Guest: Sudarshan Varadhan, Asia Energy Correspondent
Hosts: Shreya Jai and Sandeep Pai
Producer: Tejas Dayananda Sagar
[Podcast intro]
Welcome to Season 3 of The India Energy Hour podcast! The India Energy Hour podcast explores the most pressing hurdles and promising opportunities of India's energy transition through an in-depth discussion on policies, financial markets, social movements and science. The podcast is hosted by energy transition researcher and author Dr. Sandeep Pai and senior energy and climate journalist Shreya Jai. The show is produced by multimedia journalist Tejas Dayananda Sagar and is presented by 101Reporters, a pan-India network of grassroots reporters that produces original stories from Rural India.
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[Guest intro]
India has taken over the presidency of G20 at a time when the conventional geopolitics around key sectors is witnessing a shift - be it fossil fuels, climate, financing and several others.
While it has provided the country an opportunity to lay a ground for a stronger voice of the Global South in energy transition and climate action, the ongoing turmoil between various nations is set to impact the outcome of the deliberations.
To understand what are the key themes of energy and climate in G20, what are the sticking points and how it will shape the global dialogue on energy transition, we talked with Sudarshan Varadhan, Asia Energy Correspondent at Thomson Reuters.
Sudarshan has been reporting on the dynamic energy sector for close to a decade, earlier placed in New Delhi and now from Singapore.
He has done incisive reporting on the evolving energy landscape in Asia, highlighting the challenges of energy access, climate impact and mapping global trends in fossil fuel and clean energy sectors.
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[Podcast interview]
Shreya Jai: So, hello. Thank you so much Sudarshan for joining us here at The India Energy Hour. It's an absolute delight and pleasure as I have told you earlier as well. We are very excited to have you here on this very exciting episode, which I'm hoping we'll have a great conversation. You have covered this sector very well. India first, now in Singapore. So, we're looking forward to have a great conversation with you.
Sudarshan Varadhan: Likewise Shreya, we have been having a conversation even before this and not just before this when I say that I'm not talking about the recent past. This conversation has been happening between the two of us and all the journalists who cover the energy sector for the last, I know what, for 5-7 years at least with you. It might be a little more than that, but I've known you for a while and all the other journalists who now cover the sector. Some of us have branched out doing other things, but yeah, this has been going on. There's a conversation that's been going on for 6-7 years. It's been right from the beginning. Every day has thrown up surprises and more so in the last two, three years with COVID first and then the Russian invasion of Ukraine and then the explosion and power demand and all sorts of energy demand in the last year. And now we are starting to go towards what looks like normalcy, but these are the most dangerous times generally. When you think everything is normal, then something happens and then it goes crazy again. So yeah, touchwood, hoping for more normalcy.
Shreya Jai: Yeah, but what would be the Indian power sector or for that matter, a global energy sector would be with a normal day. I don't think it has ever seen a normal day, but we will talk more about it. Thank you for setting the tone, but before we dwell into this topic, and I'm sure we'll have lots to talk about, I would like our listeners to know a little bit about yourselves. We have a working joke among the journalists that no one knows us beyond our bylines. Most of our readers won't be even reading our bylines if left to them, but you have covered the energy sector in India and now you're in Singapore. You're looking at the whole South Asia energy ecosystem. So can you tell us about your journey? How did you land in energy reporting and what has your experience been like? You can start with India and go branch out into South Asia.
