IEEFA’s Garg touts biogas from farm waste as sustainable alternative to food crop biofuel

Making biofuels from food crops such as sugarcane could pose a threat to food security and environmental sustainability, warns Vibhuti Garg, director for South Asia at think tank Institute for Energy Economics and Financial Analysis (IEEFA), in an interview. As India pushes for cleaner energy, Garg suggests a focus on more sustainable alternatives such as biogas from waste materials, a method that also curbs greenhouse gases.

Garg also calls for a ramp-up in India’s electric vehicle strategy. With the cost of renewable energy and storage solutions becoming increasingly affordable, Garg said both policy and financial backing should be aligned to build a cleaner energy ecosystem in the country. Edited excerpts:

Could the production of ethanol compromise food security due to the use of crops like sugarcane and maize? Are there alternative solutions?

Using crops for ethanol production could risk food security and impact the environment. For example, increasing sugarcane for ethanol requires a lot of water and changes land use, which undermines the goal of cleaner biofuels such as biogas. A more sustainable approach for biogas is using waste materials rather than food crops, which can also reduce greenhouse gases.

In terms of transportation, India should seriously consider advancing its electric vehicle strategy as an alternative to promoting blended fuels. As the cost of renewable energy and storage solutions continues to decline, both policy and financial mechanisms should be directed towards fostering a cleaner energy ecosystem.

What cost-effective solutions will improve Indian green transportation, which lags behind global standards in terms of comfort and convenience.  

Electric mobility is the best way to improve green transportation in India. Renewable energy costs are dropping, so charging vehicles will get cheaper. The government is also supporting big battery projects, which will lower EV prices. Building more charging stations is important. Changing electricity prices based on time can also encourage people to charge cars when it’s cheaper. More Indian companies are making electric cars, and government help in reducing their initial price will encourage more people to buy them.

The steel industry is one of the biggest contributors to carbon emissions, but it is also an indispensable part of India’s growth story. The government is taking steps to decarbonize the sector, including framing a recycling policy. What more needs to be done?

India needs to come up with a green procurement policy that will help drive demand for clean energy by the steel sector. Given large consumers of steel demand are also from public sector companies, this will provide a strong demand side push. For creating demand in the private sector, the government can also look at using green steel certificates, which consumers of green steel can trade for additional income through trading on the carbon market.

Further, the steel sector is dominated by small and medium businesses (MSMEs). They will need further support in the form of low financing options like blended finance or creation of special financing facility for the MSME sector to transition to low carbon pathway. Additional funding sources like green bonds or sustainability-linked instruments can help finance nascent technologies as their cash flows are not linked to specific projects, but repayment terms are linked to achieving pre-determined sustainability targets. There also needs to be a clarity in terms of what constitutes green steel. A clearer definition for green steel can help guide the industry in making the right investments for decarbonization.

How long will it take for Indian companies to transition to green steel? What are the challenges?

Based on our latest research, we expect India’s steel industry to gradually move away from coal and adopt green hydrogen by 2030. This shift will accelerate between 2030 and 2050, and by 2070, green hydrogen should fully replace traditional methods.

By 2030, India’s steel industry plans to reduce its reliance on coal from 92% to 70% by adopting green hydrogen, as it begins to be produced at a commercial scale.

From 2030 to 2050, green hydrogen will be more widely used in India’s steel industry, replacing up to 80% of the older types of hydrogen.

Between 2050 and 2070, thanks to falling costs and more competition, green hydrogen is expected to fully replace coal and natural gas methods in steel production.

The main challenge to decarbonization the sector is defining what constitutes “green steel.” The high cost of manufacturing hydrogen using renewable energy is another significant barrier to its adoption. By comparing green and grey hydrogen, i.e., the cost of green hydrogen from electrolysis today is relatively high, between $4-7/kg depending on various technologies, whereas grey hydrogen costs $1.8/kg. This makes it hard for green hydrogen to compete with the existing grey or brown hydrogen cost.

Limited availability of scrap is a challenge because most of India’s infrastructure is new and 70% is yet to be built.

Insufficient funds for smaller producers and low domestic demand for green steel are the other challenges we need to address.

Indian companies such as Tata Steel and Essar, with significant help from governments abroad, are boosting green steel production at their plants in foreign countries. Some analysts said green steel production is not possible in India as our iron ore is unsuitable for it. What does your research say?

For Indian steel makers, the high cost of green steel through the use of green hydrogen, and availability of finance is a challenge than anything else. As the costs of green hydrogen will go down, we will see more steel producers adopting the cleaner technology.

