In today's Finshots we talk about renewable purchase obligations, India's clean energy initiatives and how we might soon see new investments in Green Hydrogen as well


The Story

The Paris Climate Agreement was a watershed moment for all of earth’s inhabitants. It marked a turning point in the fight against climate change. It was the culmination of years of negotiations during which 196 countries pledged to up the ante against climate change, greenhouse emissions, global warming, and all that bad stuff. The goal of the agreement was simple. All countries big and small had to meet certain targets. They had to curb greenhouse gas emissions, pollute less, and do their best in adopting green energy before the whole problem became irreversible. Overall, the plan was to limit the rise in global temperature to 2 degrees, or possibly even 1.5 degrees Celsius, compared to pre-industrial levels.

So, the world made a few promises, deadlines were set and everybody got to work, including India. But let’s not mince words here. Our targets were pretty stiff. First, we pledged to reduce the emissions intensity by 33%-35% before 2030. Now if you don’t know what that is — It’s the volume of emission per unit of GDP. Sort of like the amount of pollutants India pumps out in a bid to foster growth. We all know economic progress hinges on producing new energy. But if you’re constantly doing it by burning dirty fuel, then you’re likely going to have a higher emission intensity.

India for its part though has already reduced the emission intensity of its GDP by about 21 % compared to the levels from 2005 (which is our benchmark). However that being said, we still have a fair bit of work to do. Next, we vowed to source around 40% of the nation’s electric power from non-fossil fuel-based energy resources before 2030. And finally, we promised the world we’d create a new carbon sink that would extract about 2.5 to 3 billion tonnes of carbon dioxide from the air. How would we do this? Well, we promised to do it by growing additional forest and tree cover. But technically, anything would classify as a carbon sink so long as it absorbed more CO2 from the atmosphere than it put out.

And truth be told, we’ve made some progress. But going green isn’t always easy. We can’t just flip a switch and adopt clean energy overnight. The coal and thermal plants (despite their drawbacks) still power the country in many ways. So the next logical approach is to gradually ween away from these sources by increasing the share of renewables in our energy mix. Basically making sure that we achieve our targets without breaking the economic engine.

So how do you promote the adoption of renewables and disincentivize the use of fossil fuels?

Well, one idea is to enforce renewable purchase obligations (RPO). It’s a diktat that mandates Discoms (power distribution companies) and large electricity consumers to source a certain percentage of their energy requirement from renewable energy sources. They could do this by setting up their own renewable power plants or buying them from other renewable energy producers. In other cases, they could even meet their obligations by purchasing  Renewable Energy Certificates (REC).

Think of it this way. RECs are issued to folks who produce renewable energy. However, these people can then choose to trade these certificates with those who may have trouble meeting their clean energy quotas. The object here is to penalize institutions that refuse to mend their ways and get them to act quickly. For instance, if you are a large electricity consumer and you’re still sourcing most of your energy needs from coal plants, then making you pay extra will inevitably get you to adopt the clean energy mandate sooner or later.

And these renewable power obligations have done just that.

But so far they have been met via the usual mix of solar and wind-based power. In fact, it’s worked quite well for those who produce solar and wind power. We’ve seen some investments in these institutions and the cost of deploying solar and wind energy is on the downtrend. But the government isn’t happy with just this much. They want to diversify and see if we could replicate this success elsewhere too. And they want to include Green Hydrogen in the mix as well. Meaning if you produce energy by electrolysis of water, then the government may soon make it mandatory for some institutions to source a certain percentage of their requirements from you.

So yeah, they are trying to switch things up a bit and if they really push and enforce these laws rigorously we will likely start seeing some real developments very soon.

Until then...

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