Reliance’s New Energy Plan Can Be Bolder

Mukesh Ambani, chairman of Reliance Industries, in Davos, Switzerland, on Jan. 29, 2009. (Photographer: Adam Berry/Bloomberg)

Reliance’s New Energy Plan Can Be Bolder

BloombergQuintOpinion

On June 24, Indian oil major Reliance Industries Ltd. announced a $10 billion investment in the production of low carbon technologies. In the face of a gradually declining fossil industry, growing momentum for clean energy investment, and supporting federal incentives, RIL’s move is merely imminent. While the company’s intent to scale and integrate emerging technologies, such as green hydrogen and fuel cells, is impressive, we’re at the point where such plans should be considered the bare minimum. India’s bold ambition to reach 450 gigawatts of renewable capacity by 2030 will require an unprecedented rollout of low-emission technologies within the next decade. The International Energy Agency forecasts that India needs $1.4 trillion in clean energy till 2040 to stay on a sustainable path. RIL’s aim to simultaneously manufacture photovoltaics, batteries, electrolysers, and fuel cells will likely unlock essential synergies in some of the most critical climate solutions. The company, though, should ratchet up its ambitions.

Not A Bold Gamble

Solar photovoltaics and batteries are relatively familiar technologies by now, with increasingly well-established global supply chains. While RIL’s intent of accessing the PV expertise along the entire value chain is unique, it suits RIL’s ends in India. China has a dominant lead in India’s PV market, but the central government’s self-reliance vision has prompted import duties forcing the project developers to rely on expensive domestic supply. A vertically integrated supply chain will enable RIL to compete with its Chinese counterparts and bridge the demand-supply gap.

RIL’s strategy will promote a rapid rebooting of domestic PV production but may inspire more protectionist measures.

The company also announced that it aims to focus on decentralised solar installation. This strategy will allow Reliance to tap into commercial and industrial users, who are creditworthy and account for 70% of India’s rooftop solar installations, and avoid the risk of non-payment from the distribution utilities.

Many countries and businesses are seeing emerging opportunities in Hydrogen. Hydrogen has become the source of much recent excitement thanks to its potential to replace fossil fuels as an industrial feedstock and heavy vehicles like trucks and ships. However, green hydrogen needs to fall dramatically in price to be cost-competitive. Integrating green hydrogen with low-cost variable energy will allow RIL to bring down these prices rapidly. In addition, the readily available end-use of hydrogen in the Jamnagar refinery will further reduce the cost of transport and storage.

Several of the world’s largest companies, particularly fossil fuel producers, are also starting to jump on the hydrogen bandwagon in anticipation of rapidly shifting demand patterns. Shell is leading a consortium of countries that plan to produce up to 10 gigawatts of green hydrogen by 2040, RWE AG is leading a similar effort for 10GW by 2035, and Norway’s state oil company, Equinor, this week announced plans to build the world’s largest hydrogen production plant with carbon capture and storage.

A Conventional Approach

RIL’s strategy to foray into clean energy technology is modest and cautious compared to its global peers, who seem to be reinventing themselves as renewable businesses. Reliance is at least four years late in joining the green energy race. TotalEnergies started investing in renewable energy in 2008, whereas Shell announced its interest in 2016.

Typically, the oil majors allocate 3-5% of their annual capital expenditure for investments in clean energy. RIL announced a 2% allocation.

Unlike its global peers, Reliance has chosen to invest in technology production and not create generation assets, thus starting at the lower end of the value chain. Further, the oil companies have engaged in inorganic investments by acquiring a share in relevant entities. Perhaps it’s too early to predict a similar move for RIL. However, it is the only oil company among its peers to venture into green hydrogen and fuel cells. RIL’s creation of a separate finance arm and a dedicated project team is a practice that most leaders in its peer group have followed.

What Next

What’s exciting about such announcements is that it shows companies are gradually moving from vague 2050 targets to more granular decarbonisation strategies. Importantly, as the next major climate summit approaches in November, companies will have to start turning targets into 2030 plans. Therefore, in pursuing its diversification goals, RIL should consider the following:

  • Developing integrated production: Development of a coherent value chain allowing integration of several elements, such as PV and storage, PV, hydrogen, and fuel cells et al., to accelerate the scale and drive efficiency.

  • Investing in innovation: RIL should use the financial arm to invest in innovative startups, research more effective technologies, create solutions for access to finance, and invest in associated business models.

  • Informing policymaking: Informing and supporting the state policymakers in spearheading efforts and exploring solutions to reviving the electricity distribution sector.

  • Creating demand: Ensuring rapid demand development for emerging technologies. Identifying the early offtake points for hydrogen and fuel cells

  • Building subnational partnerships: Collaborating with policymakers, investors, innovators, incubators, entrepreneurs at the subnational level.

Reliance has given a fresh impetus to India’s climate change ambition. It should strive to stay ahead of the curve and generate momentum for a more sustainable future.

Neelima Jain is deputy director and senior fellow with the Wadhwani Chair in U.S.-India Policy Studies at the Center for Strategic and International Studies. Lachlan Carey is an associate fellow with the CSIS Energy Security and Climate Change Program.

The views expressed here are those of the authors, and do not necessarily represent the views of BloombergQuint or its editorial team.

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