ENERGY NEWS JULY-2020

Petroleum Conservation Research Association Sanrakshan Bhawan 10, Bhikaji Cama Place

New Delhi 110066

INDEX

S. NO. SUBJECT PAGE

1

1.1

1.2

2

2.1

3

3.1

4

4.1

4.2

5

TRANSPORT

-E-Vehicles (EV)

-Oil & Gas run vehicles

ENVIRONMENT

- Air, Water & Sound pollution

ENERGY CONSERVATION

-Oil & Gas

RENEWABLE ENERGY

-Wind

-Solar

OTHERS

1-6 6-8

8-9 10-27 27-28 28-36

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This Energy News contains excerpts of articles picked up from selected daily newspapers & magazines.

1

The road to electric vehicles with lower sticker prices than gas cars – battery costs explained

Electric vehicle sales have grown exponentially in recent years, accompanied by dropping prices. However, adoption of EVs remains limited by their higher sticker price relative to comparable gas vehicles, even though overall cost of ownership for EVs is lower. EVs and internal combustion engine vehicles are likely to reach sticker price parity sometime in the next decade. The timing hinges on one crucial factor: battery cost. An EV’s battery pack accounts for about a quarter of total vehicle cost, making it the most important factor in the sales price. Battery pack prices have been falling fast. A typical EV battery pack stores 10-100 kilowatt hours (kWh) of electricity. For example, the Mitsubishi i-MIEV has a battery capacity of 16 kWh and a range of 62 miles, and the Tesla model S has a battery capacity of 100 kWh and a range of 400 miles. In 2010, the price of an EV battery pack was over $1,000 per kWh. That fell to $150 per kWh in 2019. The challenge for the automotive industry is figuring out how to drive the cost down further. The Department of Energy goal for the industry is to reduce the price of battery packs to less than $100/kWh and ultimately to about $80/kWh. At these battery price points, the sticker price of an EV is likely to be lower than that of a comparable combustion engine vehicle.

Forecasting when that price crossover will occur requires models that account for the cost variables: design, materials, labor, manufacturing capacity and demand. These models also show where researchers and manufacturers are focusing their efforts to reduce battery costs. Our group at Carnegie Mellon University has developed a model of battery costs that accounts for all aspects of EV battery manufacturing.

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From the bottom up Models used for analyzing battery costs are classified either as “top down” or “bottom up.” Top-down models predict cost based primarily on demand and time. One popular top-down model that can forecast battery cost is Wright’s law, which predicts that costs go down as more units are produced. Economies of scale and the experience an industry acquires over time drive down costs. Wright’s law is generic. It works across all technologies, which makes it possible to predict battery cost declines based on solar panel cost declines. However, Wright’s law - like other top-down models - doesn’t allow for the analysis of the sources of the cost declines. For that, a bottom-up model is required. The battery pack, the large gray block filling the chassis in this diagram of an electric car, contributes the most of any component to the price of an EV. To build a bottom-up cost model, it’s important to understand what goes into making a battery. Lithium-ion batteries consist of a positive electrode, the cathode, a negative electrode, the anode and an electrolyte, as well as auxiliary components such as terminals and casing. Each component has a cost associated with its materials, manufacturing, assembly, expenses related to factory maintenance, and overhead costs. For EVs, batteries also need to be integrated into small groups of cells, or modules, which are then combined into packs. Our open source, bottom-up battery cost model follows the same structure as the battery manufacturing process itself. The model uses inputs to the battery manufacturing process as inputs to the model, including battery design specifications, commodity and labor prices, capital investment requirements like manufacturing plants and equipment, overhead rates and manufacturing volume to account for economies of scale. It uses these inputs to calculate manufacturing costs, material costs and overhead costs, and those costs are summed to arrive at the final cost. Cost-cutting opportunities Using our bottom-up cost model, we can break down the contributions of each part of the battery to the total battery cost and use those insights to analyze the impact of battery innovations on EV cost. Materials make up the largest portion of the total battery cost, around 50%. The cathode accounts for around 43% of the materials cost, and other cell materials account for around 36%. Improvements in cathode materials are the most important innovations, because the cathode is the largest component of battery cost. This drives strong interest in commodity prices.

3

The most common cathode materials for electric vehicles are nickel cobalt aluminum oxide used in Tesla vehicles, nickel manganese cobalt oxide used in most other electric vehicles, and lithium iron phosphate used in most electric buses. Nickel cobalt aluminum oxide has the lowest cost-per-energy-content and highest energy-per-unit-mass, or specific energy, of these three materials. A low cost per unit of energy results from a high specific energy because fewer cells are needed to build a battery pack. This results in a lower cost for other cell materials. Cobalt is the most expensive material within the cathode, so formulations of these materials with less cobalt typically lead to cheaper batteries. Inactive cell materials such as tabs and containers account for roughly 36% of the total cell materials cost. These other cell materials do not add energy content to the battery. Therefore, reducing inactive materials reduces the weight and size of battery cells without reducing energy content. This drives interest in improving cell design with innovations such as tabless batteries like those being teased by Tesla. The battery pack cost also decreases significantly with an increase in the number of cells manufacturers produce annually. As more EV battery factories come on-line, economies of scale and further improvement in battery manufacturing and design should lead to further cost declines. Road to price-parity Predicting a timeline for price parity with ICE vehicles requires forecasting a future trajectory of battery costs. We estimate that reduction in raw material costs, improvements in performance and learning by manufacturing together are likely to lead to batteries with pack costs below $80/kWh by 2025. Assuming batteries represent a quarter of the EV cost, a 100 kWh battery pack at $75 per kilowatt hour yields a cost of about $30,000. This should result in EV sticker prices that are lower than the sticker prices for comparable models of gas-powered cars.

*****

4

Electric vehicles could add to carbon emissions and load shedding: but there’s a solution South Africa has the highest emission intensity in the G20 group of industrialised and developing countries. This threatens its commitment to help slow global warming. This disproportionate contribution is driven by the country’s coal-dependent national electricity utility, Eskom. In generating power, its plants release 512 billion kg of carbon dioxide into the atmosphere annually. The country’s road transport sector also contributes to the problem: it was responsible for 13% of the total share of energy related carbon emissions in 2018. To reach its targets, South Africa must reduce emissions by 32% in the next 10 years alone. But Eskom is also the engine of the economy and struggles to meet current demand, with frequent rolling blackouts. Internationally, electric vehicles have been considered a way to reduce emissions. In Europe, electric vehicles rose to 6.8% of passenger vehicle sales, with 167,000 sold in the first quarter of 2020 alone. Currently, only around 1,000 of the vehicles on South Africa’s roads are electric, with substantial growth expected. But adopting them more widely isn’t the solution in itself because they would still depend on electricity generated from carbon-emitting coal power stations. They would also add to the strain on the electricity grid. Fortunately, South Africa has abundant sunshine, which could help reduce the burden with solar charging. Unfortunately, electric vehicles tend to be charged at home and at night when it’s dark. One way to make the best use of solar energy, without the need for expensive battery storage, is to charge vehicles during the day, using a solar photovoltaic carport at the workplace or large car parks.