Sudarshan Varadhan: Okay, so I've come from this Tamil town called Thiruninravur. It's on the outskirts of Chennai and I never imagined, like most people, that I would be an energy correspondent. But I happen to be a mechanical engineer by qualification, so that background really helped in terms of understanding the science and in terms of getting a grasp of technical concepts. It was far easier for me than it would be for most people from arts background, so that did help. But I wasn't a natural fit into energy reporting for starters. I started off my journalism career about 10 years back at Reuters in Bengaluru, where I was looking at companies, more specifically the US financial institutions. I was a part of the breaking news team, which included my job profile, including setting out alerts among other things. But there was a lot of discussion on energy companies there. The oil prices, of course, in any newsroom which takes its business reporting seriously, no conversation is complete without oil prices. So it was always an enigma. It was always a topic of discussion as to what was happening with the oil companies. So this was also around the time when there was the early 2010s, I mean, 2014, the great commodity crash happened. But it was also around the time when there was a change of guard in terms of big companies. Big companies traditionally in the early 2000s meant the oil companies. You're talking about the ExxonMobiles, the Saudi Aramcos of the world. Slowly you had your Googles and Facebooks taking over the space. So this flux was always interesting. You had exciting young people doing journalism at that time, always talking about tech. But the old guards were like, I mean, like even today, the old guards always like to defend their glory days, right? And their glory days were always characterized by what the oil companies used to do. So oil was a bit of an enigma. Nobody really spoke. The seniors always like told us great things and shrouded oil companies in mystery. But, and which made us curious to learn what all this fuss was about. But I never really got to knowing that till I moved to Delhi three years later. Another thing was that my, I was dating this girl back then and she was into energy big time. I mean, that love story did not last, but then my love story with energy did continue. It did go on for a long time. It's still, I mean, still going strong in fact. So then I moved to Delhi and then I became an energy correspondent full time. I mostly looked at coal. That my view of the energy landscape was through that of a coal miner trader or anybody who is in the coal supply chain. Then that was also again a system in flux, right? We were seeing people starting to talk about the energy transition in India. I did not take the energy transition seriously at all. I mean, it was something that was a very small part of the ecosystem. In fact, till very recently, till maybe just before COVID, when we started seeing the numbers reflecting, when we started seeing that the percentage of renewables in India's generation story was starting to become significant. It wasn't one of those cool things that businesses like to do. So yeah, then now it's become as important, if not more important to look at what's happening with renewables than what's happening with coal. So long story short from the mystery about oil prices to coal and to energy transition, that's been my love story with energy. And I don't know where this is going to take me, but it promises to be a fruitful journey from here on as well.
Sandeep Pai: So one quick follow up on that. I mean, you know, because when you report on all of these topics, there are some really exciting times and there are some really depressing times. So what are some of the very exciting times? You know, may times the energy report of the muscles kind of your depressing times in the state?
Sudarshan Varadhan: Yeah, in terms of exciting times, exciting times doesn't necessarily mean good news. I hope I make that demarcation pretty clear because yeah, I would come across as a sadist if I actually describe what were exciting times, because they were depressing times of the world. What was happening with grids during the COVID crisis when demand went down like crazy. And this particular story is fascinating with what we did with our own grid in India during those peak national lockdowns when one fine day we decided to shut down everything from nine o'clock to nine, nine PM. It was a pretty shocking story. I can't imagine it happening anywhere else but in India. And then what was happening to the demand curve during COVID times. And then what happened with prices of all commodities from coal to gas and shifting energy flows due to the Russia-Ukraine war and due to the COVID crisis. That had to be one of the most exciting times for me. In terms of very sad stories, I mean, despite the progress that India seems to have been made, so it seems to have made on energy transition, it bothers me that we haven't really addressed the pollution issue head on. We're still struggling to address high levels of SOX and NOx emissions. We haven't done enough to kind of face out coal-fired power plants. I mean, on the international forum, this discussion takes a different turn. I'm not getting into geopolitics of it, but I'm merely talking about the health of our own citizens and the amount of money that we have to spend on the healthcare system and the strain it puts on those finances, just because we don't push the bar enough in terms of ensuring our air is clean. That's something that we're supposed to take for granted, but we just don't. That's the saddest story that often times, that the air we breathe, especially in cities like Delhi and many parts of northern India, it just continues to be the worst. Beautiful places, great culture, legacies that stretch back hundreds of years, but then the air is terrible. We don't bother enough to do anything about it.
Shreya Jai: That's a great point. We had another guest, who's also a journalist, Nitin Sethi. The episode that we recorded with him, he had this very interesting point. Some might agree/disagree this very strongly is that he said that energy reporters, especially who have been covering conventional energy, especially coal and oil ecosystem, are best placed to write on climate and environment because they understand the whole view of how things happen, how all fossil fuels have caused the damage that they would.
