What's With Oil PSUs Investing In Clean Energy?

Probably the state-owned corporations are realizing that while an increased demand for oil and gas may be possible, an increased consumption of the same cannot be sustained in the long term

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The Oil and Natural Gas Corp. Ltd (ONGC) can possibly develop 1 GW of renewable energy capacity by 2025, claimed CMD Alka Mittal in a recent media interaction on the state-owned oil and gas explorer's growth plans for the next three years.

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A day earlier, GAIL (India) Ltd announced that it targets achieving 3 GW of renewables capacity by 2025 and plans to invest INR 6,000 crore over the next three years—and possibly an additional sum of INR 20,000 crore by 2030—in clean energy. These latest announcements follow several others made in the recent past by many top public sector undertakings (PSUs) in the energy sector, particularly oil and gas, indicating the onset of a green push in an essentially fossil-based industry.

Established in the wake of India's independence to build a new nation, state-owned energy majors were tasked with the core responsibilities of accelerating industrialisation, creating jobs, and generating revenue at a time when the private sector was still budding. All these years later, energy PSUs are still significant, comprising seven Maharatnas, each of whose annual turnover exceeds INR 25,000 crore. Publicly-owned oil and gas companies, especially, control much of exploration and refining and almost the entirety of retail distribution.

Given that the global and national demand for crude oil and natural gas is steadily increasing and is expected to grow multiple times by mid-century, why are India's oil and gas PSUs starting to divert a portion of their resources towards the development of clean energy? Are they simply succumbing to mounting pressure from climate advocacy groups around the world? Or, could they be reorienting their business strategy and ethical compass in response to an on-going global energy transition?

Fossil Fuels' Impossible Future on a Burning Planet

"A death knell for coal and fossil fuels" was the descriptor used by UN Secretary-General António Guterres for an IPCC report published in August 2021, which detailed the dangerous proximity of the global temperature rise to the 1.5°C threshold mandated in the Paris Agreement. As a result, many governments have committed to urgent climate goals centered around renewables substituting hydrocarbon energy sources, with the Indian government aiming for 450 GW of renewable capacity and 1 billion tonnes of carbon emissions reduction by 2030. However, the demand for oil and gas in India, the third-largest crude oil importer after China and the US, is expected to be 5.2 million barrels per day and 332 billion cubic meters respectively by 2050 even in the "Rapid Transition" scenario envisaged by British oil and gas supermajor BP in its Energy Outlook 2020.

In other words, in the face of rising climate change-induced disasters as well as surging counteractive environmental conscientiousness, while an increased demand for oil and gas may be possible, an increased consumption of the same cannot be sustained in the long term. Energy PSUs must brace themselves for stranded assets, incomplete projects, decreased foreign investments, high capital costs, and poor returns, were they to continue building fossil fuel-intensive portfolios. Given that global environmental, social and governance (ESG) funds are estimated to be on track to exceed $53 trillion by 2025, it makes perfect business sense that Indian oil and gas state corporations have started integrating clean energy in their growth plans.

Oil and Gas PSUs to 'Fuel' India's Green Power

Indian Oil Corp. Ltd (IOC), which accounts for nearly half of India's petroleum products market share, has made several announcements to develop the country's nascent industry of green hydrogen. These include building the country's first green hydrogen plant in Uttar Pradesh and partnering with the likes of Larsen & Toubro and ReNew Power to manufacture and sell electrolysers and set up several green H2 projects. GAIL has also announced plans to build a 10 MW electrolyser and placed an order for the same. ONGC, which has produced over two billion tonnes of oil and gas to date, is reportedly setting up an INR 230 crore project with a 10 MW electrolyser in Madhya Pradesh. The company has also collaborated with foreign players on wind projects and aims to develop 10 GW of renewable capacity by 2040.

Bharat Petroleum Corp. Ltd (BPCL) has allocated INR 25,000 crore to build a diversified green portfolio comprising solar, wind, biomass and small hydro. While its current renewable capacity stands at 45 MW, BPCL plans to ramp it up to 1,000 MW by 2025 and 10,000 MW by 2040. Meanwhile, Hindustan Petroleum Corp. Ltd (HPCL) has committed to install about 2,000 MW of a clean energy portfolio by 2030. Earlier this year, the company signed a pact with Solar Energy Corporation of India Ltd (SECI) to collaborate on renewables, electric mobility, and alternative fuels. HPCL will also install EV charging stations and more off-grid solar power plants at its retail outlets this year, said the company.

PSUs and Sustainability: For the 'Public' Good

By embracing sustainability, the oil and gas PSUs not only have the chance to possibly survive their foundational purpose of developing the Indian fossil fuel industry when the latter runs its course, but they also have the opportunity to fulfill the larger duties for which they were established. Unlike their private counterparts, over and above whom they have for long been given preferential access to the country's natural resources, Indian PSUs are obligated to benefit society through their operations and positively impact the natural environment of the citizens of India.