Has COP28 Provided the Right Direction?

PREAMBLE:

It has been quite some time, in fact, almost 2-3 decades that the world leaders have been contemplating on climate change for a solution.  While the periodic strategies looked good, the uncontrolled nature presented a few challenges rendering the strategies for revision.  Glaring examples of recent wars – Ukraine and Israel have induced greater challenges in combating climate change.  In addition, technological developments have enhanced the demand for energy pressurizing power sector to gear up to this challenge.  Uncontrollable natural developments and increasing power demand seem to have challenged human intelligence in tackling climate change.  It is thus time and an opportunity for creating a more modern enterprise evolved to address the new geopolitical context.

 

COP 28 AND ITS OUTCOME:

Those who met at the COP28 admitted the growing evidence that the world has been transitioning to meet the 1.50C target agreed upon in Paris.  This single target had hidden agenda of net-zero transition embeds four hidden objectives in emission reduction, affordability, reliability and industrial competitiveness.

While acknowledging the progress on decarbonization, they felt that more ambition is desired in converting the pledges to limiting warming to 1.50C at an IEA estimate of 22 Gt reductions.  The concluding note under “UAE Consensus” emphasized accelerated action to achieve net zero by 2050.  The good difference of COP28 seems to be in the mechanism of implementation rather than mere agreement.   Methane pledge of COP26 to reduce methane by 2030 had significant momentum to translate this pledge into action and company-level commitments.  Another feature of the meet has been on Loss and Damage Fund set apart for direct funding toward countries vulnerable to extreme weather (droughts, flooding and sea rising).  Energy transition it was felt, that more efforts are needed to ensure considered socioeconomic effects of different pathways.

 

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POWER SECTOR REFORMS:

Realizing the importance of electricity in economic development, the sector has implemented periodic reforms to improve their performance.  However, the pattern would understandably vary across the globe depending upon several factors.  While privatization and liberalization continue to slow up the progress compared to independent power producers and electricity regulators establishment.  Power sector reforms are indeed measures that dismantle vertically integrated monopoly in generation, transmission and distribution.  This was realized in the early 1980s when state owned institutions in developing countries faced financial constraints resulting in poor technical performance.  Power sector reforms that emerged from then on can be grouped into “Hybrid Reforms” (key segments of the sector remain under public ownership but are managed as state-owned enterprises).  This resulted in independent power producers (IPPs), independent regulatory agency and even unbundling generation, transmission and distribution.  This seems to be restricted to poor, authoritarian and low capacity countries.  The second set of reforms are “Textbook Reforms” as proposed by the World Bank which includes privatization of electric utility assets, creation of wholesale market and allowing customers to choose their supplier.  This has been adopted by wealthy democracies with high level of institutional capacity

When we look at the developments in India where it started with Electricity Supply Act 1948 which established State Electricity Boards (SEBs) followed by Central Electricity Authority (CEA) to administer the former at the national level.  Facing energy crisis in 1970s, the government searching for renewable alternatives in 1981 established Commission for Additional Energy Sources (CASE) – wind energy as cheaper alternative to diesel pump sets.

In 1964, Southern, Northern, North-Eastern, Western and Eastern regional grids were identified to facilitate smooth planning.  However, in the absence of not meeting the demands as envisaged, National Thermal Power Corporation (NTPC), National Hydro-electric Power Corporation (NHPC) and National Power Corporation (NPC) as central organizations were set up in 1976.  With the credibility of State Electricity Boards dipping, the government opened up scope for private participation in 1991.  The Electricity Regulatory Commission Act (ERC Act) was set up in 1998 in view of the increased responsibility of SEBs – Central Electricity Regulatory Commission (CERC) and State Electricity Regulatory Commission (SERC) were extensions.

Despite these developments, the power sector had inherent maladies that drew attention in setting up of Electricity Act of 2003 to address – Promote completion in the market; transparency in the subsidy programs, mandatory metering in all houses and protection of consumer rights were a few of them.  This Act underwent amendments between 2004 & 2014 with 2005 centering specifically on energy protection, offenses relating to power stealing, energy poles, meter manipulation.  The reformation did extend even to the distribution sector as well encompassing Accelerated Power Development Programme (APDP); Transformation and privatization under Electricity Act 2003; Integrated Power Development Scheme (IPDS) and Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY).

The most important revolution of the Indian Power Sector was implementation of “Availability Based Tariff (ABT)”.  The culmination was seen with Intelligent Electronic Devises in Smart grid, Electrical Storage System, Smart meters and block chain.  Electrical Storage System comprised of Mechanical Energy Storage; Electro-chemical Storage, Electrical Energy Storage and Thermal Energy Storage.

This Indian journey need not be identical to any other country as this has a variety of environments to cater to.

 

PROGRESS TOWARDS NET ZERO: 

With the kind of background mentioned above, Indian initiative swiftly aligning towards net zero emissions has advanced its position as the fourth largest player in renewable energy capacity.  While on this target, the green building sector – with an estimated 70% are yet to be built - too has contributed to substantial progress though the transformative influence still demands untapped potential.

Awareness on greater benefits of green practices is still not clear due to the absence of standardized norms leading to regulatory complexities and financial constraints. Absence of mandatory codes coupled with lack of expertise on life cycle costing and energy efficient techniques compound the problem.  Several of the key inputs like, architecture, engineering, building management and energy audit do not have the expertise in addition to insufficient knowledge programs to train youngsters.  Awareness campaign to educate professionals and citizens and consequent benefits towards robust financial incentive is another dimension that deserves serious attention.