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Approximately a third of South Africa’s estimated 10 million households use a vehicle to drive to work each day, but the vehicle spends most of the day unused. Daytime charging from solar would consume energy directly and locally. It would avoid adding a load to the electricity system through adding electric vehicles. In a recently published paper we explored what the impact would be of electric vehicles charging at home and at the workplace in South Africa. We examined the potential impact of electrification of the country’s vehicle fleet, and the concept that large employers, or car park owners, could provide solar photovoltaic carports as a service for employees, or parking clients, to charge their vehicles during working hours. We ran simulations based on one, 1,000 and one million vehicles. Each simulation was run with scenarios of vehicles charging at home, vehicles charging at work and vehicles charging at both home and work. The work scenarios used solar photovoltaic carport charging, augmented as needed with the mostly coal-powered grid. Our results showed that from a vehicle owner’s perspective it’s significantly more expensive to refuel a petrol vehicle than it is to charge an electric vehicle. We found that the cost can be more than halved if vehicle owners charge their vehicles at work.

Fuel vs charging In South Africa, charging electric vehicles with coal-based power could result in more emissions than running those vehicles on petrol, except when the vehicles are also charged at work. Charging vehicles at the workplace using solar photovoltaic augmented carports would reduce the carbon footprint. This would be the case whether the charging took place only at work or at home too. More electric vehicles could be supported by Eskom and employers could potentially generate income from solar energy. From the employer’s perspective, at-work charging scenarios, where they sell electricity to the employee, have an annual net positive revenue. Any excess solar energy can be fed back into the building. The financial benefit to the employee is larger when employees charge only at work. The scenario where electric vehicles are charged only at home would put Eskom under the most pressure. Adding just 4 million electric vehicles would exceed the energy capacity of a fully operational grid. Clearly, the carbon footprint would be higher in this scenario.

6

Going forward With the increasing threat of climate change due to the emissions of greenhouse gases, it’s necessary to explore greener solutions, such as moving to electric vehicles. But in a country where the grid itself is a major contributor to emissions – and can’t meet power demand anyway – more planning is needed. Solar photovoltaic carports at the workplace will reduce the impact on Eskom, save costs, and decrease the carbon footprint. It’s likely that owners will also charge their electric vehicles at home, so it’s important to offer them incentives to use the most sustainable balance of home and work charging. Since our focus was the electrical and environmental impact of electric vehicles, we limited our environmental assessment to the operational life-cycle of the vehicle. We excluded the environmental impact of production and shipment and later disposal. Future work should assess the full life-cycle environmental impact of combustion engines and electric vehicles, and also evaluate the emerging hydrogen power. Given that South Africa has almost 300,000 minibus taxis, we are also exploring electric minibus taxis with solar-powered taxi ranks, which could eventually even help with grid stability.

***** Auto Companies have a Pile of BS-IV Cars to Sell Before

March Deadline

Dealerships are left with a significant stock of Bharat Stage-IV emission norms

compliant vehicles — which cannot be sold or registered in the country from

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April 1 — despite production cuts by manufacturers as retail sales declined for

a second consecutive month in January. Registration of vehicles with the

regional transport authorities, which is a proxy for retail, fell 7.2% year on year

in January. Two-wheelers and commercial vehicles reported the sharpest

declines at 8.8% and 6.9%, respectively, while registration of passenger vehicles

fell 4.6% YoY last month. Subsequently, the inventory left with dealers averaged

between 25 and 30 days of stock for two-wheelers and commercial vehicles at

the end of January, according to data collated by Federation of Automobile

Dealers Associations (Fada), a lobby body of vehicle retailers. For passenger

vehicles, this was between 15 and 20 days. Majority of this inventory was of BS-

IV vehicles, said Ashish Kale, president of Fada. While the inventory level was

lower than in December, it raises concern as any unsold BS-IV vehicles may have

to be written off after April 1 when Bharat Stage-VI emission standards take

effect.

While dealers were comfortable with the inventory at the start of February, it

would be a concern if vehicle makers roll out more BS-IV vehicles, Kale said.

“We have requested the manufacturers that any BS-IV vehicles billed further,

which are not against specific customer orders, should be on a returnable basis

to avoid financial loss to dealers,” he told ET.

Kale attributed the decline in sales in January to confusion amongst customers

regarding the switchover to BS-VI standards. Many customers were sitting on

the fence, he said, weighing their options on whether to buy BS-IV vehicles or

to wait for the BS-VI ones. Buyers looking for diesel-powered vehicles,

especially SUVs, were waiting for manufacturers to announce the prices of their

BS-VI vehicles before making a decision, Kale said. Many are also delaying their

purchase in hopes of steep discounts around Marchend when retailers may be

forced to liquidate unsold inventory at a loss, he said. While passenger and

commercial vehicles continued to struggle, three-wheelers and tractors did well

in January. Threewheeler registrations grew by 9.2% during the month, while

tractor registrations were up by 5.1%. Data on the inventory levels of these

segments were not available. Tractor sales were particularly high in January as

rains were delayed this year, pushing back the agricultural payments cycle and

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subsequently the purchase of farm equipment from November-December to

January, Kale said.

*****

Lockdown saw modest drop in China air pollution, study finds The study, by scientists from the University of Leeds, UK and the Southern University of Science and Technology, China, analysed air pollutant concentrations from China's national network of around 1,300 monitoring stations to quantify the response of air pollution across China during the COVID-19 lockdown. They found that the falls in some air pollutants like nitrogen dioxide (NO2) were substantial, whereas other pollutants like particulate matter (PM) and ozone pollution were only slightly reduced or barely affected. The study is published today in the IOP Publishing Journal Environmental Research Letters. Senior author Professor Dominick Spracklen, from the University of Leeds, said: "Although China's air quality has improved in recent years, indoor and outdoor air pollution still has serious health impacts, with 12 per cent of deaths in China in 2017 attributable to it. "Understanding trends in air quality is therefore essential to assess the effectiveness of recent air quality measures and help inform future air pollution mitigation. The application of control measures during the COVID-19 outbreak enabled us to analyse the potential air quality improvements resulting from a reduction in emissions." To understand the impact of the control measures during the COVID-19 outbreak, the researchers compared pollutant concentrations in 2020 with expected concentrations had the COVID-19 outbreak not occurred. They used a time series of China-wide measurements of key pollutant concentrations, from January 2015 to April 2020, to isolate the changes during the lockdown period compared with concentrations otherwise expected based on recent trends, seasonality, and the effects of the Lunar New Year (the precise date of which changes from year to year). Lead author Ben Silver, from the University of Leeds, said: "During the lockdown period in China, defined as January 23rd to March 31st, 2020, we found that the largest reductions occurred in NO2, with concentrations 27 per cent lower

9

on average across China. The largest reductions were in Hubei province, where NO2 concentrations were 50.5 per cent lower than expected during the lockdown. "Much smaller reductions were observed for other pollutants. PM2.5 -- fine particles measuring less than 2.5 µm -- had a modest reduction of 11 per cent across China, and was not reduced in north-east China. These particles are the most harmful constituent of air pollution, as they travel deep into the lungs and bloodstream and damage the lungs and heart. Ozone can irritate breathing, affect lung function and worsen lung conditions such as asthma. We found almost no change in ozone concentrations because of the pandemic control measures." Co-author Xinyue He, from the Southern University of Science and Technology, Shenzen, China, said: "Chinese NOx (nitrogen oxide) emissions are dominated by transport (35 per cent), industry (35 per cent), and power generation (19 per cent), all of which are likely to have been affected by the lockdown. Reduction in emissions from these dominant sectors and short lifetime explains the larger reduction in NO2 compared to other pollutants. "PM2.5 concentrations in China are heavily influenced by residential emissions, which are likely to have been less affected by the control measures. The larger relative reductions in PM10 and CO (carbon monoxide) compared to PM2.5, may be due to a greater reduction in primary emission sources and the greater contribution of secondary aerosol to PM2.5. Reductions in emissions of volatile organic compounds and NOx, combined with changes in PM concentrations, resulted in little overall change in ozone concentrations." Professor Spracklen added: "The modest improvement in air quality during the lockdown, despite very large reductions in emissions from some sources such as traffic, highlights the challenge facing China as it tries to further improve air quality. "Our study provides insight into the effects of future emission reductions and can help inform development of effective air pollution mitigation strategies."