What is your thought now that we are in the heat of energy transition?
Sudarshan Varadhan: Yeah, I completely agree. The climate story is ours to tell. I agree with what Sethi said. I don't think there's anybody who's better placed to understand this, not just energy reporters, but commodity reporters in general. There needs to be a very profound understanding of the relationship between energy and the economy for you to be able to tell the story of the climate in our times. For example, I'm now in Singapore. This is something I keep telling everyone. Singapore has its darkest stories. It did not become this first world country overnight, and it's not like there was no blood and sweat in the process.
But today, everybody, especially Indians or people who are used to living in substandard infrastructure cities, when they come to Singapore, the only thing they care about, they seem to notice, are the high-flying buildings and the fabulous infrastructure you see there. So economic success trumps everything. As a result, you forget what we gave up along the process. We should resist that temptation, and it's our job as journalists who understand economic processes and how modern capitalism functions to tell the story of what happens behind the scenes. What are the things we are giving up on from an environment climate perspective while we chase economic progress?
Economic progress is very important. That's ultimately, unfortunately, the only thing that matters, or at least the ones that people and politicians seem to care about. But it is our job to keep reminding people that we will be giving up a lot of things, and many of these things will be reversible. We can't go back to that place and time again. And we are best placed as energy journalists and commodities journalists who tell that story going forward.
Sandeep Pai: Okay, excellent. I have a lot of questions for you, given you've covered across the value chain of energy from traditional oil and gas, coal, and also looked at transition issues and now geopolitics and energy and diplomacy.
So why don't we start with one of the most defining energy and climate, or rather energy issues of our times, which is the Russia-Ukraine war and how it changed, not just the energy landscape, but it's changing the energy landscape, but it also changed the geopolitics. Could you shed some light on the global, starting with the oil and gas sector, and whether similarly it has impacted coal and new and renewable energy space?
Sudarshan Varadhan: I think the estimates are that, it's fair to say, most of energy flows of Europe came from Russia before the war. I think the number is 35%, but I need to double check that. But yeah, most of it came from Russia, and now with Russia suddenly desiring to go to war with Ukraine, all those gas flows are wiped out all of a sudden because there were economic sanctions. There was a grace period which was given, but when you speak beyond that grace period, we are technically looking at the situation where Russia, on one hand, a behemoth when it comes to oil and gas production, and it's losing its main customer, which is Europe. And then on the other hand, you had Europe losing its main supplier, Russia, and everybody else were mere side actors, junior artists in the film, but then we got impacted like crazy, more specifically Asia. Now, the global south is the one that got hit the most. We'll come to that eventually.
But what happened immediately, of course, was the whole price spike that resulted, and then a sudden realization that there needs to be a discussion on energy diversity in addition to energy transition. When we say energy diversity, we mean absolutely everything. You need access to all sorts of energy sources. Energy transition is, of course, very, very important, but you had to think about where you're getting your energy from, and you had to think about the geopolitical socioeconomic, all sorts of shocks related to energy that could happen, which could make something not feasible. Like the unreliability of hydropower is something that we need to be more and more conscious of with erratic rainfall patterns becoming a reality. Now, this goes beyond the Russia-Ukraine situation, but then just to give you an example of what people became more and more conscious of.
Now, coming back to the map and how the energy map kind of changed as a result, because of the gas flows, one of the most profound impacts was Europe going back to coal in a big way, and that was one of the most discussed stories. In fact, I remember doing a story about the coal flows and how Europe's energy map got transitioned immediately after. So, two very interesting things happened, two things that we thought would never, especially with Europe, happen. One is that their share of coal in energy consumption rose at the fastest pace among all major regions in the first five months after the Ukraine war began, faster even than India. And India’s was a very strange story. India's power demand was growing at a pace which eventually turned out to be the fastest in 33 years, but the pace at which Europe was burning coal for power generation was crazy. And this, when their power demand was not doing too well. So, Europe going back to coal short term immediately after the war was one of the big stories.
