The Disruptive Force of Clean Energy

The Industrial Revolution came from the technological advances brought about by exploitation of energy sources – coal, oil and gas. Economies around the world grew exponentially, providing people with products that made their lives easier. Yet, we pay precious little attention to the damaging effects of this model of development. Climate change is a reality. The recent IPCC report and the Paris agreement highlights the need to work urgently to limit temperature increases and other climate change impacts. According to the Global Risk Report 2020, the next ten years will shape the outlook for climate risk for the rest of the century. To avoid the worst consequences, global emissions need to peak almost immediately and decline precipitously—by 7.6% each year between 2020 and 2030. To bring about this change an additional US$460 billion a year of clean energy investment over the next decade.

The technological breakthroughs in clean energy (solar, wind and biofuels) provides that opportunity. Policymakers, the research community and people need to realise that clean energy is not just a question of the cost of adaptation or mitigation. It brings to the fore a new approach to economic development.

The move towards decarbonisation through clean energy is changing the way companies and people look at energy. People are installing solar panels on rooftops, thereby reducing the need for accessing coal-based power from the grid. Improvements in storage technologies and lowering prices of solar panels are likely to induce more people towards rooftop power generation. People are also gradually moving towards electric vehicles. The strong reception that Earth Hour gets each year is a sign that people appreciate the need to conserve energy.

There are several implications of the push towards clean energy. 

Capital costs: Renewables have substantial capital investment and virtually no operating or recurring costs. Globally, the price of solar panels and related equipment has been dropping dramatically. Yet, in India, there have been several hindrances in the adoption of clean energy. Classification of equipment for GST has raised costs too. At the same time, cheaper imports from China have impacted national suppliers. As a consequence, a trade-off between protecting equipment suppliers and reducing costs is needed. This protection may require interventions regarding tax breaks and incentives. Further state governments are reluctant to accept bids at current prices in expectation of lower future rates. This reluctance impacts generation capacities.

Location and transmission: The current model of regional and national grids is likely to be replaced by individual ownership and local and micro-grids. Managing demand and supply gaps will be crucial, and technologies like smart metering, blockchain and artificial intelligence will be required to ensure the balance between demand and supply. During the transition phase (from fossil fuels to renewables), companies need to take care to ensure that disruptions do not occur.

Stranded assets: Many fossil power generation companies based on fossil fuels will need to shut-down well before their life. These assets will become stranded. People will lose jobs as the plants become non-operational and may require reskilling or may add to the unemployment figures. Banks will face non-performing assets as the planned future cash flows from these assets dries up. The land on which the plant comes up will become locked and will be unavailable for other economic activities. Customers who previously relied on the fossil fuel-based power will, now, have to look at other sources. Shocks will also be felt across the value chain, as upstream suppliers like coal producers will see a decline in demand and transporters will have nothing to carry. With governments already strapped for funds, support from the government is unlikely to come by.

The issue of limited resources: Many of the materials needed for low-carbon technologies such as nickel, copper, cobalt and manganese could be mined from the seabed. However, the impacts of deep-sea mining on ecosystems and ocean health could offset its benefits.

The issue of scale: To produce renewable energy at scale requires large land areas. Take the case of a large apartment block that has 500 odd cars, and everyone shifts to electric vehicles the load on the solar energy system will be too large and will likely crash. Solar or wind farms require large tracts of land. Estimates show that solar and wind power needs around 40-50 times more space than coal and 90-100 times more space than gas. Availability of such large spaces may not be easily or viably available.

The changing world order: Currently, countries like India and China import a bulk of their energy requirements. Substituting fossil fuel with renewables implies a move from imports to self-sufficiency. The substitution is likely to have an impact on exchange rates, trade balances and the economic power structure of the global economy.

The move towards clean energy is an evolving story, and its implications on business responsibility are significant.