One topic that is debated at all forums is issues related to Environment, Social and Governance (ESG). ESG has become extremely critical for all companies as investors and capital markets have become highly active and demanding action on this aspect. One of the critical topics in ESG is “Energy Transition” wherein sources of energy must move from fossil fuels to sources, which have a lesser carbon footprint, like renewable sources like solar, wind, etc. 

 

Why is energy transition critical? 

As per the World Economic Forum's Global Risk report, the top three risks are: 

• Extreme weather 
• Misinformation spread 
• Societal Polarization 

To add, over the next 10 years, the top risks are: 

• Extreme weather 
• Critical changes to Earth`s systems 
• Biodiversity loss and ecosystem collapse 
• Natural resources shortages 

Other risks, like polarization in society due to misinformation and Artificial Intelligence risks, rank lower than climate change-related risks.  

One of the leading factors in climate change risk is global warming due to the high usage of fossil fuels like coal and oil. Less fossil fuel use and more renewable sources is the way forward.  

According to the estimates, the share of fossil fuels in the global mix is expected to decrease from present levels of ~ 75% to ~ 55% by 2050, while the share of renewables and nuclear power is expected to increase from present levels of ~ 25% to ~ 50% by 2050.  

 

Key Challenges in Energy Transition 

Fossil Fuels Phase out 

• Energy security concerns to meet immediate demand, especially by emerging economies like China, India, Indonesia, etc which must rely heavily on fossil fuels to meet their energy needs. Coal, Oil and Gas are the major sources of energy for most of these countries 
• Despite India's progress on the renewables front, the Indian government has mandated all thermal power plants to import coal to meet the peak summer demand 

Cost of Transition 

• Huge funding is required for the transition to renewables, especially to set up the infrastructure. Estimates suggest that about $3 trillion of annual funding is required for the next 20-25 years to achieve global warming standards as per the Paris Agreement 
• There is a constant debate on the sources of funding, especially the debate on the developed North Vs the developing South nations 
• The emerging economies / Southern nations must balance their development needs with climate change issues 

Geopolitical Challenges 

• Energy supply chains are constantly under threat due to various geopolitical issues, such as the Russia-Ukraine war, the Israel-Hamas conflict, etc., which frequently causes the energy transition path to face hurdles. Countries must focus on securing their immediate energy supply chains rather than on energy transition activities 
• Recent trade embargoes on green energy infrastructure, like the tariffs on solar panels from China to the USA, play truant. China, the world`s leading producer of solar energy equipment, is also facing pressure from Europe on its solar equipment exports to Europe 

 

India's Energy Transition Roadmap 

India has taken very firm steps in the path of energy transition and balanced its development needs at the same time. India has been at the forefront of the International Solar Energy Alliance and was instrumental in setting up the biofuel alliance.  

At present, renewables account for ~ 30% of India`s energy needs, compared to the global average of ~ 38%. The share of renewables is expected to reach ~ 50% by the year 2050. 

 

Steps Taken by India for the Energy Transition 

Solar Energy  

India at present has a solar energy capacity of 66GW which is targeted to increase to ~ 250GW by 2035 and 400GW by 2050. 

Key initiatives taken:  

• 50 solar parks with a capacity of around 37GW across India
• PM-KUSUM scheme to add solar capacity of ~35GW by March 2026 
• Production Linked Incentive (PLI) scheme for National Program on High Efficiency Solar PV modules
• Rooftop Solar Yojana scheme to give free electricity to 10 million households. 

 

Wind Energy  

Present capacity ~ 60GW is expected to increase to ~ 175GW by 2035. 

 

Hydrogen  

Two green hydrogen hubs to be set up by FY’26 with capacity >100,000 MTPA 
National Green Hydrogen Mission to make India the hub for the production, usage and export of Green Hydrogen 
MNRE will provide central financial assistance for developing core infrastructure to set up green hubs for large-scale production and utilization. 

 

Frequently Asked Questions

1. What are the economic opportunities associated with transitioning to a low-carbon energy system? 

As India transitions to renewables, opportunities exist in the fields of solar, equipment, engineering, and project execution services. Solar rooftops offer opportunities for many installation service providers.   

 

2. What are the potential risks and mitigation strategies associated with ESG-focused investments in renewable energy projects, particularly in emerging markets? 

Assurance that funds are deployed in proper areas that will have maximum impact. Intensive project due diligence and governance mechanisms are the key mitigation steps. 

 

3. How can industries leverage renewable energy microgrids and distributed generation systems to enhance resilience, reduce energy costs, and meet sustainability targets? 

By being part of a common grid, industries can mitigate the risk of an irregular power supply, which is the key risk in renewables now.