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electric vehicle, Paris Agreement, technology, carbon dioxide, International Energy Agency  In order to achieve emission targets, overhauling the transport sector is a key imperative, as it accounts for about 23% of global greenhouse gas emissions (as per IEA).

Rising global concerns and the need for clean technology as enumerated by 194 signatories to the Paris Agreement require that emission of carbon dioxide be gradually reduced to limit the global temperature increase below 2-degree Celsius. Viewed from a global and domestic perspective, over the longer term, this is bound to act as a disruptor for the oil and gas industry in general and oil refining and marketing companies in particular. The International Energy Agency (IEA) has projected the global oil demand to reach 105 million barrels per day (MBPD) by 2040, which is a 7.5% increase from the 97.7 MBPD level in 2017. Oil demand is likely to reach a saturation point in the next decade and a half, given the global environmental concerns and the steps taken by global auto majors to gradually shift to alternate and cleaner energy sources.

In order to achieve emission targets, overhauling the transport sector is a key imperative, as it accounts for about 23% of global greenhouse gas emissions (as per IEA). The global car fleet currently runs on about 19 MBPD of equivalent crude oil, which is one-fifth of the current crude oil consumption of 97.7 MBPD. In this regard, electric vehicles (EVs), both battery EVs and plug-in hybrid EVs, are seen as the silver lining, for they can help reduce carbon footprint, lower operating costs and are more energy-efficient. Globally, EV sales have already surpassed 1 million in numbers, up by 50% year-on-year in CY2017, supported by their growing familiarity, improvements in driving range, fall in battery prices, along with the availability of tax and other incentives.

Albeit, this is just 1% of global demand, it has the potential to grow by 40% per annum in the medium term. What would drive this growth? A major cost of EVs, which is the battery, has fallen to almost one-fourth—to about $208/kWh in CY2017 from $800/kWh in CY2011. This battery cost is expected to continue to fall to as low as $70/kWh by 2030. This will make EVs cost-competitive over the next decade—even as EVs are very expensive today and beyond the reach of a majority of retail customers. Further, strong incentives by countries/governments such as lower taxes and toll exemptions auger well for EV growth. Nonetheless, the main challenge to growth is the need to build adequate infrastructure for charging EVs, which is bound to take time.

As far as India is concerned, domestic refining and marketing companies are investing in brownfield and greenfield expansion of refineries to cater to the rising demand for petroleum products as the economy progresses. They are also looking over the horizon as to what will happen to their margins and profitability as the demand for EVs shows signs of picking up momentum in India, with various governmental initiatives encouraging institutional customers (state road transport organisations and government departments) to adopt EVs. Since auto fuels (diesel and petrol) form around 50% of total product volumes derived from every tonne of crude oil processed, any impact on demand of auto fuels could have a significant bearing on the demand growth of crude oil and gross refining margins of refineries.

Further, substitutes in the form of domestic gas and LNG could slow down the demand of other petroleum products like naphtha, furnace oil and LPG, which could put more pressure on profitability. Moreover, reduced project returns for new projects in the sector, in the absence of fiscal support, can be a deterrence even as existing players with their depreciated assets base remain better placed. While many of the above risks will play out over the next decade, greater diversification to petrochemicals and other forms of energy—including natural gas chain, EV infrastructure and renewable energy—will be imperative for Indian refining and marketing companies in order to mitigate the disruptive potential of EVs over the longer term.

K Ravichandran

Group Head, Corporate Sector Ratings, ICRA Ltd

Read more: Mitigating the disruptive potential of electric...

solar projects, solar capacities, ISMA, SECI, PSU, National Solar Mission As per Crisil’s analysis, a 25 per cent safeguard duty entails a rise in capital costs by 15-20 per cent, which would have a 30-40 paise per unit impact on bid tariffs so as to maintain the same rates of return. (Reuters)

Imposition of safeguard duty is likely to result in some delay in project implementation of nearly 12,000 MW of under-construction solar capacities, rating agency Crisil Research said. As per Crisil’s analysis, a 25 per cent safeguard duty entails a rise in capital costs by 15-20 per cent, which would have a 30-40 paise per unit impact on bid tariffs so as to maintain the same rates of return. “We expect some delay in project implementation on account of the duty as the ‘change in law’ clause is expected to be sought for 12,000 MW of under-construction projects,” it said in a statement issued here.

Following a petition filed by the Indian Solar Manufacturers Association (ISMA) in December 2017, seeking imposition of safeguard duty directorate general of trade remedies (DGTR) had recommended a 70 per cent safeguard duty in January 2018. On July 16, DGTR reviewed the recommendations and imposed 25 per cent duty for the first year followed by 20 per cent in the first half of the second year and 15 per cent for the rest part of the year.

“The imposition of the duty could cause some procedural delays as developers would have to approach the appropriate authorities (electricity regulatory commissions) to approve the new tariffs with pass-through of costs,” it said. According to the agency, solar power capacity addition is likely to ramp up to 56,000-58,000 MW between fiscals 2019 and 2023, compared with 20,000 GW between fiscals 2014 and 2018, which will be driven by capacities allocated/tendered under the National Solar Mission, state solar policies, other schemes driven by SECI and PSUs.

“Logically, domestic module manufacturers would become the main suppliers to solar developers in India. However, their supply capacities are far short of the annual demand of the sector. Hence, we expect a rise in capital costs over the near-term due to the duty as even domestic module manufacturers are likely to charge a premium on their products in the event of a surge in demand,” the report said.

The agency further said that as domestic capacities expand and integrated foreign players set up units in India, costs could drop again. “A weakening rupee will cause additional cost pressure with increased foreign exchange volatility faced by importers unless they have hedged in advance. This could amp up the cost pressure slightly,” it added.

Read more: Safeguard duty may delay 12,000 MW underway...

thermal poer plants, delhi Gas-fired power plants can play a role balancing the grid by maintaining uninterrupted electricity supply, especially when solar-fired generation peters out in the evenings and coal plants take time to ramp up. (Reuters)

India will test a plan to operate its underutilized natural gas-fired power generators as “peaker” plants that can switch on quickly when there’s high demand, according to the country’s power planning body. The project will start with four NTPC Ltd. plants with a combined capacity of 2.3 gigawatts that will run only in the evenings, Central Electricity Authority Chairman Pankaj Batra said in New Delhi.

The agency envisions 20 gigawatts of gas-fired capacity being used as peaking stations to even out supply fluctuations from the large amount of renewable energy that’s set be built by 2022, he said.

“The government will start testing the plan this month by operating one of NTPC’s gas-based power plants as a peaking station” for nearly four hours in the evening, Batra said in an interview last week, adding that the three other plants will be online by the end of the year. State-owned GAIL India Ltd. has agreed to supply gas to the four plants, he said.

India has an ambitious goal of installing 175 gigawatts of renewable energy by 2022, or a little more than the country’s current peak demand, as part of its Paris climate pledge to cut carbon emissions. Gas-fired power plants can play a role balancing the grid by maintaining uninterrupted electricity supply, especially when solar-fired generation peters out in the evenings and coal plants take time to ramp up.

The gas facilities will be run on fuel produced in India, which is in short supply, and running them as peakers will optimize use of the fuel, Batra said. A shortage of domestic gas has kept the utilization of India’s 25 gigawatts of gas-fired plants at about a fifth of total capacity, according to CEA data. The cost of gas imports for India makes the fuel uncompetitive with other sources of baseload power.

Read more: To meet India’s massive 175 GW renewable target,...

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