Now, as a result of this, one more thing that happened was that coal prices also started shooting through the roof, because Europe suddenly with all their financial muscle wanted to gobble up all the coal from all directions. So, they started buying from South Africa. South Africa's main clients were traditionally the South Asian markets, India, Pakistan, India mainly, and then Pakistan there, the others in the region. But then they suddenly started supplying all of their coal available to Europe, and they were selling at prices that Indians and more broadly South Asians or any type of Asians would not imagine paying for. So, coal prices shot up through the roof, because Europe was suddenly deciding to double down on coal as well.
And as a result, we had other strange circumstances on the supply side. The world suddenly realized that we might be staring at a coal supply shortage. Just before war, we were talking about just putting an end card for coal mining altogether, but suddenly people started talking about opening new coal mines. We saw many coal mines open up in Tanzania. We saw people talking about opening mines in Madagascar, many parts of Africa where it was considered uneconomical and it made no sense to open coal mines. We're suddenly opening up coal mines at a rapid pace and trying to sell that coal. It was like the gold rush of the kind that they made those Wild Wild West movies based on. That kind of stuff was starting to happen in Africa and the commodity here was not gold, it was coal. So, coal kind of turned gold for a short period of time.
And then what people did not understand or were too much in the moment to understand at that point in time was that this was short-term. The immediate realities were so stark and you had our prices going through the roof in much of Europe and you had all sorts of energy prices going through the roof, including gas and coal and oil and everything. Inflationary pressures made us myopic and we are only worried about tomorrow because tomorrow was so uncertain.
A few months down the line, we started seeing the logical thing happen, which is that energy prices started cooling and then the topic again became energy transition, but with a twist now. It became about energy diversity mainly and people started understanding the importance of renewable energy in a big way and we have started gravitating in that direction again. But we also have a very enlightened, emboldened fossil fuel lobby and we are seeing that in the language that's being employed by the big fossil fuel producers of the world. Your shelves and the exons are suddenly not talking about renewable energy as fiercely as they were and just because they've had a year of record profits, all of them, billions of dollars made, their share prices going through the roof.
As a result of all that, we again have some apologies coming back. I mean, this kind of perception and language has always existed, especially in the recent history, but again, we have another round of this going, including in the recent G20 meetings where there has been a renewed emphasis on carbon capture technologies. I mean, there are efforts being made trying to elongate the lives of fossil fuels as a result of what's going on. But I think economics will eventually take over, as we saw, and economics seem to dictate that we will be transitioning into a more cleaner renewable energy oriented economy.
It's not because of some goodness of human spirit that we are making this transition, this change, but then it's purely economics that driving us in a certain direction and that reality is going to keep driving us in that direction. And finally, in terms of the map again, it just comes down to the fact that Russia has gravitated towards the East. All its gas infrastructure used to be towards the West and they used to supply to Europe. Now they started looking at India and China and all the markets where they would need to put up infrastructure to the East.
Their gas production has fallen by 13% this year. So they're starting to rethink their strategies. It's not been great, but they've kind of managed to survive. And the same thing has happened with Europe as well. They've moved away from Russia in a big way. They've pretty much obliterated it as a force that supplies gas to them. But at the same time, they are starting to take energy transition pretty seriously.
Yeah, that's the story of Europe and Russia mostly.
Shreya Jai: Before we move on to South Asia, which had seen some interesting developments, the trend that you just mentioned goes on to show that there is now a very clear demarcation or a gulf that has been created. There are countries which are batting for fossil fuels so badly. Then there are countries which are going for renewable energy. Then there are countries which are, yes, investing into green energy, but are still now going back and relying on fossil fuel, UK opening coal and other such countries.
Something that some observers also say that it is now a very global energy dialogue is also very selfish, self-interest driven now. No one is talking about green alliances and investing in green energy into another country. These are just observations.
Do you think the dialogue around this whole energy transition, clean energy transition, clean energy financing has changed because of the Russia-Ukraine war?