Should India work on a plan on the lines of the European Green Deal? What challenges do you foresee?

India, through the production-linked incentive (PLI) scheme, provides support to renewable energy production through backward integration and also to storage technologies to bring down the cost of reliable supply of power from renewable energy. Further, through PLI scheme, support is being provided for electrolyzers manufacturing. The government rolled out the National Green Hydrogen Mission (NGHM) in January and made the steel sector a stakeholder.

In March, India’s steel ministry signed 57 deals with 27 companies for specialty steel under the PLI scheme, and allocated ₹6,322 crore ($763.9 million) under PLI to boost the sector. So the government is supporting the steel sector though more needs to be done.

How much of a barrier is the high cost of green hydrogen?

Green hydrogen is currently about twice as expensive as regular hydrogen. In regular hydrogen, about half the cost is for building and running the plant, while the rest is for energy like natural gas. For green hydrogen, about 70% of the cost is for making and moving renewable energy. So, to make green hydrogen cheaper, we need to cut the cost of both the equipment (such as electrolyzers) and the renewable energy. The government plans to help by offering incentives. They’re looking to give up to ₹50 per kg, which is about 10% of the cost, for making green hydrogen. India has set aside about ₹174.9 billion, or $2.1 billion, for production-linked incentives to boost production.

Given that key components such as electrolyzers for hydrogen production are not domestically produced, do you see dependency on other countries as a challenge?

India has to build its own electrolyzer manufacturing capacity to not only capture value in the green hydrogen supply chain but also to achieve its green hydrogen production targets well in time.  Right now, India relies on buying these machines from other countries. But as we start making our own, we won’t have to buy as many from outside.

How soon can renewable energy fully replace coal’s 75% share in India’s electricity generation, and will it be a cost-effective and reliable alternative?

India’s electricity largely comes from coal. While coal’s share in overall installed capacity is about 50%, it still accounts for roughly 75% of total electricity generation. To reach the government’s 2030 target of getting 50% energy from non-fossil fuels, India needs to add 35-40GW of renewable energy annually. The Central Electricity Authority projects that by 2029-30, India will need 334.8GW peak electricity demand and must add a total of 777.1GW capacity. This includes 251.7GW from coal, 292.7GW from solar, 99.9GW from wind, and 53.8GW from hydro.

The transition from coal will be step-by-step. Renewable energy is expected to form 50% by 2030, increase to 70% by 2040, and possibly reach 85-90% by 2050. However, I am more optimistic and feel this shift could occur even quicker if the cost of clean energy continues to decrease.

Is the challenge of energy storage due to the intermittent nature of solar and wind power a major obstacle to their broader adoption?

One of the main challenges in adopting solar and wind energy more widely is the cost of storing the energy produced. Since these energy sources don’t produce power all the time (solar only during the day, wind when it’s windy), there is a need to store the energy for later use.  However, these costs are dropping, and the Indian government is strongly supporting storage technology. They have released a framework to encourage energy storage in the power sector by combining various policies and outlining next steps.

Key policies include giving legal status to independent energy storage systems (ESS), requiring certain utilities to have energy storage obligations, waiving interstate transmission charges, and allowing battery energy storage system projects join a special electricity market where prices are high. These rules are designed to help get more energy storage projects up and running quickly. Official recognition will let these storage projects operate on their own or be part of bigger energy projects.

The government also approved funding of ₹3,760 crore to cover up to 40% of the capital costs for battery energy storage system projects totaling 4,000MWh. This aims to lower the per kWh cost of storage from the current ₹10-11 to ₹5.50-6.60.

How can industries transition to greener practices without compromising on their competitiveness?

Affordable loans are key to keeping green energy prices low, which helps businesses stay competitive. New tech and government support in the form of PLI schemes are also reducing clean energy costs. Multi-donor banks can mix different types of funding to attract more private investment, especially important for smaller businesses. ESG reports can help firms get low-cost global funding, but they’ll need to set up systems for proper reporting and monitoring.

Will India’s push to a greener economy leave a hole in the skills/talent landscape? How can India address these gaps?

Some studies show that a shift to a greener economy will produce more local jobs. The same is true for the Indian economy. However, training is essential for these new green roles. Those in the fossil fuel industry also need to learn new skills.

India can develop more job-focused courses and add special programs at the university level. Funds raised for green initiatives should also cover the cost of teaching new skills to affected communities while also developing a new skilled workforce that can contribute to India’s economic growth.