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Dated Nov 20, 2022

Climate change: Look beyond the doom and gloom

Not a day goes by without apocalyptic predictions of climate disaster. The COP27 summit in Egypt re-iterated sundry climate targets while independent analyses oozed gloom and doom. The Economist had a cover story titled "Goodbye to 1.5 degrees," groaning that the race to limit warming was already lost. Others highlighted worst-case scenarios of 4-degree temperature increases.

Yet the technical and financial problems have fundamentally been solved. Renewable technologies are already cheaper than those based on fossil fuels, and global markets provide trillions of dollars across borders for viable projects. Technical innovation is in its infancy and huge improvements are expected. Scaling-up issues are formidable but are not fundamental.

The bid cost of renewable power in India once touched a low of Rs 1.99/unit. Later, a 40% import duty on solar modules and rupee depreciation raised renewable power costs. Yet new renewable projects are coming up at Rs 2.50-2.75 per unit, whereas new coal-based projects cite Rs 4/unit or more.

Wind and sunshine are intermittent, so renewable plants function at barely 25% capacity. Massive, expensive storage is required to even out fluctuations. Major transmission lines are required to move renewable power from areas with excellent sunshine and wind to distant consumers.

For proper comparison, we should consider life-cycle costs initial plant costs plus maintenance and replacement costs over 20-25 years. Coal-based plants cost less but coal prices rise over time, while sunshine remains free. Solar panels have no moving parts and hence suffer little wear and tear, whereas coal-based power plants require a lot of repairs and replacement.

In 2021, the Solar Energy Corporation of India (SECI) had a tender for 400 MW of round-the-clock renewable electricity including storage. Renew Power won with a levelised tariff of Rs 3.65/unit over two decades. The comparable tariff for a coal-based plant would have been Rs 4.50/unit. The difference is already conclusive, and new technology keeps reducing renewable costs.

Renew Power will focus on battery storage while others like Greenko prefer pumped storage from hydel reservoirs. Both have shown that renewable power plus storage is cheaper than coal-based power on a life cycle basis.

Something similar is happening in electric vehicles. The lifetime costs of electric cars can be less than that of petrol-based ones. The upfront price of e-cars is still high in the US but not in Asia.

China is the cheapest, largest producer of e-cars. Some producers-BYD, Nio, Xpeng-are trying to beat Tesla in premium sedans. SAIC, Chery and Geely occupy the medium segment. Several low-end companies produce astonishingly cheap cars, aided by subsidies that are getting phased out. A Changhe EC 200 car with a 100 km range is priced at the equivalent of Rs 4.8 lakh. The Levdeo goes 160 km and costs a bit over Rs 6 lakh. SAIC's Hongguan Mini costs just Rs 3.2 lakh. Quality and range problems, but the fundamental engineering issues have been solved. They are definitely cheaper on a life-cycle basis.

This is even truer of e-scooters, where India is blossoming. Ola has a promotional e-scooter at Rs 84,999, while Hero's Flash e-scooter costs Rs 57,000. Several small companies cite prices of just Rs 30,000 to 50,000, which is comparable to what small Chinese companies are quoting. Cheaper models have lower ranges or unproven technology and insufficient charging facilities. Indian companies get modest subsidies if they use domestic components but with scale and innovation these should be phased out.

In a decade, green power can displace most conventional power, and vehicles can run mainly on green electricity. Green hydrogen can replace coal in industries like steel and cement. This technology is futuristic, yet Reliance is already building giant factories aiming to cut the price from $4 to $1 per kilo, making green hydrogen competitive with coal.

Finance is available across the globe. Indian giants have proposed hundreds of billions of dollars of investment in green electricity, green hydrogen, electrolysers, batteries, and associated technologies. Nobody doubts they will be able to raise these sums. The projects are economically viable and will get government help if required. Global markets can comfortably arrange trillions of dollars for viable projects.

Will this happen quickly enough to keep temperature increases below 1.5 degrees? Probably not. Still, I am not alarmed. The 1.5-degree target is comparable to a sell-by date for pharmaceuticals. Large safety margins are built into such timelines. Modest delays do not necessarily mean disaster.

That is another topic for another day. For now, let us rejoice that the technical and financial solutions are at hand. Scaling up is a problem but not a fundamental one.