Climate action: clean energy needs an activated carbon market

The oversupply of climate-friendly electricity generators suggests that deals will be struck at lower valuations than sellers would like, with marketability likely to depend on project viability, market conditions and risk-return profile.

Meanwhile, project tenders announced in 2023-24 indicate that investor interest in greenfield clean gigawatts was 69 gigawatts (GW) of capacity, well above the 50 GW per year needed for India to meet its 2030 target of 500 GW from renewables. renewable. Some companies set up and sell generators to reinvest in new ones. However, if secondary demand for these assets does not increase, we risk the financial equivalent of a power outage.

Despite all the hype surrounding action in our energy sector, overall the picture is bleak. The website of the Ministry of Energy states that India has 418 GW of installed capacity. About 237 GW is located in thermal power plants burning fossil fuels (mainly coal) to generate steam and drive turbines, almost 47 GW comes from water mills on dams, and almost 110 GW of the total is accounted for by windmills and solar panels.

However, as seen in recent years, the Center is starting to dawdle on coal supplies to prevent power outages as soon as peak demand reaches our thermal capacity levels. Last summer, demand peaked at an estimated 221 GW. This year it may exceed 240 GW. Coal wagons making extra trips have an air of seasonal routine. Despite the major political push for carbon-free energy and the associated increase in renewable capacity, the power we use today remains essentially the same.

Our decarbonized facilities are either not connected to the grid or are unable to fill supply gaps to meet overall demand for other reasons. What distinguishes supply and demand in this key infrastructure sector requires ongoing research, but state-owned distributors that do not charge users enough to profitably pay energy suppliers are part of the statist legacy.

Attempts at reform have so far failed to strengthen price signals, energy benefits continue to function as political freebies, and we are stuck with a creaking grid that can barely pay for itself, let alone respond to online cries for electricity without a flicker of a switch. Because users need a reliable supply, solar and wind sources have a particular disadvantage.

The sun and the wind do not shine and do not blow at anyone’s command. Therefore, apart from being used for own use, the energy they produce must be stored for its supply to be effective. Storage is very expensive, and while batteries may become cheaper, renewable generators cannot beat carbon-intensive power plants in terms of affordability.

As an emerging economy with growing low-level demand, India has no plans to abandon coal-fired power yet. Relative costs explain why. This is why private players need the temptation to support subsidies – and state purchase orders, etc. – to invest in clean energy. It is clear that to achieve climate goals, the state has no choice but to play a big role.

While grants could be increased to finance clean-up, the Center may also need to play a lead role (as a direct investor). But for market forces to help, we will need a parallel carbon market that encourages a general transition away from emissions. Carbon pricing could close the cost gap, attract private money for clean energy, and give our climate plan the boost it needs.