The slow energy switch: IOC, BPCL, HPCL need faster ride to net-zero goals

Given their outsized contribution to air pollution & net-zero targets, state-run oil firms must accelerate cuts in greenhouse gas emissions. The country's hobbling renewable projects may delay plans

Energy transition is a buzzword in the boardrooms of major state-run oil companies, which are key contributors to India’s rapidly growing greenhouse gas emissions. But three of them — Indian Oil Corp (IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) — are yet to see their multi-trillion-rupee green investment ambitions translate into reality. 

Their chief financial officers are yet to open up their purses for projects covering renewables, including green hydrogen and biogas—at least not at a scale or pace that private sector giants Reliance Industries or Adani Green have done — according to senior officials and company data. 

That said, the fourth major state-run oil company, ONGC, has aggressively snapped up renewable assets earlier this year to meet 25 per cent of its 10 GW capacity target. This is something fellow state oil companies may need to emulate. 

State-run oil companies, among the biggest and fastest-growing emitters in the country, have to play an integral role in India’s journey towards net-zero by 2070, and a delay on their part risks the nation’s plans to neutralise emissions. India is the world’s third-biggest emitter after China and the US, according to the UK’s Energy Institute (EI). 

Leading state oil companies emitted a combined 54 million tonnes of carbon dioxide equivalent (CO2e) last year, or nearly 2 per cent of India’s 3 billion tonnes of CO2e from energy production, according to company reports and EI data. These figures relate to what are called Scope 1 and 2 types of emissions, which cover a company’s operations and use of external services like utility power or cooling. 

But after including Scope 3 emissions, which are generated across the value chain such as from burning petrol, LPG or diesel purchased from refiners, the three companies — IOC, BPCL, and HPCL— together account for around 650 million tonnes CO2e, or over a fifth of the country’s total emissions. 

Given their outsized contribution to air pollution and ambitious net-zero targets, state-run oil companies must accelerate cuts in greenhouse gas emissions — ONGC is aspiring to eliminate net operational emissions by 2038, IOC by 2046 , and BPCL and HPCL by 2040. But this is only with respect to Scope 1 and 2 category emissions. There are no targets for Scope 3. 

“Most Indian energy companies have net-zero targets far ahead of India,” said Manas Majumdar, leader, oil and gas at PriceWaterhouseCoopers. “They are capturing emissions from everywhere but the shift is not happening as much; all I can tell is the intent is there.” 

Also, crude oil refineries come under the compliance regime of India’s Carbon Credit Trading Scheme (CCTS), mandating cuts from next year. Emissions targets under CCTS have been announced till 2027, and a new set of targets and sectors will be finalised in FY27 for the FY28-FY30 period, forcing refiners to keep emissions under check. 

Different states 

Earlier this week, the government announced plans to review 43 gigawatts of renewable power projects that were successfully auctioned but lacked power purchase agreements with state utilities. That represents a quarter of India’s currently installed renewables capacity. 

Pointing to this anomaly, a top official from a large state oil company told Business Standard that the cancellation of awarded tenders pointed to the risks of planning renewable projects in India, not to mention the long waiting times to connect the projects to the grid. 

“India’s renewable sector has attracted over $100 billion in cumulative capital precisely because investors believed that winning an auction represented a secure foundation for project development,” said Pinaki Bhattacharyya, CEO, AMPIN Energy Transition. “That confidence assumed regulatory processes would distinguish between developer-caused delays and system-caused delays—and would penalise the former while fixing the latter. The 43 GW review undermines that distinction.” 

On top of project uncertainties is the fear of returns in renewables not being commensurate with what they make in fossil fuels businesses, which are typically around 10-12 per cent, said the head of energy transition efforts at one state oil company. “They don’t clear the hurdle rate for the boards to approve,” he said. 

