Russia’s invasion of Ukraine has created a big pressure on the global power production industry as it was the world’s largest exporter of fossil fuels. According to International Energy Agency’s (IEA’s) World Energy Outlook 2022, “Prices for spot purchases of natural gas have reached levels never seen before, regularly exceeding the equivalent of USD 250 for a barrel of oil. Coal prices have also hit record levels, while oil rose well above USD 100 per barrel in mid‐2022 before falling back. High gas and coal prices account for 90% of the upward pressure on electricity costs around the world. To offset shortfalls in Russian gas supply, Europe is set to import an extra 50 billion cubic metres (bcm) of Liquefied Natural Gas (LNG) in 2022 compared with the previous year. This has been eased by lower demand from China, where gas use was held back by lockdowns and subdued economic growth, but higher European LNG demand has diverted gas away from other importers in Asia.”
Severity of the crisis and actions thereon
Sudden interruption in the fuel supply chain, has not only caused pressure on the global power generation but also as its result, the world is moving towards a severe economic crisis. IEA observes, “The crisis has stoked inflationary pressures and created a looming risk of recession, as well as a huge USD 2 trillion windfall for fossil fuel producers above their 2021 net income. Higher energy prices are also increasing food insecurity in many developing economies, with the heaviest burden falling on poorer households where a larger share of income is spent on energy and food. Some 75 million people who recently gained access to electricity are likely to lose the ability to pay for it, meaning that for the first time since we started tracking it, the total number of people worldwide without electricity access has started to rise. And almost 100 million people may be pushed back into reliance on firewood for cooking instead of cleaner, healthier solutions.
Faced with energy shortfalls and high prices, governments have so far committed well over USD 500 billion, mainly in advanced economies, to shield consumers from the immediate impacts. They have rushed to try and secure alternative fuel supplies and ensure adequate gas storage. Other short‐term actions have included increasing oil‐ and coal‐fired electricity generation, extending the lifetimes of some nuclear power plants, and accelerating the flow of new renewables’ projects. Demand‐side measures have generally received less attention, but greater efficiency is an essential part of the short‐ and longer‐term response.”
Obvious effects of the crisis
Apart from the irreversible impacts on the environment that has caused damage to both human health and local ecosystems, the Russia-Ukraine war has of late been a major cause behind the rise in pollution due to power generation. However, every unavoidable crisis opens up a new development scenario, and at this moment, beside short‐ term measures, many a government is inclined to taking longer‐term steps. A few of them are increasing or diversifying oil and gas supply others are stressing on bringing in structural change.
As IEA observes, “New policies in major energy markets help propel annual clean energy investment to more than USD 2 trillion by 2030 in the STEPS (Stated Policies Scenario), a rise of more than 50% from today. Clean energy becomes a huge opportunity for growth and jobs, and a major arena for international economic competition. By 2030, thanks in large part to the US Inflation Reduction Act, annual solar and wind capacity additions in the United States grow two‐and‐a‐half‐times over today’s levels, while electric car sales are seven times larger. New targets continue to spur the massive build‐out of clean energy in China, meaning that its coal and oil consumption both peak before the end of this decade. Faster deployment of renewables and efficiency improvements in the European Union bring down EU natural gas and oil demand by 20% this decade, and coal demand by 50%, a push given additional urgency by the need to find new sources of economic and industrial advantage beyond Russian gas. Japan’s Green Transformation (GX) programme provides a major funding boost for technologies including nuclear, low‐emissions hydrogen and ammonia, while Korea is also looking to increase the share of nuclear and renewables in its energy mix. India makes further progress towards its domestic renewable capacity target of 500 gigawatts (GW) in 2030, and renewables meet nearly two‐thirds of the country’s rapidly rising demand for electricity.”
Expected global investment in renewables
Although for several reasons, 2022 has witnessed large falls in asset values across global financial markets, clean energy infrastructure has emerged as an attractive destination for investors, with record-high inflows. In the first six months of 2022, global total of investment on renewable energy became USD 226 billion.
Commenting on the present investment scenario in renewable energy, Giannis Komitas, COO of National Energy Holdings, a global green infrastructure investment platform with more than 3 gigawatts of capacity projects in development, said, “Funding has never been as abundant. Everybody wants to go into renewables, and it’s not just the folks that you’ve been traditionally expecting to see there. Decarbonisation being a broad agenda…more players want to get a piece of the pie.”
As suddenly appeared war situation has jolted the entire global power equilibrium, not only governments and companies but also other investors are now facing a complex situation to decide which energy projects they should extend their support to – as all of them are not necessarily aligned to the long-term sustainable goals.
However, IEA’s updated tracking, across all sectors, technologies and regions, suggests that world energy investment is set to rise over 8% in 2022 to reach a total of USD 2.4 trillion, well above pre-covid levels. Investment is increasing in all parts of the energy sector, but the main boost in recent years has come from the power sector – mainly in renewables and grids – and from increased spending on end-use efficiency. Investment in oil, gas, coal and low-carbon fuel supply is the only area that, in aggregate, remains below the levels seen prior to the pandemic in 2019. This is despite sky-high fuel prices that are generating an unprecedented windfall for suppliers: net income for the world’s oil and gas producers is set to double in 2022 to an unprecedented USD 4 trillion.
Naturally, the question arises how the scenario is in the field of renewable energy development. The following statement from IEA presents an evident indication. Almost half of the additional USD 200 billion in capital investment in 2022 is likely to be eaten up by higher costs, rather than bringing additional energy supply capacity or savings. Costs are rising due to multiple supply chain pressures, tight markets for specialised labour and services, and the effect of higher energy prices on essential construction materials like steel and cement. These cost pressures are most visible in fuel supply, but are affecting clean energy technologies as well: after years of declines, the costs of solar panels and wind turbines are up by between 10 to 20% since 2020. Concerns about cost inflation are a brake on the willingness of companies to increase spending, despite the strong price signals.
India’s renewable journey
Although India gave boost to its renewable energy development target long back, in this globalised state of economy, our country cannot stay away for long from the global trend. According to IEA, high prices are encouraging some countries to step up fossil fuel investment, as they seek to secure and diversify their sources of supply. However, the lasting solutions to today’s crisis lie in speeding up clean energy transitions via greater investment in efficiency, clean electricity and a range of clean fuels.
India is contributing only 3.5% to the global emission despite having about 17% of world population, still India is leading the clean energy transition globally – and has the fastest growth of renewable energy capacity addition. Ministry of Power has taken a number of initiatives in this regard and many more are in advanced stages.
According to India’s submitted Nationally Determined Contribution (NDC), our country is supposed to generate 50% of electric power from non-fossil fuel-based energy resources by 2030. At present, India has around 171 GW of renewable energy and another around 80 GW is under construction. Now, Green Energy Open Access is allowed to any consumer with load limit reduced from 1,000 kW to 100 kW, it will definitely increase the weightage of Green Power. Once again, our government is targeting to achieve 500 GW by the year 2030. Hope the target is achieved!
By P. K. Chatterjee (PK)