Group1_A | SDG 7: Affordable and Clean Energy

NEED OF THE HOUR: RENEWABLE ENERGY

Affordable and Clean Energy is the seventh goal as part of the Sustainable Development Goals set down by the United Nations. The 5 targets defined against this goal are Universal Access to Modern Energy, Increase Global Percentage of Renewable Energy, Double the Improvement in Energy Efficiency, Promote Access to Research Technology and Investments in Clean Energy and Expand and Upgrade Energy Resources for Developing Countries[1]. The global population is on a steep rise and this is expected to put a threat on all resources that ensure stability in the quality of life and growth of economies. With such an increase in demand, it is unrealistic to expect fossil fuels to support the increasing need for cheap energy as well, especially electricity. Our current dependence on these fossil fuels is unsustainable and is continuously harming our natural environment every day. An increase in the use of such fuels without a plan to control emissions that are produced by them ultimately contributes to the overarching threat of climate change globally. Renewable energy (such as solar, wind, hydropower and geothermal) is increasingly becoming cheaper and more accessible, which can be attributed to research and development in the relevant fields to identify the best resources to tap into for our continued use. While developing countries were one of the firsts to adopt sustainable energy resources, poorer countries are also accelerating their access to electricity through the wide adoption of sources of solar and wind energy. This has improved energy efficiency and pushed renewable energy to become a frontrunner in the electricity sector. For example, farmers in Bolivia are increasingly using solar power for food production at low costs with reduced carbon emissions[2]. Costa Rica aims to be completely carbon neutral as of 2021 and already has 95% of its electricity sourced from hydro, geothermal, solar and wind[3]. As of 2011, more than 20 per cent of the power generated globally was produced via renewable resources. There is still a long way to go and only a substantial increase in the use of renewable resources can help us create a sustainable grid that many future generations can rely upon.

Steps taken by India in the sector of Affordable and clean energy

India is on the verge of igniting a renewable energy revolution. For India, renewable energy is a one-stop solution to multiple issues. Renewable energy would not only bring an end to its dependency on oil-producing nations and aid it in its climate change fight but will also help in the socio-economic upliftment of its masses. This is why the notion of clean/green energy has become a basic tenet in its diplomacy and public policy.

By increasing its renewable energy capacity by 2.5 times in a span of 6 years, India currently boasts of having the fourth largest renewable energy capacity. The National Solar Energy Mission envisages installing 100 GW grid-connected solar power plants by the year 2022[4]. Similarly, the National Biofuel Policy envisions to produce 60 GW of energy by 2022.

To actualise these missions, the government is taking the requisite policy interventions. By incentivising and including solar panel modules in the Production linked Incentive (PLI) Scheme, the government has successfully reduced the cost of solar panels, due to which the cost of production of solar energy per unit has fallen from Rs. 17 in 2010 to Rs. 2.44 in 2021[5].

The central government is not only limiting itself to ensuring the production of renewable energy, but also doing its bit for the faster adoption among the public. By schemes like Ujjwala, the government is trying to encourage the adoption of cleaner fuels in rural households in place of fossil fuels. Through Ujala Yojana, the government is bringing affordable, energy-efficient lighting and appliances to the doorsteps of citizens. Through schemes like Faster Adoption and Manufacturing (of Hybrid) & Electrical Vehicles (FAME), the government is envisioning electric mobility and sustainable transportation in future[6].

The state governments are also doing their bit to ensure faster adoption of solar energy. Many states have imposed Renewable Purchase Obligations (RPOs) on their respective distribution companies (discoms) to force them to buy electricity from green sources or to buy Renewable Energy Certificates (RECs) to substitute the same[7]. States like Telangana and Karnataka have brought forth lucrative incentives to stimulate the adoption of rooftop solar panels

In addition to meeting its internal demands, India is spearheading global alliances to solve global energy needs. The International Solar Alliance (ISA) [8], the Clean Energy Ministerial (CEM) & the Mission innovation are a few of the global alliances, where India has helped guide the global community by fostering international cooperation for a technology-driven transition to a global clean energy economy.

Business Implications

India is making inroads into sustainable energy resources slowly with growing nuclear power plants and acceptance of atomic energy. Significant progress has been made in solar and wind energy sources as well. In fact, the government is mulling to make it mandatory for industries to use a minimum amount of green energy as a percentage of their total energy usage in order to fight climate change. This will mark a good shift from the dependence on fossil fuels and enable the creation of demand for renewable energy in the country. Parallelly, the supply in the carbon market will thus be maintained at robust levels.