Given the development needs, India’s energy ambition is propelling to renewable adoption with a set target of 500 gigawatts capacity and an annual green hydrogen production of 5 million tons.   This is estimated to cut a billion tons of carbon dioxide by 2030.

 

STRATEGY TOWARDS NET ZERO:

Starting with target setting as the first step, clear definition of emission reduction strategy followed by real-time monitoring are further follow up steps.  It does not end here but need to reduce or even offset the emissions if one desires to fulfill the net-zero targets.  The task is not simple as it would be time-consuming and even prone to errors which however should not discourage the objective of net-zero.

De-carbonization comprises emission measuring and reporting, abatement and offsetting.  The first one involves data collection on carbon dioxide, emission type and geography.  This is then to be compared with international standards – GHG Protocol or ISO 14064-1.  Data collection is quite a laborious process followed by review across businesses and validation with assumptions of emissions.  Reduction measures centers around categorization, ideal processes that emit high volumes and abatement strategies.  Since this involves multiple variables, the process can be uncertain and even complex sometimes.  Organizational challenges stem from lack of transparency on marginal cost-benefit of abatement program and resources for execution.  Net zero emissions target vary among several groups – 27% accounted by countries with no net zero target followed by 12% in US, 25% China, 7% European Union and 29% for other countries with similar net zero announcements.

Reforestation projects, carbon-capture and renewable energy fall under carbon offsetting category though they present challenges in accurate measurement to transparency and verification.

Artificial intelligence of things (AioT) seems integral to addressing challenges associated with carbon management – a. Integration into measurement and reporting b. Predictive analytics to simulate emissions over time and c. Carbon offsetting and offset integration.

 

INDIA’S ENERGY TRANSITION:

India has a great opportunity during this decade in not only achieving the targets but also identify key challenges during this transition.  The guiding factor to policy makers is India’s national and global commitments in the energy sector.  Being a diverse country, one has to address specific challenges for each state depending upon the current governance style.

India’s commitments under Nationally Determined Contributions (NDCs) – 40% of electric power installation capacity will be through non-fossil fuel based; reduce the emission intensity of Gross Domestic Product (GDP) by 33-35% and finally, create an additional sink of 2.5-3.0 billion ton of carbon dioxide equivalent.  Matching with this is the market trends governed by growth and investments in Renewable; new technologies and efficiency; instability in fossil fuel supply & price; support from government to Renewable and investment as well as power generation by new / different entities.  Over the last few years, Utilities, RE producers and consumers have enabled dynamic changes in RE capacity.  While Karnataka, Rajasthan, Tamil Nadu, Gujarat, Andhra Pradesh and Madhya Pradesh have a considerable solar share, Gujarat, Tamil Nadu and Maharastra have done so in wind energy.

When we look at the target of 175 GW of RE by 2022, estimates indicate that this fell short by 42% with just 104 GW addition.  This further estimates an investment of about $330 billion if the target of 175 is to be achieved.  A few steps to promote RE capacity, Renewable Purchase Obligation was introduced and Karnataka perhaps happens to be the only state which has been asked to curtail further solar procurements.  While the demand for RE is not uniform across various states in India, it has become inevitable for them to scale up if the target of 40% electricity capacity from non-fossil fuels by 2030.

Another issue of significance is financing RE sector which has a bearing on DISCOMs as they are facing cash flow issues.  Public sector banks seem hesitant to loan RE projects and not many private sector banks are inclined.  Additionally, even the central owned financial institutions such as Indian Renewable Energy Development Agency Limited (IREDA) or Power Finance Corporation are unable to support coupled with accessing foreign funds.

Unilateral change of the terms of contract has led to an adverse impact on investor confidence as well as additional costs which were not envisaged earlier.  As legal remedies demand time, business must proceed in uncertain circumstances hindering future planning.

While energy goals are defined at the National level, energy transition need to be effected in different states – some states face greater capacity challenges than others.  Technical challenges are not far behind as integration of renewables to the grid (consumer behavior, ownership patterns and institutional arrangements) poses another problem.  Regulators and policy makers need to work out a balance between stability and flexibility of declining costs of renewables and better performance of new technologies. 

In view of the above account, India needs to gear up to the challenges (Technical, Financial, governance of the sector)  in order to fulfill the national target.

 

INDIA AND COP28 AGREEMENT

While COP 28 in Dubai debated an agreement to transition away from fossil fuels, India seems to be facing another energy challenge in roughly doubling coal production - 1.5 billion tons by 2030 and the plan is to add 88 GW of thermal power plants by 3032, mainly coal.  However, reliable sources express coal use topping out at 1.1 billion tons before 2040.

India contrarily has failed to build enough to meet the ambitious goal of 500 GW of clean energy by 2030 – solar and wind rates are just a third of what is needed.  There are many factors starting with misaligned incentives of state-owned retailers, difficulty of land acquisition and lack of consistent policies both at state and federal levels.  Despite the increase of demand for power, there seems to be no motivation among private investors to speed up renewable investments.

Coal is no different as it faces similar challenges and comparatively consumes longer time and higher costs unlike solar and wind.  India, similar to other developing countries needs more incentives towards green path.  Although Group of Seven nations have designed Energy Transition Partnership to help South Africa, Vietnam and Indonesia to lessen coal use, seem messy and yet to show results. This underlines the absence of effective ways to help countries like India to replace coal although world may have agreed to transition away from fossil fuels.  It is just not the investments by rich countries but better policies, technology transfer and more importantly skills training which deserve serious attention.

 

CONCLUSION: