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  • Apr 6, 2023 - India's Green Energy Revolution Gets Going. 10 Facts You Need to Know

India's Green Energy Revolution Gets Going. 10 Facts You Need to Know

Apr 6, 2023

Indias Green Energy Revolution Gets Going. 10 Facts You Need to Know

According to the International Energy Agency (IEA), global green energy capacity is expected to grow by 2,400 gigawatts (GW) between 2023 and 2027, an amount equal to the total installed power capacity of China today.

This is 30% higher than the growth projected just a year ago, highlighting how quickly governments have thrown additional policy weight behind renewables.

India has been at the forefront of embracing the transition to renewable energy. The country is combating climate change head-on. The target for renewable energy has been upgraded, from 225 GW by 2022 to 450 GW by 2030.

While ambitious, it comes on the back of earnest policy reforms empowering the sector to achieve scale, economy and export competitiveness.

Moreover, big business houses have all sprung into action, announcing grand plans to support the country in achieving its net zero emission targets. This has spurred investor interest in green energy stocks.

But before you go looking for the best green energy stocks, here are ten important facts about India's green energy revolution.

#1 Green vs renewable vs clean energy

Green energy, renewable energy, and clean energy are all the same. Irrespective of the term you use, it is energy derived from natural sources. But since it is constantly renewed at a higher rate than it is consumed, it is referred to as renewable energy.

A great example is the sunlight that is constantly replenished. It is abundant in nature and doesn't release any greenhouse gases. Therefore also referred to as green or clean energy.

Another example is green hydrogen. Hydrogen, produced sustainably, is the most abundant element in the universe. And now it can fuel our vehicles, power our electricity plants, and provide a way to store renewable energy.

Fossil fuels such as coal, oil and gas are, on the other hand, non-renewable resources that take hundreds of millions of years to form. When burned to produce energy, they emit harmful greenhouse gases, such as carbon dioxide.

But green energy does not.

Hence transitioning from fossil fuels to green energy is extremely important in order to to address the climate crisis.

#2 Green energy can help India achieve its net zero carbon emission goals

At the 2021 United Nations Climate Change Conference, more commonly referred to as COP26, India announced its ambition to achieve the net-zero emission target by 2070.

While difficult, it is feasible and could even be accelerated.

India's per-capita emissions stands at 1.8 tons of carbon dioxide (CO2). While this is lower on a global scale, especially in comparison to the United States at 14.7 and China at 7.6, India is still the third-largest emitter globally.

Seventy percent of the total emission stems from the power (34%), industrial (28%), automotive and aviation (9%), agriculture (18%) and others (10%) sectors.

While some of these may have been difficult to decarbonise, the advent of green hydrogen as a green energy source has put those fears to rest.

The country has vowed to effectively reduce emissions by 45% (from 2005 levels) by sourcing energy for half of its power-installed capacity from green resources by 2030.

According to the IEA, green energy sources are set to account for over 90% of global electricity expansion over the next five years, overtaking coal to become the largest source of global electricity by early 2025. This is possible with the development of solar, wind and green hydrogen.

#3 Solar, wind and green hydrogen are the frontrunners in the green energy race

Solar energy is expected to play a massive part in India's energy future. With the extraordinary cost-competitiveness in tow, it is all set for explosive growth in India, matching coal's share in the Indian power generation mix over the next two decades.

Wind energy also has enormous potential in India, with its cost of generation being 40% lower than that of conventional sources of power. Wind power is expected to account for 33% of total energy consumption by 2025-26.

Green hydrogen as a green energy source is also very promising. It can help decarbonise tough sectors and play a very important role in the future. However, it is unlikely to become economical anytime soon, denting its prospects in the near term.

#4 Building a green energy portfolio will be an expensive affair

According to McKinsey, India may need an estimated US$7.2 trillion (tn) (approx. Rs 576 tn) of green investments until 2050 to decarbonise its industries. The money will be spent across green energy sources, automotive and agriculture sectors.

India's transition from thermal power to renewables is expected to decrease the average cost of power supply from Rs 6.9/ kWh (kilo watt hour) in 2022 to Rs 5.25/kWh and Rs 5.4/kWh by 2050. The country will also cut down on its import bill by saving on crude oil, providing a much needed respite.

The proceeds will be funnelled into the procurement of land to meet requirements for solar, wind and green hydrogen capacities.

Solar power prices have come down dramatically in the past few years. On average, the installation of a 1 KW rooftop solar system costs anywhere between Rs 45,000 and Rs 85,000. Batteries cost extra if power is to be stored. However, it is still cheaper than green hydrogen.

According to estimates, green hydrogen is nearly ten times more expensive than solar to produce. A primary deterrent to the affordability of green hydrogen is the cost of the electrolyser and the energy costs required to produce it (45-75% of the total production cost). However, there is light at the end of this tunnel.