*****

10

Oil prices slip as COVID-19 case surge dents fuel demand hopes

Oil prices dipped on Thursday as a surge of coronavirus infections around the

globe raised fears a rebound in fuel demand would stutter just as major oil

producers are set to raise output in August. U.S. West Texas Intermediate (WTI)

crude futures fell 6 cents, or 0.2per cent, to $41.21 a barrel at 0130 GMT, while

Brent crude futures lost 7 cents, also 0.2per cent, to $43.68 a barrel. Both

benchmark contracts hovered around unchanged levels after having jumped on

Wednesday after the U.S. Energy Information Administration reported a sharp,

unexpected 10.6-million-barrel drop in crude stockpiles last week. However, at

the same time U.S. gasoline and distillate stocks, which include diesel and

heating oil, both rose against expectations for inventories to fall - highlighting

the patchy nature of the recovery in fuel demand.

"It wasn't all good news, with signs that demand is still struggling to grow," ANZ

analysts said in a note.

Analysts said the mixed price moves on Thursday were due to demand concerns

with COVID-19 infections increasing and raising the prospects for lockdowns to

be reimposed.

"As long as we're recording new daily cases, the risk for oil demand is just too

strong," said Vivek Dhar, a commodities analyst at Commonwealth Bank of

Australia. Deaths from COVID-19 topped 150,000 in the United States on

Wednesday, while Brazil, with the world's second-worst outbreak, set new daily

records of confirmed cases and deaths. New infections in Australia hit a record

on Thursday.

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"If we see lockdowns or partial lockdowns, transportation gets hit

disproportionately. Transportation accounts for two-thirds of oil demand,"

Dhar said.

The potential hit to the demand rebound comes just as the Organization of the

Petroleum Exporting Countries (OPEC) and its allies, together known as OPEC+,

are set to step up output in August, adding about 1.5 million barrels per day to

global supply.

***** PipeChina to take on $56 bln of pipelines to boost network

access

China took a major step in the reform of its national oil and gas pipeline

network, with newly formed PipeChina agreeing to buy pipelines and storage

facilities valued at 391.4 billion yuan ($55.9 billion). Under the deal, PipeChina,

known formally as China Oil and Gas Pipeline Network, will take over oil and

gas pipelines and storage facilities from state-owned energy giants PetroChina

and Sinopec, in return for cash and equity in the pipeline company. The creation

of PipeChina is aimed at providing neutral access to the country's pipeline

infrastructure, much of which is owned by PetroChina, in a bid to help small and

non state-owned companies and encourage investment in the sector.

Investment banks Morgan Stanley and Goldman Sachs had been tapped to act

as advisers in the transfer of pipeline assets, which analysts had previously

valued at more than $40 billion. The government aims to have PipeChina

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operating by end-September. The new company will take on the pipelines,

storage facilities and natural gas receiving terminals operated by behemoths

China National Petroleum Corp (CNPC), China Petroleum and Chemical Corp

(Sinopec Group) and China National Offshore Oil Company (CNOOC).

PetroChina , a listed arm of CNPC, said on Thursday it will spin off pipeline and

storage facilities, a liquefied natural gas (LNG) terminal in Shenzhen and

ancillary facilities for 268.7 billion yuan, above book value of 223 billion yuan.

The deal includes around $120 billion yuan in cash. The sale excludes the assets

of Kunlun Energy, in which PetroChina has a 54.4% stake, it said. Kunlun owns

gas pipelines linking the northwestern province of Shaanxi and China's capital

Beijing. PetroChina said it expected to book a gain of 45.82 billion yuan on the

asset disposal, which it will use to pay dividend and for capital expenditure.

"The valuation of the pipelines are in line with our expectation but it may

disappoint some investors as expectations might have increased after (Sinopec)

Kanton's announced spin-off of Yuji pipeline," Citi analyst Toby Shek said in a

note.

PipeChina on Tuesday said it will buy Sinopec Kanton's Yulin Pipeline Co for 3.22

billion yuan. Sinopec also said on Thursday it had agreed to sell some of its

pipelines assets and the Beihai LNG terminal to PipeChina for 122.6 billion yuan.

That compares to a book value of 86.4 billion yuan. After the deals, expected to

be completed before Sept. 30. PetroChina and Sinopec will hold 29.9% and 14%,

respectively, of PipeChina, whose market cap is 500 billion yuan. CNOOC Gas

and Power, a subsidiary of China's top offshore oil and gas producer CNOOC

Group, will own 2.9% of PipeChina.

*****

13

Praj, ARAI to jointly develop application technology for

green fuels

Praj Industries (Praj) and Automotive Research Association of India (ARAI) on

Wednesday signed a Memorandum of Understanding (MoU) to jointly develop

application technology for advanced biofuels for usage in industry and

transportation. Biofuels developed for mobility sector will have a positive

impact on environment by way of reduced carbon footprint and improved

tailpipe emissions, a joint statement said. Biofuels are derived by processing

bio-based feedstock such as agri residue, molasses, cane syrup among others.

Through this collaboration, Praj and ARAI will jointly address technologies to

propagate use of biofuels in a variety of applications, including usage in internal

combustion engines (ICE) in the transportation sector, the statement said.

Under the MoU, Praj will provide biofuel technology solutions through its

TEMPO business model, while ARAI will bring its vast experience in the field of

alternative fuels, green and sustainable mobility.

"We are delighted to partner with ARAI, India's premier institution, to develop

application technologies to create a positive impact on the environment and

society," Praj Industries Executive Chairman Pramod Chaudhari said.

"The projects we jointly undertake will reinforce our Bio-MobilityTM platform

that offers technology solutions globally to produce carbon neutral

transportation fuel from bio-based feedstock for all modes of mobility," he

added. SM RVK

14

Saudi Oil Revenues Continue to Slide After Ending Price War

Oil revenues for the world’s largest oil exporter, Saudi Arabia, continued to slide

in May after the Kingdom ended its oil price war with Russia, with the income

from oil exports plunging by 65 percent year on year, data from Saudi Arabia’s

General Authority for Statistics showed on Thursday. Saudi Arabia’s total

exports plunged in May 2020 compared to May 2019. The significantly lower

value of oil exports was the main drag on overall Saudi merchandise exports in

May – the first month in which the OPEC+ group cut production by record levels

after Saudi Arabia and Russia forged a new deal to cut supply to the market

amid the demand crash in the pandemic. The value of Saudi Arabia’s oil exports

plunged by US$11.8 billion (44.277 billion Saudi riyals), or by 65.0 percent year

on year in May, the General Authority for Statistics said. The share of oil exports

in total exports declined from 78.6 percent in May 2019 to 65.4 percent in May

2020. The drop in oil revenues for May follows a similar drop of US$12 billion

in Saudi oil revenues for April, when the Kingdom made good on its promise to

flood the market with oil and contributed to the oil price plunge to the lowest

since 1999 together with the crash in demand during the lockdowns in Europe

and the United States. The rebound in oil prices since May could slow the drop

in Saudi oil income in June and July, but the world’s top oil exporter is feeling

the pinch from the low oil prices and the low oil exports as per the OPEC+ deal.