Indian pharma companies like Dr Reddy’s have saved ₹19.6 crores in FY20 owing to the implementation and operationalization of 182 key sustainable energy projects at their manufacturing sites. In FY20, the company generated 127.15 TJ of energy using biomass thereby eliminating ~13 kT of CO2e[9][10]. DRL wrt to the 7th goal had set up a target of 25% renewable energy in the total energy utilization by 2020. By 2020, they managed to have achieved only 8.8%. Also, they only managed to reduce the specific energy consumption by 31%, which measures the energy used per unit of product produced against 40%. DRL attributes this to the installation of a new coal-powered electric power plant to provide power to its manufacturing facilities, among others. It makes sense as coal is not that energy-dense while being a non-renewable source of energy [28][29]. Now, they are aiming for 50% renewable energy till 2025, but from the reports, they seem to focus more on waste management more, given the toxic nature of pharmaceutical effluents and waste.

Bulge bracket investment banks like Goldman Sachs have remained invested in companies working in the areas of sustainable and clean energy like Renew Power since 2011. The bank has also established a Renewable Power Group (RPG) within Goldman Sachs Asset Management. GSAM manages funds viz. the Clean Energy Income Fund, and it believes that this sector has a lot of potential exposure to key assets and securities, given the potential secular growth and demand in the clean energy sources. The global political environment also seems to be favouring the approach of the firm. On Dec 14, GSAM announced the acquisition of a 70 MW Solar Project in Maine from Dynamic Energy[11].

On similar lines, we also have consulting firms like the BCG, which recognizes the fast-paced growth of renewable energy. The firm is analysing ways to understand the probable business models, revenue sources and cost heads for its energy clients for the future. Latest technological developments in the clean energy space are also being closely watched and contingency plans are also being worked upon to deal with any regulatory changes that may come about[12].

2-3-wheeler Auto OEM, Bajaj Auto, is another player committed to the purpose of clean and green energy in the country. It had first invested c. ₹300cr over 3 years in wind power in 2000. The company saw this as a good opportunity to offset risks of rising energy costs and as well contribute responsibly to the environment. The case being specific to Maharashtra, the company saw c.90% of Maharashtra plant power requirements being met through wind energy. In order to make its vehicles more fuel-efficient and control emissions, the company is also coming with alternate energy models for the existing fleet of vehicles. This has made a good market for alternate fuels like electricity in the country. Bajaj Auto has also set up a new subsidiary for EV manufacturing in the country[13][15].

Biotechnology companies like Novozymes are also actively promoting renewable energy sources. The biomass-based solutions developed by the company ensure low CO2 emissions during transportation. It is also a member of the UN Sustainable Energy for All (SE4All) initiative. Below40, a partnership project with the World Business Council for Sustainable Development, was launched with the aim of making clean, low carbon transportation fuels. In order to further its commitment towards biofuels, Novozymes launched Fortiva in 2019, an alpha-amylase product that enhances the digestion of carbohydrates in the month, resulting in 1% higher ethanol yields for sustainable biofuels[14].

Analysis and Suggested Path

Fig: SDG: https://in.one.un.org/page/sustainable-development-goals/sdg-7/

In the past decade, there has been a significant push from every stakeholder in the world including governments (developing and developed) and various global corporations towards a greener and renewable energy. Despite the pandemic, the growth of renewable energy capacity is around 45% year-on-year. There has been a 90% increase in the wind energy capacity in the world[15]. Despite the pandemic and shrugging automobile sales, the sales of Tesla EV’s remained high in the US[16].
In India, the government in the past few years heavily pushed for renewable energy. India’s renewable energy capacity has increased by a factor of nearly 2.5 in the past decade[17]. Also, the government has provided a FAME-2 subsidy as well for EV’s.

Despite the rapid increase in the promotion and production of renewable energy, nearly 760 million people in the world do not have access to proper electricity. This is a very serious issue. Nearly more than 1/10th of the world doesn’t have electricity. 40% of the world (3 billion people) don’t have access to clean fuel for cooking which leads to a lot of health issues in people using unhealthy fuels[18]. Also, there have been technological barriers and technology transfer issues as well. The richer, developed countries own the patents to these technological advances and are unwilling to share them without a price. An example of this would be the case in 2018 between SolarEdge and Huawei[19]. The rise in these kinds of conflicts throws a spanner into the work towards the larger goal - “Affordable and clean energy accessible to all”.

