Interview (Santosh Kamath)

Santosh Kamath,
Partner and Lead - Alternate Energies at KPMG in India

“The power sector is critical to the development of any stout economy. Please share your thoughts on the existing conditions of the Indian Power Sector?”

In terms of existing conditions, a key concern is the financial position of the discoms and some of the private sector companies in a generation. We need to bring liquidity back into the sector urgently if we are to attract investments for future growth. If these investments do not come in, we will be faced with challenges in the coming years to meet our growing demand. As rightly pointed out, this is critical for the economic growth of the country and cannot be ignored by policymakers.

“India is witnessing a massive transition with its power dynamics with the advent of digitization. Can you please elaborate on the factors that have led this major shift within the sector?”

The main driver of the transition is renewable energy adoption. Digitalization will help the sector to get modernized including in bringing efficiencies and providing better services to customers. The driver for the adoption of RE has been the falling costs and regulatory pressures driven by global climate change concerns. Our Government has also set a strong vision for renewables and this is a motivating factor.

“What are the key areas that hold the potential to meet India’s ambitious RE targets of 175 GW?”

The key areas include solar and wind power generation. However, as mentioned a key concern is financial liquidity in the sector that could hamper the investment flow into the sector. The Government needs to urgently address this issue. Old solutions won’t work; we need to think of radically new measures if we are to bring about a permanent change. We need to seriously think about this.

“What are your views on the present Indian Solar PV Module Manufacturing sector? What kind of existing challenges and opportunities does it offer for the indigenous as well as foreign manufacturers?”

The growth in the solar PV sector is going to be large in the coming years. We expect 10-15 GW of new installations every year over the next few years. The Government is keen to get manufacturing into the country and has formulated a program for the same. This provides a price premium to encourage domestic manufacturing and has also helped in demand creation for domestic manufacturers through various programs such as KUSUM for solar pumps and SHRISHTI for solar rooftops. Again, as mentioned earlier, getting financial viability in discoms is key to supporting any investment in the entire ecosystem.

“Please tell us about the key topics that you have addressed during the ENRich 2019? Also, please tell us about the significant outcomes that transpire from the discussions?”

With more than a sixth of humanity residing in the country, India’s actions in the energy and natural resources (ENR) sector have global implications in this carbon-constrained and environmentally sensitive world. KPMG in India, at the 10th anniversary of its annual energy conclave ‘ENRich 2019’, launched a report titled - ‘The electric future and its implications for India’ on the core trends that are likely to influence the structure and operations of the ENR sector, various facets and the future of the global energy transition and implications of accelerated electrification in the sector, globally and in India in the coming decades. The report brings out the various facets of that future and how those facets are intricately linked to each other and to the global priorities around Decarbonisation, efficiency in resource use and evolving a virtuous circular economy. It also identifies that unlike the developed world India will have a longer expansion runway for traditional fuels like oil and coal, as the economy continues to be set for growth over the next two decades. However, this period must be productively utilized and India has to deploy the right investment strategies in renewable and cleantech research and manufacturing along with project development. The report was released by members of the India Leadership Team from KPMG in India.

Dharmendra Pradhan, Honorable Minister for Petroleum and Natural Gas and Minister of Steel, Government of India spoke at the event on the central theme of this year’s ENRich 2019 – “navigating energy transition”, being timely as India seeks to enable an effective energy transition. He also reiterated how the Government of India is putting in place the right mix of enablers, to ensure that the energy transition is secure, affordable, reliable and sustainable. Additionally, he also talked about the initiatives and investments made by Indian energy companies to effect the transition to clean energy and create a strong delivery infrastructure.

The event witnessed distinguished ministerial and industry experts who shared insights on a sustainable agenda for India. Several panelists from the energy sector also discussed solutions and suggestions for growing investments amidst the energy transition and circular economy. He reiterated the commitment of the government to open up the energy economy in India.

The global ecosystem is going through rapid electrification of consumption which is driven by efficiency, cost and climate considerations. Some of the mega-trends hitting the global energy transition as per KPMG in India are:

Renewable energy scale-up
Acceleration in energy efficiency
Decentralization of resources
Consumer empowerment
Electrification across the board

The electric future: India imperatives

The imperatives for India as a country go well beyond carbon. The country’s approach to ushering in the new world of energy will determine the health of the economy and the well-being of citizens and the youthful workforce.

The report has identified four imperatives from an energy standpoint for spurring economic transformation:

Energy goods must be substantially produced in India to take advantage of the large consumption base
Energy prices for the producing sectors must be lowered and artificial cost build-ups removed
Energy services must be modernized to allow for efficiency and innovation in consumption
Energy markets must be furthered to allow for flexibility and lowering of transaction costs

Other imperatives that India should look at are:

Technological leadership: As new energy products like battery storage and hydrogen come into play, India must aim for technological leadership ab-initio; the government’s priorities must be clear in this regard.

Flexibility: Energy markets must be opened up and deepened to allow for greater flexibility and lower transaction costs.

Overhauling sector governance: Authorities in governance and regulatory roles in the sector must define their charters aligning to the overall economic and sector agenda and act accordingly.

The electric future: its implications

Coal-fired plants will need to become flexible. Flexible coal-fired generation’s new role will be akin to the storage, having energy content available on tap for balancing grid variability when the need arises rather than its erstwhile role of being the bulwark of supply.

A new wave of energy efficiency measures will be needed. Improving energy efficiency in many large energy-consuming countries has led to a decoupling of energy consumption with growth in output

The circular resources economy will need to evolve simultaneously rather than as an afterthought. The transition from the take-make-waste model of a virgin, non-renewable sources across all strata, needs to be redesigned from a circularity hierarchy perspective to bring in resource efficiency

Businesses within and outside the energy sector will be impacted and will need to transform. In the wave of a rapid switch to a low carbon economy, traditional major energy providers have begun to plan their strategic response to the growth potential in the renewable energy sector.

New institutions capable of delivering change will have to evolve. Organizations will also need to develop capabilities and up-skill their employees to survive and grow in an exceedingly complex business environment.

Governments will need to work to facilitate energy financing. The requirements also need to be seen in the context of the prevailing political economy that has a deep influence on private investments.

Macroeconomic impacts on imports, remittances, employment, taxation structures will need attention. The transition to a low-carbon global economy is a system-wide change that will impact most countries significantly. Countries like India with high oil and gas import bills will stand to gain with electrification and a shift to renewables.

“With RE & EV being the major focus at present. What future do you see for both the sectors in the country concerning the policy framework and infrastructure development?”

RE will grow due to cost economics and Government support. We need to however look at aspects around grid stability as RE increases. This includes setting up an ancillary services market mechanism quickly, encouraging new business models such as Virtual Private Plants (VPPs) and storage based business models, and transmission strengthening particularly at the intra-state level. As far as EV is concerned, a lot depends on how the auto sector responds to this opportunity. The current stress in the sector has to be overcome. However, the medium to long term story for EVs is promising. Driven by battery cost and performance improvements, we do expect to see an inflection point in about 4-5 years and rapid adoption could happen around that time. In certain segments such as 2-wheelers and fleet operators, this will happen earlier as economics plays out. The Government program, FAME-II, provides incentives for infrastructure creation for charging and this should help.

Interview 02/12/2019 by News Bureau
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