Earlier this year, after the price crash it helped create by flooding the market

with oil, Saudi Arabia tripled its value-added tax (VAT) and suspended cost-of-

living allowances as part of a new round of painful austerity measures to save

its finances. Earlier in July, the International Monetary Fund (IMF) said that the

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price plunge and the production cuts would hit oil exporters in the Middle East

and North Africa (MENA) hard, with the combined oil income for those

countries expected to plummet by US$270 billion this year compared to 2019.

***** M&A can boost India’s energy security

Across the world, economic downturns are often followed by big deals and

transformative market moves. The 2008-09 downturn, for instance, was

followed by a spate of deals such as Pfizer-Wyeth, Lufthansa-Austrian, and

Kraft-Cadbury, albeit with a lag of two to four quarters. The energy sector, too,

is no different. The last time the world experienced simultaneous oil demand

and supply shocks, in 1997-1998, the result was a set of mega-mergers that

created the ‘supermajors’ of today, with deals such as Exxon-Mobil, BP-Amoco,

and Total-Fina-Elf. During that period deals exceeded $150 billion a year,

dwarfing the average of below $30 billion in the years preceding. More

recently, too, there is a clear trend towards major restructuring following

periods of oversupply — examples include the Exxon-XTO deal in 2009 and

Shell-BG in 2015. But as oil prices recovered over 2017-19, deal flow became

muted, with most deals restricted to the American shale basin consolidation,

targeted at scale and earnings growth. The year 2019 witnessed a sharp drop

in deal flow in O&G (oil and gas), if one leaves out the Oxy-Anadarko outlier,

and we entered 2020 with a quarterly deal count that was lowest in last two

decades.

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Next phase of consolidation

The current market conditions, with an overall economic downturn and an

amplified oversupply, have therefore all the bearings of ushering in the next

phase of consolidation. There are tell-tale signs that both asset, as well as

corporate, deals that may follow. On the asset side, there is a strong push

towards doubling down on the core value-accretive portfolio, and most IOCs

have set up divestiture programmes to meet debt-reduction targets. Such

programmes are not just good to have, but in the current scenario are lifelines

to manage the deep liquidity crunch. As a result, there are O&G assets worth

over $300 billion that are currently in the market seeking a buyer. On the

corporate side, the E&P (exploration and production) sector is in deep distress,

with the current market situation further aggravating an already depressed

market. We are, therefore, seeing high debt levels, lack of access to financing

capital, and rapidly deteriorating cash positions, pushing companies to seek

buyers at distressed prices.

The impediments

There are, however a few strong impediments that we need to factor in, before

we can see a surge in M&A activity. First, there is today a unique dichotomy

playing out in the M&A markets. While asset valuations are at their lowest since

2009, with EV/EBITDA hovering at 5-6 against the historic average of eight, the

acquisition premiums for the assets are touching historic highs. There is a

strong need for such a disparity to settle, with a lowering of acquisition

premiums, for any reasonable deal flow to proceed. Second, the widespread

corporate distress, while opening up opportunities for buyouts, also brings

about some adverse effects. It not only limits the universe of potential buyers

but also raises questions on the quality of assets that are currently floating in

the market.

Many of the potentially vulnerable targets have high debt and low operating

costs — but lack sufficient scale to be attractive targets for serious buyers. The

ideal targets for majors — ones which are viable at low prices but with

depressed valuations — are selective and few. Corporate acquisition, therefore,

is likely to be intermittent and focussed on quality of assets, and not necessarily

17

the distressed producers. In effect, we anticipate M&A deals to be cautious in

the current environment, but a few transformative deals are likely to happen

in the next 12 months. That brings into focus the implications for the Indian

O&G sector. India uniquely qualifies as both a major O&G consuming market in

the long term with over 100 million barrels of refinery capacity addition

expected in the next 10 years, and also a major oil importer for the foreseeable

future, with expected 4-6 million barrels of imports annually over the next five

years. We are, thus, both potential targets for global majors and

internationalising NOCs (national oil companies) seeking growth, particularly in

R&M (repair and maintenance), but also in need of achieving supply security

for our refineries. As a buyer, the next 12 months offer a unique window for

India Inc to acquire assets to both diversify, find replacement reserves, but also

for us as a country to strengthen our resource security. All amidst a context of

reduced competition for resources, given the majors’ financial woes, and an

abundance of potential opportunities at reduced prices.

Plan ahead

To achieve this, however, we need to keep a few important guardrails in minds.

First, there is a need to get aligned with a $40/barrel world when assessing

targets. This new wisdom would be key to identify resilient, long-term bets.

Second, actively stress test for various scenarios, like a prolonged $30 world,

before making a large bet. Being one of the few countries with the intent and

pockets to invest, we should think outside of the box to identify what would

work best for us in the long term — this could mean not only looking at asset

or corporate deals, but also carve-outs to invest in specific niche capabilities,

markets, JVs (joint ventures) to bring in strong long term partners, or other such

innovations. While the actual flow of deals may take two-to-three quarters, it

is important to prepare and have a clearly thought through strategy to double

down on choice targets once the time is right.

*****

18

Cairn Oil’s $1-b enhanced recovery project takes a Covid hit

Cairn Oil & Gas, a part of the Vedanta Group, is reworking its operations as

crude oil prices remain lower than expected amidst the Covid-19 crisis and the

resultant economic slump. The company also said that its $1 billion Alkaline

Surfactant Polymer (ASP) enhanced oil recovery project has been impacted and

it is now revisiting the project to make it economical.

“Anything below $45 a barrel is not appreciable for anybody in the industry. If

you want a consistent growth in sector, the right number would be around $55-

60 a barrel or above that. If you want bare minimum survival, meet all

obligations, and do a small amount of exploration, it should at least be $50 a

barrel. To work at lower prices, royalties and cess are to be waived for Brent

below $50,” the company said in a statement responding to BusinessLine.On

the status of the enhanced oil recovery project, the company said that it has

been impacted and the company was revisiting the project scope to make it

economical. In August last year, Cairn Oil and Gas said that it had drawn up

plans to spend over $1.1 billion in the coming 18 months to improve the crude

oil production from the Mangala, Bhagyam and Aishwarya fields in Barmer,

Rajasthan.

“The implementation of ASP EOR will raise the average cost of production in

Barmer from $8 a barrel to $15,” Ajay Kumar Dixit, the then Chief Executive

Officer at Cairn Oil & Gas, had said.

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Exit of employees

The company has also been seeing exits of employees. Dixit’s was one-high

profile exit. According to sector watchers, Cairn Oil & Gas has cut some 300

jobs. On employee exits, the company said, “The recent exits are a result of

organic career progression, voluntary movements, job rotations within the

conglomerate and natural exits on account of annual appraisals, retirement and

non-renewal of contracts. We will continue with our recruitment process to

ensure growth and business continuity.”

