IEEFA India: Government Incentives Increasing Green Investment By State Owned Enterprises

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The Indian government is leading the adoption of new energy technologies in the current global energy transition through various policy initiatives and learning by doing, a new IEEFA briefing note has found.

In October 2019, the Ministry of New and Renewable Energy (MNRE) asked all state owned enterprises (SOEs) to prioritise renewable projects in their investment plans as part of a larger effort to reduce carbon emissions and assist India to meet its ambitious renewable energy targets.

The note Diversification on the Cards for Indian State-Owned Enterprises – Going Green for Growth and to Stay Relevant reviews this and other government policy incentives available to Indian SOEs aimed at encouraging investment in cleaner greener energies, and finds diversification is happening more quickly than thought.

Author of the note, analyst Vibhuti Garg says the Indian government’s intentions are clear.

“The government is reading the state of play and has rightly determined that renewable energy technologies are the industry of the future,” says Garg.

POLLUTION IS A BIG ISSUE AFFECTING MILLIONS OF PEOPLE AND A HUGE COST to health services, state governments and workplaces. A more affordable cleaner supply of energy is essential to clean up the air and ensure daily living isn’t about struggling to breath.

“Remaining profitable is also important. The government has identified that future profits of SOEs lie with diversification, minimising risk offtake, and cheaper costs of production.

“Renewables are cheaper, cleaner and more sustainable than generating power from dirty expensive fossil fuels, whose industries are set to decline into the near future.”

India has installed 83 gigawatts (GW) of renewable energy capacity, an 80% increase in less than three years. The country is also targeting 175GW of variable renewable energy by 2022 and 450GW by 2030 in a bid to clean up the air and lessen the economy’s rapidly growing dependence on imported fossil fuels.

“India’s coal-based assets are running into huge losses and are a drag on the financial and banking industries.

“Redirecting investment away from fossil fuel based stranded assets ensures SOEs will remain profitable and relevant in the fast changing energy sector both in India and globally.”

RENEWABLE ENERGY INVESTMENT BY PUBLIC AND PRIVATE SECTOR BANKS OVERTOOK FOSSIL FUEL-BASED POWER GENERATION INVESTMENT for the first time in 2017.

While SOEs portfolios have been dominated by fossil fuel investments in the past, the note finds many of these organisations have also been moving into new renewable industries over the last few years.

SOEs are already moving into solar, wind and hydro. NTPC, NHPC, NLC are increasing the share of generation from renewable energy technologies in their total portfolio. Coal India is diversifying from its core business of coal mining to investing in clean energy. Indian Railways and Delhi Metro Rail Corporation are the prosumers – increasing the share of production for captive use from such sources and also buying more solar and wind power.

BHEL has diversified into solar and electric vehicles, GAIL India has installed India’s second largest rooftop solar power plant, and India Oil Corporation (IOC) plans to further diversify into wind, biomass and solar panels at its filling stations, while aiming to invest Rs200,000 crore (US$28bn) over the next few years to develop future-ready corporations providing comprehensive energy solutions.

“Government incentives driving SOE investment away from the soon-to-be stranded assets are a way of further boosting investment in the renewable energy sector,” says Garg.

“The government has recognised this is an unstoppable technology driven energy transition and must be commended for assisting SOEs to adopt the renewable technologies of the future.”

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