Sudarshan Varadhan: Purely from a perception standpoint, yeah. Like I said, it's emboldened a whole generation of people into the fossil fuel businesses. Their seat in the table has suddenly received an uplift. Suddenly they feel that their voice deserves to be heard a little more.
The crisis that we have faced as a result of energy shocks, primarily due to COVID and then as a result of the Russia-Ukraine war, has given the broader world and especially the fossil fuel producers the impression that they are important. They are undoubtedly important. There is a place for fossil fuel production and generation in this world, but then I think it's being overstated right now. It is an emotional reaction, which is a result of what has happened in the recent times.
Is this a long-term trend? Definitely not.
Like I said, I think economics is going to dictate how it's going to go forward. We are seeing that the picture on the ground seems to be the same. I mean, we have had reports after reports, which also show that countries have doubled down on renewable energy. It insulates you from global energy shocks. Like you said, we'll speak about South Asia a little later, but a classic case of what's happening is one of the closest to home.
The story of Bangladesh, it doesn't have any renewable energy at all, no hydro, no solar, and they had one of their worst electricity crises in recent times. And if only they had a little bit of solar, they could have averted a significant amount of what they faced. I'm not saying that they wouldn't have had an energy crisis. That's a different conversation, but then you could have addressed some of the shortages. A lot of it was completely avoidable, is what it is.
So, energy diversity is a topic that's not going to go away. This film that fossil fuel producers have been given as a result of the energy crisis that we faced over the last two years is temporary. It's going to go away. We do hear stories of people going back to coal mining. They're all temporary. If you look at the flows and if you look at the hard numbers, the hard numbers do not show big deviations. There were periods when it went up immediately after the crisis, but now it's all come crashing down. When I say crashing down, I mean from the levels that we used to see back then.
What has definitely happened is that there is a floor now on the price of coal, especially. Gas also seems to have found itself a floor, and that's because of global inflationary trends. The price of coal is still at a far elevated level to the averages we have seen over the last 10 years. That's because the supply chain has become more expensive. The metals have become more expensive. The workers who work in these supply chains are being paid more. That is not to say that there is more demand. The prices are a function of demand and supply, but then there are other forces at play as well here. It's not purely just demand and supply. There is an inflationary effect that's playing out, and it's not supposed to be confused. These elevated prices are not supposed to be confused with them being pure function of energy demand. We're going to see some kind of parity in the whole ecosystem play out. That's my sense of this.
Sandeep Pai: Great. Let's shift the focus a little bit to South Asia. I'm just wondering, how have the challenges in the fossil fuel supply chain changed their energy planning?
Are there countries that are going back to coal? For example, we always hear about some Indonesia or others. On the one hand, they're signing JetB. On the other hand, they're still interested in coal. So has this uncertainty about supply chain, I mean for Indonesia not so much, but like for other countries. Have this uncertainty impacted how they're doing energy planning, in general?
Sudarshan Varadhan: Two very concrete examples of countries going back to coal. We should not be judging these countries at all because they have their own economic interests in mind. They're not supposed to be compared to countries with extremely high per capita energy demand. They're not supposed to be compared to countries with extremely high per capita emissions. One, of course, is our neighbor, Pakistan. Pakistan is unequivocally going back to coal, and that's because they had a disastrous energy policy which did not make any sense at the outset.
In the early 2010s, they were extremely dependent on fuel oil, aka furnace oil, and diesel for their power production. They decided to cut down on that, and that was a reasonable, sensible thing to do. But what they decided to do was, in the absence of any domestic gas reserves, they still decided to build a system that's purely dependent on imported natural gas. So they signed up all these LNG contracts with producers in the Middle East, namely Qatar and the others. Then that system came crashing down, and it did not stand the test of resilience, especially when there were global energy shocks.
And the worst situation they faced was what became apparent in the last couple of years. When the prices of natural gas shot up, suppliers did what suppliers do, which is seek profits. They would declare a force measure on long-term contracts because it just didn't make economic sense. They would rather pay a compensatory fee on top of and exit the long-term contract and supply a European buyer who's willing to pay far more than what Pakistan would ever be able to pay. That's what happened. You had rich European buyers with solid financial muscle elbowing out countries like Pakistan, which badly needed that natural gas to keep their lights on.