But some employees, who were recently let go of, attribute it to unmet

expectations of promoters from the oil and gas business. “Unlike the metals

and minerals business, the oil and gas business has much more uncertainty. You

can never be sure that there will be a salvageable resource after spending on

drilling. Somehow, the government policies regarding cesses and approvals

were not very ideally favourable for the company either,” a former employee

said.

“It seemed the promoters were expecting much better results from the senior

executives,” the employee added.

Countering this, the company said: “We have won 51 of the 87 blocks in the

OALP (Open Acreage Licensing Policy) and Discovered Small Fields (DSF) bid

rounds. The overall acreage for the company has increased from 5000 sq km to

approximately 65,000 sq km in the last two years. With such an exponential

increase in the size of its acreage, the management is working on a plan to

increase production and contribute to the energy security of the country.”

Cairn Oil & Gas has also sought a relaxation in the timelines for executing its

recently won projects. “We have sought an extension of the OALP exploration

timeline because the lockdown has caused stoppage of all seismic and related

activity... Most of the seismic equipment comes from China, which is now stuck

since December at ports in China,” the company said, adding, “The existing

production offtake was initially reduced by our customers but have normalised

now.”

*****

20

LNG supply wave to taper in 2020: Shell LNG Outlook

The global demand for liquefied natural gas (LNG) will outpace supplies by mid-

2020s, according to the Shell LNG Outlook 2020. Global LNG demand is

estimated to double to 700 million tonnes by 2040. There may also be an

expected global supply shortage of LNG in mid-2020s and this assumption has

resulted in a record number of final investment approvals, the Shell outlook

said. The record number of FIDs may help delay the expected supply-demand

gap and cushion the impact of LNG shortage. Shell interpretation of Wood

Mackenzie and IHS Markit 2019 data assessed that incremental domestic

production will be a fraction of South Asia gas supply growth. India will be the

largest importer amongst South Asian countries such as Pakistan, Bangladesh

and Sri Lanka. LNG demand is expected to grow from a little under 25 million

tonnes in fiscal 2018-2019 to over 50 million tonnes by 2040. The highest

demand growth for LNG will come from China and India. By 2040, China’s gas

supply is expected to grow multi-fold with 33 per cent of the incremental gas

supplies coming through the LNG route. During the 2020 to 2025 period, it is

expected that 17 per cent of incremental gas supplies in China will come

through LNG, the Shell outlook added.

“The global LNG market continued to evolve in 2019 with demand increasing

for LNG and natural gas in power and non-power sectors,” said Maarten

Wetselaar, Integrated Gas and New Energies Director at Shell.

“While we see weak market conditions today due to record new supply coming

in, two successive mild winters and the coronavirus situation, we expect

equilibrium to return, driven by a combination of continued demand growth

and reduction in new supply coming on-stream until the mid-2020s,” Wetselaar

said.

***** CNG retro-fitment industry stares at uncertain future in BS-

VI era

Even as the deadline for the new BS-VI emission norms looms closer, the future

of the compressed natural gas (CNG) retro-fitment industry is shrouded in

21

uncertainty as the rules for the industry under the stricter emission regime is

still being processed by the government. Amarjeet Singh, who has been in the

business of manufacturing and retrofitting CNG kits in vehicles since 1999, fears

that the industry will face the axe, leading to rampant unemployment. His

apprehensions are further fraught with talks of a possible ban on retrofitting

CNG in the BS-VI era, which other players like him are scrambling to confirm.

“There is no clarity on the ban — it’s just an intuition. But, it can happen since

the government is favouring private players nowadays,” said Singh.

Two industry executives close to these developments told BusinessLine, on

condition of anonymity, that BS-VI vehicles cannot be retrofitted with CNG kits.

This is because CNG BS-VI vehicles would require a special catalyser which can

only be factory-fitted, according to one of the sources. “The government has to

make a decision ultimately whether to allow retro-fitment or not. If they allow

retro-fitment, then the question will be whether those vehicles will be BS-VI

compliant,” said the person. The rules are currently being framed, the source

added. However, officials from the International Centre for Automotive

Technology (ICAT), one of the deciding agencies when it comes to this matter,

denied that there is going to be any such ban. Dinesh Tyagi, Director, ICAT, said

the Ministry of Road, Transport and Highways is in the process of notifying the

technical requirements for CNG retro-fitment under the BS-VI regime and that

these will be issued shortly. There will be no ban on retro-fitment whatsoever,

but the norms could definitely be stricter in comparison to what they had to

comply with under the BS-VI regime, he added. Pamela Tikku, Chief Business

Officer, ICAT, explained: “No, we cannot kill the retro-fitment business (with a

ban), but we are under the process of formulation of regulations for retro-

fitment of CNG kits. I am not saying it won’t be allowed, the government has

decided to frame the regulations and framework under which retro-fitment will

be allowed, which has not been finalised yet.”

The requirements under BS-VI emission norms will pose “certain technical

challenges”, she said, adding that “a way out” will have to be found, and this is

what the impending notifications will address. Out of the over 1.6 million CNG

light vehicles — which includes passenger vehicles and light commercial

vehicles — plying the roads today, 60-65 per cent are those retrofitted in the

22

aftermarket, pointed out Suraj Ghosh, Principal Analyst, Powertrain &

Compliance Forecasts, IHS Markit. Under the CNG retro-fitment technique that

is followed, the gas tank, fuel lines, injection system and the electricals are

retro-fitted on to a vehicle which wasn’t designed for CNG, he said.

Supreme Court ruling- The reason why retrofitted CNG vehicles overshadow

the OEM fitted ones in number can be traced back to a 1998 Supreme Court

ruling which mandated that all commercial passenger vehicles in Delhi must run

on CNG. “This made most fleet owners rush to the aftermarket kit

manufacturers and installing agencies to get their vehicles retrofitted with CNG

rather than buy new CNG vehicles,” explained Ghosh. Delhi-NCR accounts for

almost one-third of the total CNG numbers, he added.

Even as the possibility of a ban remains uncertain, Singh fears that the

authorities might make the rules under BS-VI for retrofitters like him so

stringent that they will render it unviable for BS-VI vehicles to be retrofitted

with CNG. Currently, most players are in the process of seeking approval for the

retro-fitment of CNG in BS-VI vehicles, as the norms for this are still being

processed, affirmed all the players BusinessLine spoke with. If a ban happens,

players in the aftermarket like him will form an association, and may file a case

in the court to appeal against this, said Singh. He added that by March end, they

will get to know if the ban is happening or not. Adding to their woes is the

increased costs that the BS-VI emission norms will entail. Singh said the cost of

conversion of a BS-VI vehicle to CNG might come up to ₹70,000, as opposed to

the current ₹40,000 under BS-4, and this can deter people from opting for

retro-fitment, which is already under strain.

“The OEMs were able to tap the into CNG segment because of the retro-fitment

market. The retro-fitment market entered in 1994, and OEMs actively started

participating in CNG since 2011 — before that they were sleeping. The OEMs

were able to capture the CNG market only because of the retro-fitment market.

Now it is happening vice-versa…OEMs might work with the Automotive

Research Association of India (ARAI) and ICAT and make tougher norms for the

retro-fitment market, so that approvals will be difficult, and retro-fitment

doesn’t happen,” he lamented.

