It was 1962 when Bell Labs launched the first telecommunications satellite. Amongst many firsts, Telstar had its surface covered with solar cells generating 14 watts of electrical power. The credit went to James M. Early. Mr. Early was indeed early! Nearly six decades later, a recent MIT research paper notes that the price of solar modules has dropped 99% over the past 40 years. Given what I see, I expect prices to drop by an additional 99% over the next 40 years – probably reducing the marginal cost of electricity to zero. Such a reduction, in turn, will mean the coexistence of two business models – one based on fossil fuels and the other driven by renewables – both supplementing each other in the near future but the pendulum swinging decidedly in favour of renewables in the long-term.
Covid19 opens our eyes
Today, as COVID19 challenges the fundamental assumptions of our lives, the urgency of a green revolution in the energy sector gains greater importance. While the immediate economic impact may slow us down, we are presented with an opportunity to pause, rethink, and design a new and faster transition to a low carbon future. Also, many of the system operators in Europe, faced with falling demand, are learning to manage grids at a remarkably high level of renewables in the energy mix, often up to 70%. This learning is invaluable as such a scenario was unlikely only a few months ago. While the generation balance may swing back as demand increases, the crisis has provided insights to operators on keeping the grid stable with high levels of renewable penetration. Post Covid19, this may be the new norm.
When economics and purpose work in tandem
When economics and purpose converge, the result can be disruptive. The adage that renewables are good for the environment, but bad for business is increasingly a thing of the past. Today, we see an accelerating trend where policies facilitated by governments, public awareness and support for action on climate change, and the economies of scale continue to create massive market demand and job creation through renewables while simultaneously addressing the energy security for countries dependent on energy imports.
Hydrogen as a potential game changer
Not just solar, I also expect the unit cost of wind power to fall significantly driven by innovation in technology and the massive deployment of new wind projects both on-shore and off-shore. With increasing investor confidence in solar and wind, their integration with various storage technologies will further accelerate the energy transition. The predominant storage technology on the horizon appears to be Hydrogen. I am personally hopeful about Hydrogen in the long run. The decomposition of a water molecule to produce Hydrogen has always been the dream as a fuel that doubles up as energy storage. While the industrial world is familiar with Hydrogen, over 90% is produced through steam reforming, an inherently carbon-intensive process. However, with the prospect of the future marginal cost of renewable energy dropping precipitously, green Hydrogen produced by the splitting water could be the game-changer. This Hydrogen could use much of the existing gas pipeline network for distribution, be blended with natural gas and be a green feedstock for the chemical industry. Add to this the fact that the energy density of a kilogram of Hydrogen is almost three times that of gasoline, and you have a momentum that would be near impossible to stop as Hydrogen fuel cell vehicle prices come down. Biased it may be, the Hydrogen council predicts that green Hydrogen could attract $70 billion of investment over the next decade. Expenditure on such a scale could disrupt as well as create several industries in ways hard to predict.
It’s all about jobs
Today’s politics and economics are necessarily about job creation, even more so in the post Covid19 recovery phase. The International Renewable Energy Agency (IRENA) forecasts that employment in the clean energy sector, currently at 12 million in 2020, could quadruple by 2050, while jobs in energy efficiency and system flexibility could grow by another 40 million. A recent IRENA report projects that this transition could lead to investment opportunities of $19 trillion in solar, wind, battery storage, green Hydrogen, carbon management and energy efficiency by 2050 making it one of the largest global industries.
India is well-positioned to benefit. Our country is naturally endowed with very high levels of solar resources, and the long coastline makes an attractive proposition for wind power. The Indian renewable energy industry already ranks fourth globally in terms of installed capacity, and the combination of beneficial geography, falling equipment prices, increasing demand and a world-class transmission network means an industry that is expected to continue growing for the next two decades. Little wonder that this sector has received over $10 billion of FDI inflow over the past decade. The fact that the Ministry of New and Renewable Energy (MNRE) has already raised its target to 225 GW of renewable energy capacity by 2022 form the initial 2015 goal of 175 GW established at Paris and then further increased the target to 500 GW by 2030 is an indication of the potential as well as the seriousness of the government to help India lead the global energy transition.
Although the impact of climate change is slower to emerge than a pandemic, its threat to humanity is more significant. Therefore, the case of the transition to a cleaner energy future must be taken up not only by governments but also by industry. India is quietly and firmly leading the way. COVID19 may be the turning point where society leverages the economic rebuilding effort to fast track the transition to a cleaner future.