NEL ASA (Norway), the world's largest producer and manufacturer of electrolysers by revenue believes that green hydrogen production costs can match those of fossil fuels as early as 2025.

IEA posits that the cost of producing hydrogen from renewable electricity could fall 30% by 2030 led by declining renewable energy costs and the scaling up of hydrogen production. But this is possible only once the public and private sectors come together.

#5 The transition to sustainable green energy sources will require joint efforts from the public and private sectors

Over the next 20 years, a large portion of emissions is expected to come from power plants, industrial facilities buildings and vehicles that do not exist today. This represents a huge opening for policies to steer India onto a more secure and sustainable course.

For India to achieve its green energy target, the government will need to create demand signals and the industrial sector will have to bring capacity.

The government will have to provide policy and regulatory support to make projects across sectors economically viable.

Subsidising expensive raw materials or rewarding corporates and consumers for growing sustainably can go a long way. Setting up green transition financial institutes could enable governments to support infrastructure finance whilst stimulating growth.

However, this monumental task of going net zero while sustaining economic development will need cooperation from both sides.

The top business houses are already getting a jumpstart on things. They have announced big plans to transition to green energy, supporting the country in achieving its targets.

State-owned NTPC is aiming for 60GW, Adani Green Energy for 45GW and Tata Power, ReNew Power and Acme Solar for 25GW each. But despite all the support this crusade is not set for a smooth sail.

#6 The journey to this clean and green transition is not smooth

The years 2020 and 2021 were adversely affected by the pandemic, dampening the country's transition towards green energy. But even 2022 didn't bring any respite either. It turned out to be a tumultuous year for the energy sector globally.

The after-effects of the pandemic and Russia's invasion of Ukraine disrupted global energy and technology supply chains. Soaring prices for energy and materials, in tandem with shortages of critical minerals, semiconductors and other components, posed major roadblocks to the energy transition.

India is already facing some major obstacles.

Procuring cheap solar equipment from China and Vietnam or encouraging a domestic manufacturing base through the imposition of import duties continues to remain a quandary.

Moreover, there are other challenges such as the poor financial position of many state power distribution companies, grid congestion, and uncertainties over grid infrastructure development.

The expansion of rooftop solar has lagged behind the growth in utility-scale projects, constrained by higher costs and the lack of attractive financial models for consumers.

Despite these scathing issues, the country is charging forward towards expanding its green energy capacity, as palpable from its policy initiatives.

#7 Policy reforms are turbocharging the green energy adaptation

The rise of renewables in India's power sector has been a major success story.

Wind and solar now account for more than 8% of total generation, twice their share in 2014. While in the renewable-rich Indian states, wind and solar contribute as much as 15% of power generation, in others they contribute nearly 50% of power generation during those parts of the year when wind speeds are at their strongest.

This level of expansion has been steered by effective policy reforms. From reverse auctions resulting in progressively falling prices, to lower corporate tax rates for developers, the government has been combating climate change head-on.

Mandating utilities to procure a minimum purchase of renewable power, massive investment in transmission infrastructure and support for solar parks helping reduce project development and land acquisition risks have accelerated green energy growth.

And now, with green hydrogen at the forefront of the green revolution, the government has announced a slew of new measures.

In 2021, Prime Minister Narendra Modi flagged the launch of a National Hydrogen Mission. He approved an initial outlay of Rs. 197.4 billion (bn) to facilitate demand creation, production, utilisation and export of green hydrogen.

Government policy reforms will eventually forge India's energy destiny. And with a few steps in the right direction can lay a strong foundation for lasting prosperity and greater energy security. This starts with transforming the transport and the power sector of the country.

#8 India's transport and power sectors are at the helm of this transition

The latest climate report from the Intergovernmental Panel on Climate Change (IPCC) finds that 'it is now unequivocal that human-caused emissions from burning fossil fuels are responsible for recent warming.'

The power and the automotive sector alone account for over 40% of the emissions in the country, placing them at the helm of this transition.

Energy demand from India's transport and power sector is set to multiply over the next 30 years as the population and disposable income inflate.

Therefore, decarbonising these sectors, especially the hard-to-abate aviation and refinery sectors and long-distance freight transport, is vital to India's climate goals.

The falling cost of electric vehicles could lead to their faster adoption if the necessary support infrastructure is developed in parallel.

Approximately one-third of the four-wheelers and half of the two-wheelers sold in 2030 could be electric and could further increase to 75% and 90%, respectively, by 2050.

The relatively low cost of setting up and operating power will benefit the end consumer, propelling the shift to 'greener pastures'.

This budding transition offers investors a great opportunity to create long-term gains.