23

True to his words, this could be a blessing in disguise for OEMs to tap into the

CNG segment, as the two sources cited above pointed out.

The BS-VI opportunities- BS-VI poses other opportunities as well for OEMs

when it comes to CNG vehicles. The phasing out of small diesel vehicles by most

OEMs can lead to a greater demand for CNG vehicles due to lower cost of

ownership as well as cost of acquisition of CNG vehicles when compared to BS-

VI diesel variants, said Hetal Gandhi, Director, CRISIL Research. CNG is unlikely

to completely replace diesel demand but it will certainly gain a major volume

of the fleet market, said IHS Markit’s Ghosh. Maruti Suzuki, the first OEM in

2009 to roll out factory-fitted CNG vehicles, is also betting on CNG models,

especially post the enforcement of the BS-VI emission norms. Maruti has a

target of sales of 1,55,000-1,60,000 CNG cars for the next fiscal year. By the end

of this fiscal, its CNG sales are expected to touch around 1,05,000 units.

Shashank Srivastava, Executive Director - Marketing and Sales, Maruti Suzuki,

said that when it comes to factors like safety, security, fuel efficiency,

driveability, suspension, longevity and warranty conditions, the pros of factory-

fitted CNG vehicles outweigh those of retrofitted ones. With the price of diesel

vehicles set to be privy to a steep price hike post BS-VI, the diesel share will be

dropping further. “What should replace diesel? It should be some fuel which is

cheap to run...So CNG is a very good option in that sense,” said Srivastava.

“CNG vehicles have manifold benefits, including those for the environment.

CNG vehicles have zero per cent particulate matter, 20-30 per cent less

emission of CO as compared to internal combustion engines and are affordable.

Since CNG is cheaper, it can fuel 20-40 per cent of cars by 2030 and reduce the

the import bill of oil,” he said.

Currently Maruti Suzuki is offering CNG options in eight models and, going

forward, it will have at least one CNG variant for all small cars, he said.

“The deciding factor for the growth of CNG vehicles is the CGD (City Gas

Distribution) network of CNG. The faster the CNG distribution network grows,

thefaster will be the adoption of CNG vehicles,” he said. The only factor that

has hindered the growth of CNG car adoption in the country is the lack of

widespread CNG gas infrastructure, he added. The government’s decision to

24

have 10,000 CNG gas stations in the country by 2030, up from the current 1,700,

will give a boost to the growth of CNG vehicles across India, said Srivastava. The

Society of Indian Automobile Manufacturers (SIAM), in its March 2019 ‘White

Paper on Alternative Fuels for Vehicles’, stated that for CNG, even with a lack

of infrastructure today, there are estimated to be around 3 million vehicles

running in various parts of India. These vehicles would be displacing roughly

2,000 million litres of gasoline fuel every year and, with the growth of CNG

infrastructure, the savings can be significant, it said. SIAM expects the

government to deploy 6,000 CNG stations by 2025 and 10,000 stations by 2030

for catering to a vehicle parc of 20 million CNG vehicles, it further stated.

“CNG is an important fuel for India. We should have a very equitable focus on

various options which we have, whether it is ethanol, CNG, LNG or

electrification. We should not push for one technology option. We should give

a technology-agnostic platform and, depending on the virtues, benefits and

advantages of one particular one, it will pick up in the market,” said a source.

Meanwhile, even as the future remains hazy for players in the CNG retro-

fitment business, most remain hopeful. A Kerala-based CNG kit manufacturer

and retrofitter is positive that the industry just has to await approvals for BS-VI

CNG retro-fitment. Once that is done, BS-VI vehicles can be retrofitted with

CNG, he said, echoing the sentiments of most players BusinessLine spoke to.

*****

Oil firms on supply threats and easing demand woes

Oil prices rose on Thursday supported by China's efforts to boost its economy,

a drop in new coronavirus cases at the epicentre of the outbreak and supply

concerns in Venezuela and Libya. Brent crude futures were up 27 cents at

$59.39 a barrel by 1443 GMT. West Texas Intermediate (WTI) crude climbed 59

cents to $53.88. China's move to cut its benchmark lending rate on Thursday

also helped to ease worries about slowing demand in the world's second-

biggest oil consumer and largest crude oil importer. China reported 349 new

confirmed coronavirus cases in Hubei province on Wednesday, the lowest in

25

more than three weeks, while the death toll rose by 108, down from an increase

of 132 the previous day.

"The market found support in still growing optimism over a soon-to-be-felt

increase in Chinese economic activity and the prospect of Venezuelan export

constraints," JBC Energy said.

The United States imposed sanctions this week on a trading unit of Russian oil

giant Rosneft for its ties with Venezuela's state-run PDVSA in a move that could

choke the OPEC member's crude exports even further. At the same time, the

conflict in Libya that has led to a blockade of its ports and oilfields shows no

signs of resolution. The head of Libya's internationally recognised government,

Fayez al-Serraj, dashed hopes of reviving peace talks on Wednesday after the

Libyan National Army of Khalifa Haftar shelled the port in the capital Tripoli,

held by al-Serraj's government. The more than month-long shutdowns in Libya

have reduced the OPEC member's crude production by more than 1 million

barrels per day (bpd). Brent crude could extend gains to $60.22 a barrel, as

suggested by its wave pattern and a projection analysis, said Reuters technical

analyst Wang Tao. American Petroleum Institute data on Wednesday showed a

bigger than expected build in crude oil inventories, which helped to cap price

gains. U.S. crude stocks rose by 4.16 million barrels in the week to Feb. 14,

compared with analyst expectations for a build of 2.5 million barrels, the

industry group's data showed.

"Although crude oil inventories rose by more than expected, the draws of 2.7

million bbls in gasoline stocks and 2.6 million bbls in distillate inventories keep

the futures markets steady this morning," brokerage PVM said. Official Energy

Information Administration stock data is expected later on Thursday.

*****

26

Energy trader Vitol enters U.S. oil and gas upstream

Global energy trader Vitol Group has set up a new U.S. venture to produce oil

and gas called Vencer Energy, the company said on Monday, its first foray into

the upstream business in the United States. Vencer, led by industry veteran Don

Dotson, will seek to buy mature, producing oil and gas assets, in key U.S. basins.

The announcement comes at a pivotal moment as the oil price crash and global

economic slowdown due to the novel coronavirus laid bare the heavily

indebted U.S. shale industry. Major independent producers like Chesapeake

Energy, Whiting Petroleum and California Resources are among those that have

filed for bankruptcy, opening up opportunities for new entrants.

"I am looking forward to leveraging my decades of industry experience

operating in multiple basins to build a large-scale oil and gas enterprise,"

Dotson said in the Vitol statement.

Vitol, which is run out of London, is the world's biggest independent oil trader,

involved in trading 8 million barrels per day (bpd) of crude and refined products.

In addition, it has global refining, retail, storage and logistics businesses. Vitol

already has some upstream oil operations, producing about 32,000 barrels of

oil equivalent per day, but none in the United States. Its main project is the

Sankofa development, offshore Ghana, where it is a partner with Italy's Eni and

Ghana's state energy firm GNPC. Trading firms have traditionally tried to remain

asset light, preferring to hold small stakes or to enter long-term oil-backed

loans whereby they provide cash in return for future physical crude cargoes.

