MC Explains: Why oil companies are making big plans to invest in renewable energy
IOC has the biggest share among India's oil firms with a total green energy capacity of 237.42 MW comprising 167.6 MW of wind and 69.82 MW of solar power.
January 26, 2023 / 12:50 PM IST
India has set itself a ‘net zero’ emissions target for 2070. Several other oil companies in India have set similar but earlier targets for their own businesses. Representative Image (File image)
State-run oil marketing company Bharat Petroleum Corporation Ltd (BPCL) on Tuesday said that it would set up a renewable energy plant in Rajasthan. BPCL is not an outlier in the oil and gas space to tap green energy sources -- almost all of its Indian and global counterparts now plan to go green.
Here is why.
What is the need?
India has set itself a ‘net zero’ emissions target for 2070. Several other oil companies in India have set similar but earlier targets for their own businesses. State-run Indian Oil Corporation (IOC), for instance, has a net zero target for 2046 and Hindustan Petroleum Corporation Ltd (HPCL) and BPCL by 2040. BPCL on Tuesday said its expansion in renewable energy will help it achieve this goal. All three companies will target scope one and scope two emissions for these goals.
What are scope one and scope two emissions?
Scope one emissions are direct greenhouse gas (GHG) emissions that occur at the source that are controlled by the business, and scope two emissions are indirect GHG emissions that occur due to purchase of energy sources such as electricity used for the business. There is a third scope of emissions that refers to emissions outside scope one and two, but related to the business through its product value chain.
What is the current size of the renewable portfolio for Indian oil and gas companies?
Though the three oil marketing companies have significant expansion plans, their current green portfolio remains modest. BPCL, as of March 2022, operated a green portfolio of 46.44 megawatts (MW), which also includes wind energy of 11.8 MW, HPCL’s portfolio includes 46.44 MW of solar and 100.9 MW of wind power. IOC has the biggest share with a total green energy capacity of 237.42 MW comprising 167.6 MW of wind and 69.82 MW of solar power.
What are global oil companies up to?
BP of the UK, TotalEnergies of France and Abu Dhabi National Oil Company (ADNOC) all have announced grand plans to invest in renewable energy over the next decades. BP plans to invest and build 20 gigawatts (GW) of renewable capacity by 2025 and take it to 50 GW by 2030, while ADNOC in partnership with Abu Dhabi National Energy Company (TAQA) and Mubadala Investment Company will aim for 100 GW by 2030 and Total intends to have 35 GW of gross capacity in 2025 and 100 GW in 2030.
Why the pressure to commit to net zero?
The energy industry is counted as the most polluting in the world. The Paris Agreement, the multi-country accord to tackle climate change, proposed to keep the increase in global average temperature to well below 2°C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels. Financial institutions are under tremendous pressure to defund or reduce funding exposure to carbon emission-heavy industries. Banks and lending institutions are increasingly choosing to fund energy transition plans over pure-play fossil-fuel-based growth. Environmental, social and governance (ESG) scores are gaining prominence in funding and investment decisions. Adoption and achievement of net zero targets by oil companies help meet the environment requirements in their ESG scores. The International Energy Agency (IEA) had earlier said that though fossil fuels drive the companies’ near-term returns, failure to address growing calls to reduce GHG emissions could threaten their long-term social acceptability and profitability.
