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RIL’s green foray will bring in scale and help mitigate risks for the sector

It will create confidence and will likely enable easier, and quicker, financial closure; will usher in scale in local manufacturing in India’s renewable energy sector—important to lower costs.

June 27, 2021 / 10:57 AM IST
Mukesh Ambani, chairman, RIL

Mukesh Ambani, chairman, RIL

On June 25, Power Minister RK Singh said that as much as $ 70 billion (about Rs 5.2 lakh crore) has been invested in renewable energy across the country in the past seven years.

A day earlier, on June 24, Reliance Industries Limited (RIL) chairman Mukesh Ambani announced that the oil-to-telecom behemoth will invest Rs 75,000 crore, about $10 billion in three years in an ambitious green energy foray.

Effectively, in three years RIL alone will invest more than 14 per cent of the cummulative investment over the last seven years. That India’s most valuable company by market capitalisation is pivoting distinctively from its conventional fossil fuel-driven business to a determined green-energy diversification, is a marker of things to come.

If anything, this offers a case for huge optimism. Big business marching into an area still considered nascent brings in two major constituents: financial muscle and scale.

“Green Energy Divide”

Ambani has described this as RIL’s attempt to bridge the “green energy divide” in a manner similar to Jio’s aim of bridging the digital divide. The three-pronged plan rests on three broad pillars.

Hyper-Integration: By integrating scientific knowledge with technological innovation to build and operate integrated systems.

Robust business model: By building a model that catches the irreversible upward curve in the demand for green energy in India and globally, and the downward curve in the cost of its production.

Scaling capacity: By improving the efficiency, performance, and life-cycle of assets and operations to achieve total system optimization and economics.

The most visible, and tangible, shift away from fossil fuel can be seen on the roads. While apartment buildings and the commercial high rises will likely increasingly see shiny solar panels atop terraces, the cars that people drive will be the biggest change agents in mainstreaming of renewable energy.

According to the Boston Consulting Group (BCG), the automotive industry is shifting toward electric vehicles (EVs) even faster than it had envisioned only a year ago. With steady support from governments and leading automakers in the face of the COVID-19 crisis, the global market share of electrified cars, SUVs, and other light vehicles grew from 8 per cent in 2019 to 12 per cent in 2020, and has shown continued strength in early 2021.

“This shift will accelerate dramatically in the years to come. In fact, our updated forecast predicts that by 2026 electrified vehicles will account for more than half of light vehicles sold globally—four years sooner than we anticipated in our previous report. What’s more, we see zero-emission vehicles replacing internal combustion engines (ICEs) as the dominant powertrain for new light-vehicle sales globally just after 2035,” the BCG said in a recent report entitled `Why Electric Cars Can’t Come Fast Enough’.

RIL’s announcement appears to perfectly fit into this emerging scenario. Among other things, RIL is setting up an integrated solar photovoltaic module factory, as also an advanced energy storage battery factory, an electrolyser factory for the production of green hydrogen, and a fuel cell factory for converting hydrogen into motive and stationary power.

Cascading Effect

RIL’s march into the green energy space could have some consequent secondary positive spinoffs. For one, it will bring down the risks associated with projects in the sector as RIL’s entry will create confidence and will likely enable easier, and quicker, financial closure.

This announcement will send out the signals that green energy is a sunrise industry that will fetch a healthy return on investment (ROI) for a long period of time. This will enable lowering of capital raising costs, which, in turn, will keep tariffs low. Persistently lower tariffs will percolate down to the consumer.

Two, RIL will usher in scale in local manufacturing in India’s renewable energy sector—important to lower costs. Currently, India imports more than 80 per cent of its solar cell and module requirements, mainly from China. Reliance’s plan to create an integrated solar photovoltaic factory to produce ingots and wafers could lower the cost of solar cells and modules.

Disclaimer: MoneyControl is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.

Gaurav Choudhury
Gaurav Choudhury is consulting editor, Network18.
first published: Jun 27, 2021 10:49 am