In a recent interview with Power Line, Dr Ajay Mathur, Director General, International Solar Alliance (ISA), talked about climate finance, the progress and outlook for energy transition, as well as the top priorities and focus areas for ISA going forward. Edited excerpts…
How do you rate India’s energy transition so far? What more needs to be done?
India has already set up the infrastructure needed for energy transition. We have been successful in connecting all the people to the grid before the energy transition work started.
Currently, solar electricity is the cheapest electricity that is fed into the grid, but it is only available when the sun is shining. While wind power is cheaper than coal-based electricity, it is available only when the wind is blowing. Cost-effective energy storage will solve the problem of unavailability of both sun and wind. However, to a large extent currently, only pumped storage solutions are economically viable. In 2023, we are expecting cost-effective, round-the-clock solar-powered electricity with battery integrated energy storage to become viable. We need to expand energy storage infrastructure and establish the necessary institutional mechanisms because, with storage, energy users can become energy producers at different times.
The National Green Hydrogen Mission represents a highly positive step. An array of policy-driven incentives for electrolyser manufacturing and prioritised transportation of green electricity for hydrogen production are contributing to the growth of the green hydrogen segment. These efforts aim to reduce the current price of green hydrogen. What will be needed shortly is a mandate that will create the demand for green hydrogen.
Overall, India has laid the foundation with the necessary infrastructure and institutions to facilitate energy transition. Now, the key to enabling a widespread transition lies in achieving and upscaling technical and economic breakthroughs.
What are your recommendations to improve access to affordable climate finance?
Globally, climate finance is available at interest rates ranging from 2 per cent to 4 per cent. However, when these funds reach India, they tend to become costlier due to inclusion of various risks, such as currency fluctuations and repayment uncertainties. To mitigate the perceived risks associated with the incoming international money, the most effective approach is to ensure that investors, rather than developers, receive timely returns on their investments. Furthermore, in the event of delayed repayment from utilities to developers, these funds could be provided as interest-free loans to investors from a dedicated guarantee fund.
Further, a significant contributor to the increase in the cost of capital is the depreciation of the rupee against the dollar in foreign exchange markets. To address this issue, we require hedging through long-term financial instruments with durations spanning around 10 years or more, which are currently limited.
“Cost-effective energy storage will solve the problem of unavailability of both sun and wind.”
How will the Global Biofuel Alliance help to further the goal of energy transition? What is your outlook for the alliance?
A lot of work is already ongoing on the use of biofuels in countries such as India, Brazil, the US, as well as in some countries across the EU. A huge amount of biofuel is being used in Brazil for cars. Similarly, in the US, corn-based fuels are being used in various sectors. Under the Global Biofuel Alliance, we are looking at upscaling the use of biofuels for a variety of applications including aviation fuel. Currently, we have limited options for aviation turbine fuel. This is one area wherein global collaboration could help in making biofuel available on a large scale at affordable prices.
What are the prerequisites for transnational grid interconnections for OSOWOG?
The first thing is that the grids on the two sides of the interconnection have to be large enough and fluid enough for electricity to move. We have asked Électricité de France (EDF) to look into this in greater detail. One of the things that they have pointed out is that for an interconnection to be cost-effective, it is necessary that around 2,000 MW to 4,000 MW of electricity transfer occurs across it. This would change depending upon whether it is a submarine cable or a land cable for interconnection.
The second challenge is finding the necessary locations for interconnection. It is evident that a cable connecting India to the Gulf countries on the one hand and connecting India to East Asia on the other is crucial. India has initiated discussions with the UAE, Saudi Arabia and Oman for potential connection points. Similarly, in the eastern region, efforts are under way to establish connectivity, particularly by establishing interconnections to Singapore directly or through Myanmar to link up with the well-connected East Asian grid. Additionally, discussions are under way, within the G20 context, for interconnections between Saudi Arabia and Egypt as well as between Egypt and Greece.
According to you, which sector offers the largest opportunity for enhancing energy efficiency?
Buildings offer the largest opportunity. However, there are challenges. Energy-efficient buildings often resemble non-energy-efficient ones, but cost more. Buyers question these higher prices since the buildings appear similar. The true benefits of energy efficiency are realised by the renters when they receive lower electricity bills. This disconnect between costs (borne by the developers) and benefits (enjoyed by the renters) can only be resolved through legal intervention.
The other opportunity is in the transportation sector, particularly related to electric vehicles (EVs). Electric two-wheelers are already cost-efficient, especially in urban areas. Meanwhile, rural areas face challenges due to electricity unavailability for charging. As the electricity supply improves nationwide, we can expect more adoption of electric cars, two-wheelers, and possibly electric trucks. The main hurdle in EV adoption is building a robust charging infrastructure. We found that most two-wheeler users preferred to charge at home but needed accessible charging stations nearby for peace of mind during their journeys. To ensure the viability of these charging stations, an investment and pricing mechanism should be established, possibly with some public subsidies. The transportation revolution is under way, and it is crucial to invest in charging infrastructure to facilitate growth.
“The ISA is massively upgrading its support for solar minigrids.”
What are your top priorities and the key focus areas for the ISA in the next couple of years?
We are focusing on three things. First is to lower the cost of capital through guarantees so that private sector investors are pulled in to invest in the solar sector. The second is to enable countries through regulations to build solar minigrids. Solar minigrids are cost-effective in instances when the electricity grid needs to be pulled for over 10 km. For a huge number of applications across Africa and island nations, solar minigrids are already proving cost-effective. The ISA is massively upgrading its support for solar minigrids.
Our third focus area is identifying and supporting start-ups. This year, we have identified 20 start-ups in Africa with a goal to enhance their capabilities in raising capital, forming technological partnerships and building brand image. We believe that solar energy will play a central role in the future energy landscape, facilitating regulatory changes in countries to accommodate this shift. The ISA aims to help countries around the world on the regulatory front as well as with demonstration projects so that they see the benefits.
Notably, in India, the states of Uttar Pradesh and Bihar witnessed very successful private sector investments in solar minigrids after bringing out their solar minigrid regulations.
What are your expectations from COP28?
It is very clear that we are way away from the 1.5-degree goal. All of us need to do more. As a country, we have already pledged to do much more, and I feel that if battery costs drop, we will actually overachieve. Globally, the focus needs to be on making renewables and energy storage cost-effective. COP28 should see countries taking on specific renewable energy targets. We also need to focus on a storage-based mission to bring down the costs.
“The key to enabling widespread transition lies in achieving and upscaling technical and economic breakthroughs.”
What is your outlook for the power sector going forward?
The power sector, by the 2030s or 2040s, will witness significant transformation, characterised by a substantial increase in renewable energy capacity. It is expected that there will be a steep change once the cost of batteries comes down. Further, grid management will have to be proactively looked at with respect to connecting storage facilities to the grid. Last but not least, as the amount of solar and wind capacities in the system increase, there will be a growing need for skilled manpower.