Beyond WEF 2022: A blueprint for India’s energy transition

The annual World Economic Forum (WEF) 2022 meeting with the theme of History at a Turning Point: Government Policies and Business Strategies, kicked off this Monday against the backdrop of the pandemic, the war in Ukraine and the global challenges. Cutting across the overarching theme of the meeting are eight thematic pillars. One important one is “Safeguarding Climate, and Nature” which will discuss the energy transition and the building up of a green economy. Clearly, by now, climate change is globally recognized as one of the most daunting challenges of the 21st century.

India’s role in this global energy transition is critical for two contrasting reasons. While the country is the third largest contributor to Green House Gas (GHG) emissions globally, we also have the fourth largest base of renewable power capacity in the world (152 GW in 2021) and is the only G20 nation on track to meet the 2◦C Paris commitment. India has performed strongly across key areas in the past decade and has set steep targets for 2030, with a broader goal of net-zero by 2070. 

Energy transition in India: Enablers and opportunities

Energy transition in India has been enabled by different factors. First is the enabling fiscal and regulatory policy initiatives like the Production Linked Incentive (PLI) scheme for scaling up domestic manufacturing of high efficiency solar photovoltaic (PV) modules and other policy reforms like the delicensing of public charging infrastructure and infrastructure status for grid scale Energy Storage Systems (ESS). Second, with the advent of disruptive technology and innovation across demand and supply sides, there is growing investor interest. For example, estimates suggest that there has been a five-time increase in investments between 2016 and 2019 when over 120 start-ups have been funded. Finally, there is expected to be an unprecedented capital mobilisation by both the incumbents and insurgents. 

While it is estimated that over $ 60 billion has been invested in the clean energy sector over the last 6 years, it is expected to shoot up to $ 80 billion in just three years between 2022–2025. India, as one of the world’s largest and fastest growing economies, has historically engaged in collaborative efforts to combat climate change. Over the years, the country has adopted and ratified several global agreements in this regard. The latest commitments made by Prime Minister Narendra Modi at CoP 26 are a reaffirmation of India’s commitment to global emission reduction targets. 

The nascency of the sector also ensures that the future market potential is humungous. These opportunities are there in the generation of solar, wind, small hydro and biomass; battery energy storage capacities; electric vehicle penetration (~2% for 2 and 3-wheelers; <0.5% for commercial vehicles and private cars); setting up of public electric vehicle charging stations (1700+ public EV charging stations currently; ~3 million needed by 2030); green hydrogen production which is negligible now; and steep reduction of carbon emissions by 2030.  The sheer scale that the India market offers also will enable a step change in economics across many categories.

Looking ahead

Clearly, for Indian entrepreneurs, multinationals and capital providers, there is a large investment opportunity over the next decade in India’s energy transition with new profit pools. However, new business models like Round-The-Clock, platforms and integrated full-stack net-zero solutions need to be created to tap these new profit pools. 

Future winners need to incorporate six elements into their operating model. They need to take a portfolio approach with multiple bets across the value chain to extract maximum value and de-risk.

In a hyper-competitive landscape companies need to stay ahead on the technology curve through key differentiators. Given the upcoming ‘War for Talent’, differentiated models are critical to attract and retain the best talent. Partnerships and mergers and acquisitions (M&As) will be a way of life driven by the need to grow, cover risk, invest in innovation and gain access. The emerging trend of setting up and running corporate venture capital funds is one such step in this direction. While the overall regulatory framework is favourable, being an emerging sector, policies are still evolving with the need for strong advocacy. Finally, while money is available for investment, however, the choice of right partners with shared beliefs and goals is critical. 

With all the above, the need for transition to a cleaner and sustainable future is only compelling.

Gopal Sarma is a Partner at Bain & Company’s New Delhi office. He participated in the World Economic Forum's Annual Meeting 2022.