So this was a lesson for Pakistan. They understood that they cannot go on like this. They decided and they told us, I mean, when I say us, Reuters in an interview in early 2023, that their energy minister said that they were going to go back to domestic fuel as their key energy source. They have dabbled a little with nuclear power, and their grid is not as stable as many other South Asian and Southeast Asian economies are. They even had a blackout recently. So in terms of grid management as well, they need far more coal because they're going to be shunting out their gas.
So, Pakistan is well and truly moving towards coal. They're going to be mining out a lot of their tar coal fields. They have a lot of coal reserves, which makes it be fuddling as to why they decided to not tap it in the first place. It's not like some moral high ground approach was taken and they decided to go for a cleaner fuel. It's just one of those inexplicable things that Asian countries do from time to time. They decided to go to gas and it didn't work out and they have now decided to do the right thing. Again, economics dictating government policy and now their energy minister is saying that they're going to go back to gas.
Another country which is going in that direction, I mean, they have not made any formal announcements, but this is as close to a prediction as they can be from me, is Bangladesh. Because they are faced with a similar dilemma. They have far better gas infrastructure. Their economics are sound, but their problem seems to be that it's just far too expensive.
Bangladesh, by the way, has fabulous data, energy data in terms of their shortages, in terms of the cost of energy production and all that. They pay far too much money to produce electricity and they will likely gravitate towards this because they had their worst electricity crisis in 10 years, very recently. Again, this was a very human story that played out. It was during Ramadan when most of the country was fasting and you had fasting individuals who also had to go through the process of power cuts. They would think that a very difficult phase of fasting was over and then they would be hit with a power cut. So it was terrible. And you also had temperatures go through the roof.
You had people having heat strokes, not even being able to switch on their fans. It got worse in the rural areas. And then there was the garment industry which was getting hit. It's the lifeblood of the economy. The people in the garment industry were forced to resort to measures that they've not taken in the recent past.
For instance, because there were delays, again, owing to extreme climate events, there was a sudden storm in the middle of a heat wave. There was a heat wave and then a storm appeared out of nowhere and it kind of completely cut out grids in parts of the countries and ships were not able to operate properly, again leading to power cuts. So they produced some output and they somehow had to deliver it so that their client is not pissed off. And their client is a high-profile kind. It could be a H&M or a Zara. So they airlifted some of their commodities produced all the way.
So adverse climate events are driving people to do crazy things. And one of those crazy things is parts of South Asia gravitating in a big way towards coal.
This is inevitable. You'll see some of it happening because coal is a very cheap source. And especially if you have coal reserves, you should be able to use it. And it will hopefully be short-term with battery technology which is evolving at the rate that they are. But I think the short-term, you'll see Bangladesh and Pakistan gravitate towards coal in a decent way.
And Sri Lanka doesn't have any scope to expand their coal-fired capacity. Their energy demand is not great as well. So we don't know how that's going to go.
Vietnam is big on coal. And in fact, they're saying as much as well. I mean, they have big plans for gas, but nobody knows where that gas is going to come from. They recently released what they call their PDP-8. It's like a typical communist country, that five-year plan kind of mechanism. So it was long awaited. It was delayed for a long, long time. And eventually it came out. And there it showed that they were going to get most of the electricity from gas, LNG. They don't have any local gas reserves. So most of it is going to come from LNG. So we have the same template of Bangladesh and Pakistan being repeated in Vietnam. It doesn't make any economic sense.
Of course, renewables are a part of their plan, but the amount of electricity that they project to be coming from LNG doesn't make any economic sense, unless gas prices crash and we don't know where that's going. It's a bit of a volatility and a big question mark right now.
So any which way, what the war has taught us is that it doesn't make sense for you to be dependent on foreign sources of energy to such a great extent that it could derail your energy plans and futures and make your homes run out of electricity.
