India needs to invest in energy mix and power networks: Michael Waldron

Interview with energy investment analyst of International Energy Agency

International Energy Agency (IEA) in its latest report on ‘World Energy Investment’ indicated a decline in investment in oil & gas sector for the second consecutive year and increase in energy efficiency and energy networks.The report cited India to be the fastest-growing major energy investment market, at the backdrop of strong policy push to modernise and expand the power sector.

Michael Waldron, energy investment analyst (Economics and Investment Office) IEA tells in an interview to Shreya Jai that India needs to invest in energy networks and demand side management. Not writing off coal, he says it would remain an investment mainstay but investors, like energy market, should look at the mix of energy sources for healthy returns. Edited excerpts:

Investment in electricity is more than oil & gas but it has contrasting trends. Will renewables fuel its growth going forward?

The investment in electricity declined by 1% in 2016 but it looks more because the investment in hydrocarbons came down. But investment is more towards low carbon side, clean power and networks. By and large, coal power is still third largest in investment after solar and the wind. But in terms of the trend, investment in coal power has come down. In solar and wind, it remains stable. Renewables continue to be the largest part of electricity investment. Renewable is 40% of total electricity investment and 70% of total generation investment. A lot of changes in renewable has got to do with the change in cost.

How the financing models and investment would change with the energy transition?
 

One of the issues we are seeing is that investors need to rely on multiple sources of revenue. So having more differentiated pricing in terms of time and location would lead to more advantage for the investors. It would help when different technology and sources would have different bankability. For financing, a lot of scope is there in the debt market. The large institutional investors are looking for longevity and predictable rate of returns. But, policy changes can throw some risks.

Will coal take a backseat for these investors as they move towards greener sources?
 

Even, if there is the noise of equity investors divesting from fossil fuel etc., it doesn’t necessarily change the debt that is available for these projects. Even, if you have multi-lateral development banks and some countries like in the US saying their commercial banks would not put money in coal power, also there is debt finance from other sources like Chinese and Japanese banks. The jury is out but whether we are seeing any contraction in coal power investment. Anyway, projects get funded based on their bankability. But it has more to do with energy market fundamentals and policy decisions, rather than divestment campaigns per se.

In renewables also, more investment is in solar & wind and not in other clean sources like hydro or nuclear. Why?
 

Cost is a good reason for it. The speed at which solar and wind projects can be built is less as well. For instance, large hydropower projects take more time to build given the complexities involved. Its very site dependent as well. Whereas solar and the wind can scale up very quickly. Obviously, there are complex projects in solar and wind such as offshore wind and large solar PV projects but with technology improving, more countries are adopting them and scaling up.

India is going through energy transition where base power will be coal but we would need peaking power to support the growth of RE? What energy mix do you envisage in this case?
 

In such cases, one should first focus on ways to deploy renewable which increases their value relatively. In most parts of India, there is evening peak, so demand side management needs to be taken up. This is to reduce the peak or at least the growth in peak. This can be done by a combination of renewable and other flexible assets without necessarily building huge amounts of peaking power. It could be storage or hydro or the combination of solar and wind. Having a well-connected system here in India would help. Such as connecting hydro rich Northeast with areas that have solar and the wind and not much hydro.

Investment in hydrocarbons has slowed down but India continues to thrust the demand. What's your forecast?
 

While we are seeing a lot of progress being made in the electric vehicle and vehicle efficiency, we are still seeing the size of general car fleet increasing. That all tends to boost oil demand. In a way, it depends on the evolution of the role of energy efficiency in the policies. And low oil price environment makes it attractive too but less energy efficient.

In a low oil price scenario and growing economy needs like that of India, do you think electric vehicles are a long shot?
 

I think in many parts of the world, there is a great potential for electric vehicles. Of course, it depends on the evolution of the battery technology, ability of car makers to make their targets, putting the right charging infrastructure. The enthusiasm from the government is also important. The automobile sector rather moves slowly and my guess is 15 years or so we will see the results.

The way investment and financing are undergoing the change in the energy sector, will this impact the job market as well?
 

A blanket conclusion is difficult because the job needs are different for every sector. In power generation across different sources, when you combine job needs for manufacturing, construction, operations and fuel supply, this is more or less comparable to different technology even between fossil fuel and renewables. Investment has a huge bearing on jobs but it’s something governments should pay more attention to. When you are changing the investment in energy sources, this does shift the job prospects.