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Are Governments Ready to Hand it Over to the Corporations for a Clean Transition in Asia?

The transition to renewable energy is not something that governments can do alone, yet is something that cannot happen without governments. At the same time, the menu of potential policies that are available to governments is extensive and can be quite complex.

Which energy policies are going to have the biggest impacts, and which ones will change behaviours? At the recent Economist Future of Energy Week, regulators came together to discuss how differently the energy transition is carried out across the globe.

India’s public-sector push

“From day one, the government and regulators realised that both the private sector and the government sector have to work closely, not only in terms of policy and regulations, but also in the commercial arena.” P.K. Pujari, Chairperson of India’s Central Electricity Regulatory Commission.

India has set itself a tough target of achieving 450GW of renewables by 2030. That’s four times more than Canada’s renewable capacity today, and the total of today’s second and third leading countries – United States and Brazil’s – renewable capacity combined.

Although India has made great strides today, its early phases saw the government mandating large public sector undertakings (PSU) – also known as government-linked corporations – to incorporate renewable sources by a cut-off date. India’s largest energy conglomerate, NTPC Limited, formerly known as National Thermal Power Corporation Limited, a traditionally conventional power generator, was one of the central PSUs involved in the exercise.

“Large PSUs like NTPC or SECI (Solar Energy Corporation of India) are all big power trading organisations were mandated to get into renewables. They provided the market opportunity and opened up bidding for smaller partners; they called for 50, 100, 200 megawatts, small, large, medium-sized bidders to bid. They aggregated the supply on one side and backed an agreement with distribution utilities to sell those power supplies, making them an intermediary,” said Pujari.

The mandate on India’s largest corporations also softened the blow of new policy for smaller players. The early risks perceived by investors relating to new regulations and frameworks were more easily managed by public enterprises closest to governments.

“These few big players – they played very important roles. They provided a huge comfort and impetus for these renewable generators to come in,” Pujari continued. The results are striking – since the country’s first foray into renewables in 2015, it has risen from almost zero renewables to nearly 150GW of renewable energy capacity installed today.

The same approach is being used to push electric vehicles (EV) in the country. NTPC is currently working strongly to develop EV charging infrastructure across India. “They are doing it in the same way – creating a market opening or slot for others. Although the cost is high initially, they can afford to do it. So, the economies of scale sets in and you can leverage the strength of these corporations to create that initial impetus,” added Pujari.

The commercial case for renewables

Despite starting off on a government-mandated push, India’s private sector is beginning to see the commercial advantages of venturing into clean energy. “Today, because the market has matured, most of the policies and regulatory issues have more or less settled. So, today suppose an open-access consumer, they bid or go to the market and get into a contract to have a direct supply for any renewable generation – they can enjoy that comfort that has come to the market,” Pujari concluded.

This growing comfort amongst private players and investors is extending across the globe. Companies are now looking to power their businesses with renewable electricity not only for environmental reasons, but to gain a competitive edge.

Sam Kimmins, Head of RE100, shared “Companies, noticing the global trend of shifting to renewables, want to be at the forefront of that. They want to be leaders benefiting from the transition rather than being left behind with stranded assets and old systems.”

RE100 is a global initiative that brings together the world’s most influential businesses committed to 100% renewable electricity. In his work, Sam says, this is an area he’s found to be a real win-win for governments and businesses. According to him, companies today are not just demanding for renewable electricity, but are actively investing in renewable electricity.

“So, self-generation: IKEA for example, famously owns more wind turbines than they do stores. Multinationals like Google and Apple, which are demanding 100% renewables for their own operations, are also asking their suppliers to use 100% renewables. Companies are making real business decisions based not only on their own ability to buy renewables but also on the supply chains.”

Power purchase agreements between energy providers and corporate players are also increasing. Recently, the world’s largest power purchase agreement to-date was inked between Taiwanese company TSMC and renewables power supplier Ørsted.

According to Sam, “Incredibly large deals are being done and what we’re finding is that the policy recipe enabling companies to make these investments actually work across geographies.” To aid governments in pushing friendly policies, RE100 has defined six areas that support private-public growth in renewables.

One being creating a level playing field for renewables so that investments reflect the real prices of solar and wind as well as creating market structures.

“If there’s a level playing field, renewables are the cheapest form of electricity in history to quote the IEA (International Energy Agency),” Sam said.

“Another is creating market structures where companies can buy directly from a supplier; so for example, India is really moving fast on this; companies in India can now engage with power purchase agreements. In 2019, India was also the second largest beneficiary of corporate power purchase agreements after the US with about 1.9 gigawatts of power purchase agreements,” Sam continued.

In driving forward renewables, collaboration between the public and private sector will be key, especially for Asia’s vastly different socio-economic and political landscape. Clean energy will form the baseline of future decisions across all sectors, so whatever the landscape – wise policies that leverages these differences will be needed to help businesses stay ahead of the game.

Similarly in the Philippines, the Green Energy Options Programme (GEOP) allows qualified electricity consumers to choose their electricity supplier. The aim is to empower business owners to choose renewable energy as their exclusive source of electricity.

According to Sam, South Korea is another example of a nation promising to open up its market to power purchase agreements, despite its centralised system. “Now, it’s a very centralised market with KEPCO, a single large energy provider…Korea’s also very coal-dominant. But different energy systems and different economies are all seeing value in opening up their markets to allow corporations to buy directly from a supplier, therefore allowing competition in an open marketplace.”

Importantly, policies will work differently across different markets, government systems, and socioeconomic backgrounds. What is effective in India for example, might not work in other parts of the world.

Floresinda Baldo-Digal, Commissioner of the Philippines’ Energy Regulatory Commission stated, “In the Philippines, we have the basic law, but before we are able to implement the Renewables Energy Act, there were a lot of rules that we had to implement and moot the Department of Energy. We subjected the rules to public consultation by the various stakeholders we were trying to regulate, and found a win-win solution for both the government and the private sector.”

In driving forward renewables, collaboration between the public and private sector will be key, especially for Asia’s vastly different socio-economic and political landscape. Clean energy will form the baseline of future decisions across all sectors, so whatever the landscape – wise policies that leverages these differences will be needed to help businesses stay ahead of the game.

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