The Future of Energy: Insights from Gauri Jauhar on Investments in Clean Technologies
As the world grapples with the urgent need for sustainable energy solutions, Gauri Jauhar, Executive Director of Global Energy Transitions and Clean Tech Consulting at S&P Global Commodity Insights, provides a compelling perspective on the evolving landscape of energy investments. In a recent interview, she highlighted the growing momentum in sectors like biofuels and green hydrogen, while also addressing the challenges that lie ahead in the transition to a cleaner energy future.
The Green Rush in India
Jauhar notes that India is witnessing a significant shift in energy investments, with major companies like ONGC, Indian Oil, HPCL, NTPC, Reliance, and the Adani Group making substantial commitments to both traditional and new energy sectors. By 2030, these companies are projected to invest approximately $57 billion in their core businesses, while also allocating funds towards low-carbon technologies. This figure is comparable to the $65 billion spent by the Oil and Gas Climate Initiative (OGCI) group over the past five years, indicating a notable transition towards greener alternatives without compromising energy security.
Emerging Technologies: Biofuels and Green Hydrogen
The future of energy investment is increasingly focused on what Jauhar refers to as the "foundations for a new energy system." This includes significant investments in biofuels and green hydrogen, which are seen as critical components in the journey towards net-zero emissions. However, she emphasizes that these technologies are still in their infancy and require robust government policies, incentives, and mandates to stimulate market demand and create new opportunities.
Jauhar also points out that while advancements are being made in carbon capture technologies, these frontier technologies need synchronized efforts from various stakeholders to realize their full potential. The acceleration of mature renewable technologies like solar and wind is also noteworthy, as they continue to gain traction in India’s energy landscape.
The Financial Landscape: Returns on Capital Employed
A critical aspect of the energy transition is the financial viability of investments in new energy versus traditional fossil fuels. Jauhar highlights a stark contrast in returns on capital employed between the two sectors. While green energy companies have seen significant stock market appreciation—258% over the past five years—fossil fuel companies continue to outperform in terms of returns on capital employed, delivering an average of 8.3 percentage points higher than their green counterparts.
This discrepancy underscores the complexities of the energy transition, where the need for energy security must be balanced with the push for sustainable practices. Jauhar stresses the importance of considering the political economy implications of this transition, particularly regarding employment and the existing capital committed to fossil fuel industries.
Navigating Competitive Intensity in Renewable Energy
As India commits to ambitious net-zero targets, the competitive intensity in the renewable energy sector is palpable. Jauhar acknowledges the pressure on returns, particularly as tariffs for renewable energy projects have reached historically low levels. This raises questions about the long-term profitability of players in the sector, especially given the anticipated cost pressures from supply chain adjustments and domestic manufacturing initiatives.
The challenge remains for these companies to navigate this competitive landscape while ensuring sustainable profitability. Jauhar’s insights suggest that while the path forward is fraught with challenges, there is potential for growth and innovation in the renewable energy space.
The Role of Natural Gas in the Energy Transition
In discussing the broader energy puzzle, Jauhar highlights the role of natural gas as a transitional fuel. With approximately 50% of gas in India being imported, the potential for domestic production, particularly from the Krishna Godavari Basin, could play a significant role in the clean energy transition.
Gas offers several advantages, including economic stability, lower emissions compared to coal, and operational flexibility to support renewable energy sources. Jauhar emphasizes that leveraging these advantages can help create a more resilient and adaptable energy system as the world moves towards greater reliance on renewables.
Conclusion: A Work in Progress
Gauri Jauhar’s insights paint a picture of an energy landscape in transition, marked by both opportunities and challenges. As investments in biofuels, green hydrogen, and carbon capture technologies grow, the need for supportive government policies and market incentives becomes increasingly critical. While fossil fuel companies currently deliver higher returns on capital employed, the shift towards sustainable energy solutions is gaining momentum.
The journey towards a cleaner energy future is undoubtedly a work in progress, requiring collaboration across sectors and a commitment to balancing energy security with environmental sustainability. As India and the world strive for net-zero emissions, the insights from leaders like Jauhar will be instrumental in guiding the path forward.