State oil companies in India now seem to mimic the actions of European oil majors like BP Shell and Total, which, after an initial burst of enthusiasm in the early 2020s, are now exiting renewable projects, despite absorbing hundreds of millions of dollars of write-offs from such ventures on their balance sheet, in response to shareholder pressures. 

In the case of ONGC or IOC, the government is the shareholder, but has increasingly kept a distance from management, while demanding adequate returns in the form of dividends, senior refining officials said. 

The CEO of a state refiner said his job is to maximise capital efficiency of his existing investments in refineries and chemicals rather than put big money behind energy transition ventures. He said the return on capital is neither adequate nor clearly visible. 

“Oil companies want to expand but the market can only offer so much inorganic opportunities,” said Prashant Vasisht, senior vice president at ratings agency Icra. “Organic opportunities take time.”

 

With actual spending a fraction of proposed expenditure, there are concerns over how these companies will meet their emission targets in the coming decade under their net-zero plans. 

“The 2030s’ renewables targets look ambitious at the current pace of working and the capex that has been deployed—five years is a very short time considering these kinds of numbers,” Vasisht said. 

The spends 

Indian state-run explorers and refiners allocated capex of ₹1.29 trillion in FY25 and budgeted ₹1.32 trillion for spending on drilling for oil and gas, building refineries and setting up chemical plants, according to Budget documents. But there’s not a single line item in the Budget that mentions how much state-oil companies are spending on energy transition. 

The annual reports of state oil companies show that spending on energy transition projects seems a far cry from the ambitious ₹5-6 trillion announcements of capital expenditure. ONGC said in a presentation that ₹1,000 crore will be spent in FY25 for organic growth in renewables compared to ₹1 trillion earmarked by 2030; the rest of the companies do not mention current energy transition spends in the Budget. A Mumbai-based analyst said the numbers may be too small to be mentioned. IOC and BPCL did not comment on this issue. 

However, ONGC Chairman Arun Kumar Singh has chalked out a more aggressive, risky path to net-zero, translating announcements into actions. 

“Our total portfolio is built through organic and inorganic routes,’’ said Satyen Kumar, executive director and CEO of ONGC Green. The organic route has its limitations for public sector enterprises, Kumar said. 

ONGC NTPC Green, a JV with state-run generator NTPC, paid ₹19,500 crore as enterprise value for Ayana Renewable, with 4.1 GW operational and under-construction solar and wind capacity. It also paid ₹1,180 crore for PTC Energy, taking on ₹835 crore in debt, and securing 288MW in assets. 

The explorer plans to ride on Ayana’s expertise and flexibility to expand its solar and wind portfolio, Kumar said. “The reason is that tariff-based biddings (for renewables) are so competitive that a little bit of compulsion or compliance on account of being a CPSE (central public sector enterprise), takes your cost to a level wherein it is just impossible to maintain the kind of IRRs (internal rate of returns) we normally make a standard of in our upcoming projects at the time of approval,’’ Kumar said. ONGC’s strong focus makes its 2030 targets achievable. 

IOC’s green ambitions are massive, but it has been slow off the starting line. Total electricity generation from existing renewable projects during 2024-25 was 366 GWh, which resulted in emission mitigation of a mere 277,000 tonnes of CO2e, hardly 1.2 per cent of the company’s annual emissions of 22.5 million tonnes of CO2e. 

India’s biggest refiner plans to invest ₹2.5 trillion in energy transition that will help it achieve net-zero operational emissions by 2046. That includes installing 31GW of renewable energy by 2030 from just 252MW now, a pace that no Indian company has clocked. 

But energy transition efforts are seeing a positive face in Indian innovation. BPCL is the country’s first oil company to design an electrolyzer together with Bhabha Atomic Research Centre. “We are going to launch the country’s first green hydrogen mobility at Kochi with our indigenous electrolyzer. We compress it and we run a bus,’’ said N Chandrasekhar, head, R&D, BPCL. 

A bus will do for India’s transition solutions. But for net-zero, IOC, BPCL and HPCL might need to board a bullet train.