which offers solutions for storage, transport, industrial, and maritime segments will strengthen RIL’s low-carbon equipment product basket. 

Clean energy transition offers broader opportunities in areas like technology development, technology transfer, manufacturing, infrastructure build-up, capacity building, and employment generation across the clean energy value chain. But the major challenge that troubles the industry is the financing of mighty risky renewable projects.  Even the corporate giants are afraid of going solo. The green financing mechanisms including financing from the multilateral banks are incredibly challenging. Domestic financiers are often worried about their non performing assets. Under the current circumstances, the rising cost of debt due to escalating interest rates, renewable developers have limited choices. 

India is on course to achieve its target of $5 trillion economy by 2025-26 and $ 7 trillion economy by 2030. In due course, India wants to partly decarbonize several sectors including the power and transport sectors. Decarbonization of hard to abate sectors like steel and cement will take its own time. Decarbonization through energy transition offers immense business opportunities for domestic and foreign investors. For de-risking business and capitalising on complementary techno-commercial capabilities both domestic and foreign players are willing to forge strategic partnerships. Such healthy collaborative partnerships require backing of the government through conducive ecosystem, smooth regulatory mechanism, policy directives, attractive financing, and tax incentives.  New India offers enormous opportunities to producers, prosumers, investors, consumers, and residents. All the stakeholders should come forward to take advantage of the opportunities. I could sense the government is willing to facilitate in every possible manner to remove bottlenecks to make India a preferred destination for investment.