Rivals Gunvor and Glencore both tried upstream with limited success. Gunvor

27

wrote down an asset in 2018 while Glencore has tried to sell its fields in Chad.

Vitol's move into upstream has not been smooth either. Last year, the trader

pulled out of a $1.5 billion deal to buy a stake in two major Nigerian oilfields.

*****

Vena Energy and JSW emerge as winners of SECI wind energy auction, bag 970 megawatts

Vena Energy emerged as the lowest bidder in a wind auction conducted by the Solar Energy Corporation of India on Friday, winning 160 MW at Rs 2.99 per unit. JSW Energy was a close second, winning 810 MW at Rs 3.00 per unit. The tender was for 2500 MW but only 970MW was awarded. A SECI official confirmed the results of the auction. SECI is the nodal agency through which the renewable energy ministry conducts wind and solar auctions. The last wind auction it conducted was in August 2019 where the winning tariffs were in the range of Rs 2.83-2.84 per unit. This tender received very few bid submissions despite being issued several times. Eventually, there were only three bidders, with Inox Wind being the third. The ministry had initially issued this as a pure wind tender, but has after a few amendments, gave developers the option of setting up solar capacity alongside as well. Wind tenders have been heavily undersubscribed in the last 18 months. This could be attributed to problems in securing good sites with attractive wind resources and adequate access to transmission networks, experts said.

28

"It is not a surprise that despite the introduction of a small solar component, this tender was also undersubscribed. The high tariff is a pointer to the execution problems facing these projects and it remains to be seen if distribution companies accept these tariffs," said Vinay Rustagi, Managing Director of renewable energy consultancy firm Bridge to India. The new and renewable energy ministry has been gradually moving away from conducting auctions for plain vanilla solar and wind tenders, towards hybrid wind-solar tenders. "The entry of JSW, a large IPP, into the renewable business is a positive development for the sector," Rustagi said.

***** Secunderabad: Change in lease policy to help PNG project

A major hurdle in the acquisition of defence land in Secunderabad Cantonment

Board (SCB) for the underground piped natural gas (PNG) project may be

cleared soon, as the Ministry of Defence (MoD) has made an amendment in the

land lease policy regarding transfer of defence land for public utilities and public

infrastructure projects. The project will supply PNG for every household in the

Cantonment area as well as the military residential quarters, and nearly one

lakh families in SCB limits and another 300 defence families are expected to

benefit from it. According to the new amendment, “no lease rents will be

charged from either the state governments, organisations or local bodies with

government funding for transfer of defence land, located in the Cantonment

limits, for both underground sections of main petroleum and gas pipelines and

underground tunnelling of metro projects.”

29

The PNG project, initiated by Bhagyanagar Gas Limited (BGL), has been pending

due to lack of clearance from the MoD. In 2018, a memorandum of

understanding (MoU) was inked between BGL and the local military authority

(LMA) for implementation of the PNG project. The BGL officials conducted a

detailed survey of the defence land and locations to set up PNG stations and to

lay underground main pipelines. “Works pertaining to the survey were

completed in 2019 and we are awaiting the MoD’s clearance to begin laying of

pipelines on defence land,” sources in BGL told TOI. “Work on the project is

progressing at a snail’s pace because of inordinate delay in getting permission

for digging on defence land,” added the sources.

“Once the MoD gives its clearance, infrastructure works will begin. The project

will be completed in a year,” said a BGL official.

***** Coal-fired power is losing 'unfair fight' to renewables

Coal-fired power in India is being increasingly priced out of the market by

cheaper renewables such as solar, with the dirtier fuel abandoned by private

capital, and only projects with government support being viable. If there was

one major theme at this week's annual industry gathering, Coaltrans India, held

in the resort state of Goa, it was that the domestic coal sector is under siege,

and probably faces a future of limited growth and eventual disbandment.

Rather than politics, the reason is largely economic, with power purchase

agreements (PPAs) for renewables now coming in at levels at which even

existing coal-fired plants cannot compete. Coal is in an “unfair fight” and is

30

increasingly losing, said Tim Buckley, director of energy finance studies at think

tank the Institute of Energy Economics and Financial Analysis (IEEFA). While

IEEFA is unashamedly pro-renewables, the numbers definitely support the view

that coal power generation is struggling in India, and that several newly-built

plants run the risk of becoming stranded assets. renewables can be offered in

PPAs at around 3 rupees (4.2 cents) per kilowatt hour (kw/h), while existing coal

generation comes in at around 4 rupees per kw/h and new-build coal between

5 and 6 rupees per kw/h. Once built, renewables also tend to force coal from

the generation mix, as they have lower operating costs. As a result, India's

current coal fleet has a utilisation rate of around 52%-55%, well below a level

that would be considered economic in other countries. After a massive build-

out of coal-fired generation from about 2010 to 2016, construction has slowed

to a near trickle, while investment in renewables has soared. India added 106

gigawatts (GW) of new coal-fired capacity in the seven years of 2010 to 2016,

an average of 15.2 GW a year, according to data collated by the Global Energy

Monitor. Since then, the pace has slowed, with 8.9 GW added in 2017, 8.4 GW

in 2018 and 8.2 GW in 2019. While there is still some 36 GW of coal-fired power

under construction in India, this will come on line over the next decade, and

additions are likely to drop below 5 GW per year. It's worth noting that coal-

fired units under construction are overwhelmingly being built by state-owned

generator NTPC , and are funded by state-owned banks. The private sector has

withdrawn from the coal generation sector, and many lenders are sitting with

assets that are likely worth less than half their stated value, given the struggles

of the plants to sign PPAs at profitable prices.

Renewables surging- While coal-fired capacity is slowing to a crawl, IEEFA

expects India's renewables build-outs to soar, reaching just under 20 GW in the

fiscal year to March 2021, and to continue growing in the years thereafter. The

scale of renewables investment was illustrated this week by a report in the

Mumbai-based daily Economic Times that said the government is proposing

two 25 GW solar farms, one in Rajasthan and the other in Gujarat. The

newspaper said it may be the world's largest investment in renewable energy.

To be sure, the surge in renewables does not mean the imminent death of coal

in India. Even optimistic forecasts for renewables show coal would still be

generating about half of the country's electricity in 2030. If coal does drop to

31

around 50% of generation, however, it would be down from about 71%, and it's

renewables and hydro that would have eaten coal's lunch.

Of course, it's not all one-way traffic, as renewables still have to gain

government support for reforms on the way they are purchased by state power

distribution companies, and they have to come up with a workable solution for

intermittency. These could include using existing coal-fired units as effective

peaking plants by running them at low utilisation during the day when solar is

working best, and gradually ramping them up in the evening and running them

at night. The advent of cheap liquefied natural gas (LNG) and the likelihood that

this will remain the case given the global oversupply of the super-chilled fuel,

also presents India with the opportunity to invest in gas-fired peaking units to

smooth out renewables. Battery storage is another option, although it may

struggle to reach the scale needed at a competitive cost.

One of the best pieces of advice ever given to those seeking information and

the truth was “follow the money”, the exhortation from the “Deep Throat”

source to the journalists investigating the Watergate scandal that felled former

U.S. President Richard Nixon. If this is applied to India and power generation,

it's clear that the money has abandoned coal for renewables, with only

government companies remaining committed to the dirtier fuel.