So Vietnam could decide to go the cold route when they find out that gas is becoming pricey. Another very interesting country is Malaysia. Malaysia had 5% of their electricity coming from coal at the start of the millennium. In 2000, it was 5%. Today, it's 40% nearly.
And what they've done is again very interesting. They realized that gas is a pricey commodity and they decided to export their gas and use more of their coal for electricity generation.
Now Malaysia has decided to put a full stop to that process. They don't want to add any more coal capacity. But given that the renewable ecosystem has not developed in a way that it has developed in India and China, we don't know which direction Malaysia will go. That is again a very key variable that we'll have to look out for because this is not Pakistan or Sri Lanka, a small economy which is doing badly.
Malaysia is a thriving economy as is Vietnam. And these two kids are going to play a huge role in deciding the future of coal in the region. Indonesia is a producer and then we have the just energy transition plan on the cards. We don't know how that's going to play out. These are very interesting energy stories with regard to coal.
So to sum it up, we have Pakistan already saying that we are going to go back to coal.
Bangladesh looking like they're most likely to do that and depend on coal in a big way versus gas in the near term.
Vietnam putting LNG on the map in a big way, but because of so many uncertainties, logic would dictate that they might gravitate towards coal.
And then you have those brothers in the Southeast Asian regions, Malaysia and Indonesia, big coal users right now and not a very clear roadmap to transition and might depend for coal for longer than you would want them to.
So that's how Asia is playing out.
Sandeep Pai: Thank you. This is really great. But I was curious, you didn't refer to China and India at all. I mean, they have the big coal behemoths, if I can call them. So I would love to hear your sense. These are also both interesting countries where power plant age is 12 years. They have domestic sources. The plants are to expand, at least in India or China maybe flat. So what would really matter from a coal future point of view would be these two countries.
I mean, of course Vietnam matters, Pakistan matters, but because of the sheer scale of 60-65% of coal used from these countries. I mean, I'd love to hear your thoughts on how the coal story might play out in these two countries of context.
Sudarshan Varadhan: Yeah, so I did not refer to China and India because I think they're regions in themselves. When we talk about the Asia story, I don't think we should be referring to China and India. They are two separate stories. We have our own pathways and what I've realized is that China and India have a lot of cultural similarities.
I live in Singapore now with a lot of Asians here and there's a huge Indian contingent, a Tamil population, and then there's a huge Chinese population. Culturally, a lot of things that they do are very similar. It reminds us of what our parents would tell us. I mean, but that's a conversation for another day. But I think culturally and as far as the coal and energy story are concerned, India and China are kind of leading the pack and doing similar things.
One thing that's playing out and that's very clear is that both these countries are looking inward in terms of coal. It's been a long-standing strategy of India to kind of cut down on their coal imports. It's not really happened, definitely not happened as well as India would have wanted it to. I mean, Shreya and I have, I'm sure between us, we have reported at least four or five stories where we said the Indian government is planning to cut down on coal imports, but the numbers every year will show something different and we'll write that story too. So that's how it's played out.
But now we're starting to see results. The curve is flattening. It might increase, but the rate of increases are also not very promising. If I were Indonesia, I would now have mortal fear of modeling the future of my coal mining industry on China or India. And that is the most important thing. This is not to be seen as a growth market anymore. There will be some growth in absolute volume terms. It will be pretty significant, but it will be short-term. We see a coal import peak coming anytime soon.
I mean, there was an IEA report yesterday which said that coal consumption is going to hit a record high again in 2023. But we shouldn't be alarmed by these things. Again, these are very short-term measures. We are going to see this plateau very, very soon. The question is how soon. Is it going to be 2025 or 2026 because that would be the ideal scenario. It just could turn out to be 2029. It will be bad news for us then. At the same time, if it doesn't happen as soon as it's supposed to, we should be in a position to understand that countries and regions have economic realities and that's why it's not happening.
But coming back to the China and India story, we are gravitating more and more towards local coal production, boosting it. Our supply chains are getting far better. There are still things, especially in India, where the numbers show that railways have not been able to reach its rake supply, train supply targets. It's been consistently falling short. I think for the last 25-26 months, we've seen that supply has been short. And then the supply to the non-power sector, the unregulated metals and the other folks, that's a different story altogether. We've been doing well on the supply front to power plants, but then they've been getting the rough end of the deal.
