The Inflection Point in the Energy Story

The industrial revolution of mid-Eighteenth century was a result of an energy revolution. A revolution that was made possible on account of advent of steam engines that were powered by coal. And there was no looking back thereafter. Of course over a period of time, coal got supplemented by other forms of fossil fuels such as oil and gas, and nuclear. The story would have continued along the predictable lines but for an unforeseen global event: the first oil crisis or 'oil shock' of early seventies, resulting in untamed inflation all around. This oil shock spurred countries to sit and take notice of the fact that fossil fuels are not inexhaustible and their supply was prone to disruptions borne out of geopolitics. The research on alternatives to fossil fuels that are not are not finite but easily replenishable then began in many countries in right earnest, India being one of them. While as such humankind did used to harness renewable energy sources like solar, wind, and water right from ancient times, now the aim was to use these resources to provide modern energy services through exploiting latest knowledge and science. Our energy story reached a defining moment, a turn, which would have indelible impact on the way energy is generated and used. In short, quest for security of energy supply provided an impetus to renewable energy. And in energy deficient countries like ours, renewables were also seen as solution to universal access to clean, modern energy and rural development per se.

In early nineties, the First Assessment Report the Intergovernmental Panel on Climate Change (IPCC) helped develop understanding of close linkages between energy and climate change. As per the Fifth Assessment Report (AR5) of IPCC "Total anthropogenic GHG emissions have continued to increase over 1970 to 2010….annual GHG emissions grew on average by 2.2% per year from 2000 to 2010 compared to 1.3% per year from 1970 to 2000". It further states that "CO2 emissions from fossil fuel combustion and industrial processes contributed about 78% of the total GHG emission increase". Given that the production and use of energy account for two third of global greenhouse gas emissions, the role of energy – its production as well as utilization- becomes central to any climate change mitigation strategy. One major way of climate change mitigation is essentially through reducing GHG emissions by way of reducing the reliance on their sources i.e. burning of fossil fuels like coal and oil for electricity generation, heating and cooling, and for transportation. In this context, energy conservation and renewable energy on the demand and supply sides respectively become two pillars of climate change mitigation plan of any nation.

That is how demand and supply side measures viz. energy conservation and renewable energy entered in to this energy story. Today, if one goes by the Intended Nationally Determined Contributions (INDCs) submitted by countries in the Conference of Parties (COP) kept 21 at Paris, a clear picture emerges: 80% of these countries have put clean energy as priority in their plans, through energy systems decarbonisation. Coupled with this is the fact that many developing countries, including India, view renewable energy at the foundation of their energy security and energy access strategies. Whatever be the perspective, in last few years, renewable energy has changed the complexion of the global energy mix significantly.

Last three years saw a global investment of USD 832 billion in renewable energy. The renewable energy capacity addition stands at 138.5 GW in 2016, equivalent to 55% of the total generating capacity added globally. In India, the 'new' renewabls (excluding large hydro) based electricity generation capacity touched 58 GW, about 18% of the total installed capacity. And for the fifth time consecutively, investments in 'new' renewables were double globally than those in fossil fuel generation in 2016. But it is the sharply declining costs of renewables and the falling tariffs that are responsible for this fast changing scene. India itself witnessed solar and wind power tariffs sliding down to Rs.2.44/kWh and Rs.2.64/kWh respectively. Agreed, that wind and solar are intermittent sources, hence would require storage to compete with the fossil fuel based electricity – or firm power - in a real sense. But as reported by Bloomberg New Energy Finance reports, lithium-ion battery prices have fallen by almost half since 2014. And it is expected that the electrical storage will continue to follow this trajectory riding on innovations and economies of scale, mainly on account of proliferation of electric vehicles. In that scenario, it is not far-fetched that 'firm' renewable electricity gets competitive with conventional power in all respects in a decade's time. TERI's report, 'Transitions in the Indian Energy Sector - Macro Level Analysis of Demand and Supply Side Options' estimates that by 2026-27, new power generation capacity could very well be all renewables if cost of solar or wind plus storage reaches competitive levels. Already the rapid influx of renewables in the energy systems, especially distributed systems like solar rooftop, is making existing business models outdated, forcing utilities and countries to look beyond business-as-usual where renewables so far played a peripheral role.

Perhaps time has come to start thinking of a new energy order in not too distant a future, with renewable energy as its backbone. This also provides an opportunity for a country like ours where a large portion of energy infrastructure is yet to be built. Thus, rather than locking us up in soon-to-be-redundant setup, renewables based energy system can help it leapfrog. TERI is working on renewable energy technologies, grid integration aspects, as well as demand side management to help country start a new chapter in its energy story. It is becoming clear that tomorrow's energy markets would not be same as they are today. The latest 'World Energy Focus' reports that the combination of renewables and digitalisation would accelerate the decline of traditional models with customers buying energy services rather than energy. And we have already reached that inflection point!