#9 Investors stand a chance to benefit immensely from this opportunity

The disruptive shift in the energy landscape has caught the fancy of legendary investors like Charlie Munger.

In 2021, Munger was bullish on renewable energy. He said -

  • 'I would be in favour of using a lot more renewable energy from wind and solar, even if there were no global warming problems.

    I love the fact that we're rapidly reducing the burning of coal and the burning of gasoline and diesel...and replacing them with electricity from renewable sources.'

The energy transition from fossil fuels towards greener, more environmentally friendly sources is still in the developing stages.

However, it is quickly turning into an investing megatrend and is perhaps the biggest investment theme of the decade. Given this massive scope for outsized returns, we highlight some of the top players operating in the industry.

NTPC aims to add 4,000 MW of green energy capacity every year, which would be scaled up to 8,000 MW towards 2032.

Apart from this it runs a hydrogen pilot project in its Vindhyanchal unit and is working on a green hydrogen fuelling station project in Leh, Ladakh.

The nation's largest fossil fuel retailer, IOC, plans to build a green hydrogen plant at its Mathura refinery and another in Kochi. It aims to convert at least 10% of its hydrogen consumption at refineries to green hydrogen soon.

A front-runner across the renewable spectrum, Tata Power's contribution towards the green energy sector has been fascinating.

The company has a renewable power capacity of 2.6 GW and plans to expand it to 15 GW by 2025. It is well-positioned to respond to the seismic shift in the landscape of India's renewable energy push.

Apart from pure energy players, there are also companies that are investing in the equipment for green energy such as Borosil Renewables and Websol Energy.

Borosil Renewables enjoys a sweet spot as India's leading solar glass manufacturer. To secure India's expanding needs, Borosil Renewables has planned to increase 5 times more production from the current levels.

Websol Energy, a leading manufacturer of photovoltaic monocrystalline solar cells and modules in India intends to more than seven-fold its existing capacity (around 250 MW) to retain its position as one of the largest producers of solar cells in India.

#10 The world is coming together to support each other

In December 2015, 195 nations signed up for the Paris Agreement. The agreement is an important pact for international cooperation in tackling climate change. Countries all around the world are taking steps to deliver on it.

The Paris Agreement explicitly requires each country to revise its pledge and increase its ambition every five years.

In 2015, at the Paris climate change summit 195 countries agreed to submit revised roadmaps at the 26th session of the Conference of the Parties (COP26).

However, at COP26, their pledges for 2030 were not sufficient. To close this gap, COP26 ended with plans being made for countries to return at COP27 and update their NDC pledges again.

Sweden and Norway were some of the first countries to legally commit to net-zero targets. China committed to reaching carbon neutrality by 2060, while South Korea and Japan committed to net zero emissions by 2050.

At present, the largest producer of "clean" energy is Norway, where 99% of the energy produced comes from renewable sources. New Zealand, with 80.9% of renewable energy, surpassed Brazil (which ranks third with 78.4%) and took second place.

In conclusion

This will be a decisive decade for India. The country can accelerate the scale of decarbonisation by being proactive, all while pursuing economic growth.

While there will be many roadblocks, a well-planned and orderly strategy could outweigh all the downsides.

Therefore, the country should view this time as an opportunity to create long-term value for the industries while embracing accelerated growth.

Investment in securities market are subject to market risks. Read all the related documents carefully before investing

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What is green energy?

Green energy, also known as renewable energy or clean energy, refers to energy generated from natural and sustainable sources that have minimal negative impact on the environment. Examples of green energy sources include solar power, wind power, green hydrogen, hydro power, geothermal energy, and biomass.

Green energy sources are considered sustainable because they are naturally replenished, unlike fossil fuels such as coal, oil, and gas, which are finite and contribute to greenhouse gas emissions and climate change.

Green energy is increasingly being adopted by individuals, businesses, and governments as a way to reduce reliance on fossil fuels and promote a more sustainable future.

How should you value green energy companies?

Investing in stocks requires careful analysis of financial data to find out a company's true worth. However, an easier way to find out about a company's performance is to look at its financial ratios.

Two commonly used financial ratios used in the valuation of stocks are -

Price to Earnings Ratio (P/E)- It compares the company's stock price with its earnings per share. The higher the P/E ratio, the more expensive the stock.

Price to Book Value Ratio (P/BV) - It compares a firm's market capitalization to its book value. A high P/BV indicates markets believe the company's assets to be undervalued and vice versa.

Which are the top green energy companies in India?

Based on stock screener, these are the top green energy companies in India:

You can see the full list of Green Energy stocks here.

These companies have been ranked as per their PE (Price to Earnings) ratio. Generally, speaking, high PE stocks are considered to be expensive. And low PE stocks are said to be cheap.

Of course, there are other parameters you should take into account before forming a hard opinion on the stock valuation.

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