So our focus in the future should be on three primary issues:

1. Focus on the “accessibility” of energy to the entire population of the world

With respect to accessibility, we have made serious progress by ensuring that nearly a billion people have access to electricity in the span of the last 10 years[18]. This is a step in the right direction. We should not stop here. Solar and wind energy have been cheaper than ever. We must focus on bringing this technology to every nook and corner of our world so that everyone in the world has access to clean and sustainable sources of energy. Since Africa is one of the continents which have the most countries with no or limited access to energy[20], solar will be a very useful tool as the African continent is called the “Sun Continent” of the world. As an example of the impact it can have, the world’s largest solar power plant in Morocco will provide 1.1 million people with electricity[21].

Fig: The Moroccan solar plant. Photo: World Bank/Dana Smillie

2. Technology and Patent sharing

Technology has been one of the key factors in the spread of renewable energy. Technology helped the development of the solar cell and the wind farm which helped us tremendously in our pursuit of clean energy.
But, nowadays this is one of the crucial issues deterring the growth of renewable energy. As illustrated with an example previously, there has been an increased refusal by the developed countries in sharing patents and technologies in general with the developing world which is proving detrimental to the renewable energy push. This highlights the hypocrisy of the developed world in its push towards renewables.
So, there has to be more technology sharing with the developing world to be able to reach our goals successfully within the target time.

3. Financing of the renewables in the developing and the African continent

Money is one of the most important resources required in the push towards clean and affordable energy. Money helps the developing countries develop/acquire renewable energy technologies which help significantly in the progress towards the common goal.
Developing economies account for 2/3rd of the world population but receive only 1/5th of the investment in clean energy[23]. Also, annual investment in the energy sector in the emerging world is falling by 20% annually and there has been an 8% decrease in clean energy investment due to a variety of issues including the pandemic[24].
But according to IEA, the investment has to be around 1 trillion USD by 2030 for us to meet the net-zero emissions target by 2050. This reduction in investment and reduced focus on the developing world will lead us astray on both the clean energy goals and the accessibility goal as well.
So the investment in clean energy on the whole and particularly in the developing world has to rise for us to achieve our goal.

Fig: A sample of countries with least electricity access Source: Statista

Now that we have covered the accessibility part, we need to devise ways that would incentivize industries to opt for the sustainable method for the production of goods. One way is through government regulations and the other via monetary gains. One such method that encompasses both ways is:

Carbon Credits: India has taken numerous steps to switch to renewable energy and reduce carbon emissions which have helped it gain carbon credits or Certified Emission Reduction (CERs) over the years. Though these carbon credits are traded at the Multi Commodity Exchange (MCX) it still has a surplus of sellers and a deficit of buyers. The issue lies primarily with the inability of European buyers to procure these credits from Indian sellers due to the prevailing laws and regulations in place. India’s main agenda for the COP25 conference that happened in 2019 Madrid, Spain was to gain the rights to sell its surplus but the decision on it was inconclusive. Hence India should champion the cause of carbon trading in the upcoming conferences as these rights would directly translate to incentives for people to switch to sustainable energy and in the process earn more credits. Apart from attaining Affordable and Clean Energy (SDG 7), an effective carbon market will also help India move forward on the below mentioned SDGs:

Responsible Consumption and Production (SDG 12)
Good Health and Wellbeing (SDG 3)
Industry Innovation and Infrastructure (SDG 9)
Climate Action (SDG 13)

Public-Private Partnerships: Steps should be taken to form alliances with private players to promote setting up infrastructure for renewable energy production by providing the necessary financial resources.

Viability Gap Funding: Recently the Cabinet Committee on Economic Affairs sanctioned the Viability Gap Funding (VGF) Scheme with a total pool of Rs. 8100 Crs over the next 5 fiscal years [27]. VGF is a grant that aids infrastructure projects that are economically feasible but not financially. This can be extended to provide support to the offshore wind energy projects for which the Ministry of New and Renewable Energy (MNRE) has charted out expansive plans.

Consolidating Green Term Ahead Markets (GTAM): In India, approximately 10% of electricity generated is traded in the short-term purchase market. The power market is witnessing a shift towards short-term markets from the existing long term purchase agreements. These energy exchanges are diversifying their portfolio by adding RE contracts. In this regard, GTAM was launched in 2020 that enables sellers of RE to sell their produced power in the open market without the hassle of entering into long term contracts. Currently, there are two types of GTAM- Solar & Non-solar. This market will help the buyers by offering them competitive pricing and easy availability throughout and on the other hand help sellers to access markets across India[26].