But India's ongoing battles with air pollution, and the likely cost to the health

of residents in its major cities may ultimately force a quicker change to

renewables, especially if clean and green resources are winning the price war

as well.

***** NTPC sets out to acquire solar projects not running on Chinese

equipment

In a major acquisition spree, country's largest power producer NTPC has invited

bids to buy operational solar power projects with unspecified capacity. This is

the first time that the state-owned power generator has evinced interest in

32

acquiring operational solar projects. Earlier, the company had invited bids to

procure solar power and set up projects. The acquisition plan is part of NTPC

goal to add 10GW of solar generation capacity by 2022, with an investment of

around Rs 50,000 crore. To support government's Atmanirbhar Bharat mission

and development of domestic capacities, NTPC has decided to acquire only

such plants that are being operated using local equipment and not largely based

on imported solar cells and modules. The last date for the submission of techno

commercial bids is September 22 and the financial bid or price bid opening

would be intimated later after opening the techno commercial bids. To get

wider participation, NTPC has invited selling bids from promoters, lenders,

financial intermediaries power generation companies and independent power

producers. The NTPC's acquisition plan is expected to be lapped up by several

solar power generators looking to exit the sector after facing regulatory hurdles

and difficulties in pricing power on renewed terms that some states are now

pushing.

*****

India’s renewable energy sector should move to next stage

of investment, manufacturing: RBI Governor

Reserve Bank of India (RBI) Governor Shaktikanta Das on Monday said that the

country now needs to move to the next stage of investment and manufacturing

in the renewable energy sector. He said that investment should be done in solar

33

and wind energy installations, and also in creating domestic manufacturing

capacity for solar panels.

“I think we need to move now to the next stage of investment and

manufacturing. Having sufficient domestic capacity to manufacture solar

panels is something which the country can certainly achieve,” said Das while

addressing the national council of the Confederation of Indian Industry in a

virtual conference. According to D K Srivastava, chief policy advisor, EY India,

there is a clear scope for taking advantage of progressive cost reductions and

substituting imports of solar panels from China by creating domestic capacity.

Das said that a major factor driving the shift in energy mix has been the steep

fall in generation cost of renewable energy and as a result, renewable power

generation technologies have become the least cost option for new capacity

creation in almost all parts of the world. According to the RBI Governor, the

weighted average cost of addition to renewable capacity in India was one of the

lowest in the world in 2019, which has now started exerting significant

downward pressures on spot prices also for electricity.

“Going forward, this landmark progress could result in a significant overhaul of

the power sector, encompassing deregulation, decentralisation, and efficient

price discovery. Policy interventions in the form of renewable purchase

obligations for discomes, accelerated depreciation benefits, and fiscal

incentives such as viability gap funding and interest rates subvention will have

to go through a rethink,” Das added.

He said that India’s changing pattern of energy production is in favour of

renewables and India's progress in addressing the demand-supply balance has

been remarkable. “India has now become a power surplus country and is

exporting to other countries,” said Das.

He said that while India’s power demand grew at an average rate of 3.9 per

cent during the period between 2015-16 and 2019-20, supply grew at an

average rate of 4.5 per cent and installed capacity grew at an average rate of

6.7 per cent in this period. The share of renewable energy in the country's total

installed capacity has doubled to 23.4 per cent in march 2020 from 11.8 per

cent in march 2015. This shows that the share has gone up from 11.8 per cent

34

in March 2015 to 23.4 per cent by March 2020, the RBI chief mentioned.

Reforming retail distribution of electricity is also a compelling necessity,

according to Das.

“A nationwide grid integration can take supply from renewable sources as and

when generated. And that is something which is also necessary. Now these

dynamic shifts in renewables could help increase India's per capita electricity

consumption, which is currently among the lowest in the world,” he added.

Citing NITI Aayog estimates on infrastructure investment, Das said that the

country needs $4.5 trillion investment in the sector by 2030 and added that the

gap on the infrastructure front remains large, making a strong case for stepping

up investments in the sector to revive the economy.

*****

Safeguard duty on Chinese solar gear to stay for another year

The government has extended the safeguard duty on Chinese solar power

equipment by one more year till July 29, 2021 to help boost local manufacturing. A

duty of 14.9 per cent will be levied on such imports for six months from July 30,

2020 to January 28, 2021 while the duty will be slightly lesser at 14.5 per cent in

the following six months, an official notification issued on Wednesday said. Last

week, the Directorate General of Trade Remedies (DGTR) had recommended

continuation of the safeguard duty on solar cells and modules. The country first

imposed the duty in 2018 for two years to prevent dumping of Chinese solar

equipment in the country, charging 25 per cent in the first year, and 20 per cent in

the second. The duty was charged on equipment from China and Malaysia where a

35

lot of Chinese-owned solar companies are based. However, in the government's

latest notification, Malaysia has been exempted. The notice does not mention any

exemptions or a "grandfather clause", which would have allowed renewable

energy firms to claim reimbursements on the duty they have paid while importing

equipment from China, where 80 per cent of India's solar equipment is sourced

from. Adding a "grandfather clause" to existing power purchase agreements would

mean that there is an understanding between solar developers and the

government that the project costs more than the allocated budget at the time of

closing of the deal, and hence, compensation will be provided to the developers via

the distribution companies. Domestic solar equipment manufacturing wanted the

safeguard duty to be extended for four years, but the DGTR said one-year extension

would be adequate. Domestic solar manufacturing associations had welcomed this

recommendation, but requested the rates to be increased to at least 50 per cent.

Developers were earlier expecting a basic custom duty (BCD) to replace the

safeguard duty at the end of this month. Power and renewable energy minister RK

Singh had recently told stakeholders that BCD of 15-20 per cent on solar equipment

would be imposed in August, which would double in a year's time. Although no

official announcement has been made yet, industry stakeholders expect the BCD

to be levied along with the safeguard duty.

***** Infertile land to be made available for solar power in

Maharashtra: Energy minister

Infertile land in Maharashtra to be made available for solar power projects, said

state energy minister Nitin Raut. "Land which belongs to state owned power

36

companies and private one would also be made available for the solar power

projects," he added further. He was speaking at a video conference with Indo

French Chamber of Commerce. He said there will be single window clearance

for all clean energy and renewable power projects in Maharashtra. This will

help timely completion of projects. He further said that the state would

implement solar power projects with an aim to reduce its dependence on

thermal power. "We will clear renewable power projects with an aim to protect

nature and the earth from global warming," he said. There are vast tracts of

government land which are without cultivation and this would be made

available under green energy programmes. A high power committee will study

solar power projects in Rajasthan and Gujarat while framing its solar power

policy in Maharashtra. In the past, Raut had asked the Mahagenco to

implement the mega solar power projects in the state to reduce its dependence

on conventional energy. In accordance with the Ultra Mega Renewable Energy

Solar Park Scheme, 2500 MW-capacity solar parks are being developed in the

state through Joint Venture Company (JVC) of NTPC Ltd and Mahagenco, Raut

announced.

"The state is presently scouting for land which will be made available for

massive solar projects. It will cater to the growing demand of electricity across

the state while at the same time ensure we invest more in generation of green

energy," he said.

Senior officials from Mahagenco (state power generation company) and

Mahatransco (power transmission company) were part of the video

conference.

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