Coal India has been working the agreements, the language in its agreements to their advantage. They ensure that they don't have to pay a penalty because they maintain a certain level of supply. At the same time, it's not even close to being 100% of the agreed supply capacity. And that's something that India would need to address.
But the China story is very promising with regard to coal production. They've really boosted local production to an extent where their dependence on imports has come down massively. Coking coal is a different story, but I'm purely talking about thermal coal.
In terms of the share, what is sad is that India's share of coal in power production has gone up. I think it rose to the highest level in four years in 2022. I mean, when I say that, I'm talking about the percentage of coal as a share of total electricity production. And this has been despite a massive acceleration in renewables we've seen. Like I started by saying I wasn't taking the energy transition story too seriously. And this was one of the main reasons because coal was still king. And in a way, the numbers just seem to suggest that this trend is here to stay and it's not at all changing.
Around COVID, we started having some hope. Before COVID also, we started having some hope. But then 2022 was a different game altogether. But what has happened is that coal has stolen share from what I would define as vulnerable energy sources. For example, India has never been a big gas-fired power producer. So the share of gas-fired power production has gone down from an average of 3% to what 1.5% now. And who's taken that share? Unfortunately, it's been coal. Coal has just stolen the thunder from gas
Nuclear has struggled a bit. It has always been around that 3% mark. But if it goes down, the share goes down from 3% to 2.8%. That 0.2% again is taken by coal. So coal, though we have not added a significant amount of coal-fired capacity, coal is still holding fort by stealing small shares of generation from vulnerable sources of electricity from here and there. So that's the India story. And we have renewables going very strongly. And I think that's going to be the story.
The only question we need to be asking ourselves is that we're doing a fab job as a country in terms of transitioning. But then when are we going to start looking at it beyond this being a story of climate change and global politics?
It is undoubtedly that. But then, like I said at the beginning of this conversation, we need to start looking at the impact of pollution on local populations.
As it is, there is criticism that the value of human life in India is very low. And if you're going to have coal-fired power plants pumping soot and dust filled smoke from their chimneys all the time and harming our agricultural fields and our vulnerable populations, it doesn't reflect well as a country. And I hope that the policymakers take note of something like that.
And we have a similar story playing out in China as well, where they have China doing China things as they address the pollution situation in Beijing. And the numbers show that the situation is better in Delhi, but the numbers are one and the reality is something else. I mean, an AQI of 316 on an average is better than an AQI of 350 during winter. The numbers have gotten better, but 316 is still alarming. And we should not be anywhere near those levels. And that's what we need to think about.
So in terms of India and China, I think both these countries, despite economic realities, are in the right track in terms of directionality. But what we need to be aware of is our coal plants impact on our local populations. We need to get those scrubbers and we need to get those emission cutting equipment and your FGDs or your SCRs and SNCRs, which have been lobbied out.
We need to find ways to cut local sources of pollution in addition to worrying and rightly telling the world about energy transition. We are making all these big statements and we have had global leaders tell us that India has really led the path on climate change, which is great, but we should at some point in time, without looking too far ahead, just look in our vicinity and see what's happening to our people as well.
Shreya Jai: That's a great point, looking in words, talking about the real ground level impact that energy transition would actually have. And it's not just about what impact coal power plants or coal mines are having on the population. What happens when all these coal power plants would go away? It makes for a larger and a separate set of discussion. And these are very turbulent times when it comes to, if I can summarize it as energy transition.
These are very turbulent times, quoting Charles Dickens, it is the best of our times, it is the best of the times. And in the middle of all this turbulence is when India has the G20 presidency, where energy transition and discussions around climate change features among the top five deliberation agenda among these countries. There are major sticking points in energy transition. India is looking at some successful bilaterals or deals that would come out to us, which would benefit our energy transition goals. You have tracked the deliberations as well.
Can you first of all give us a summary of what it means for under G20 presidency? What is there for energy transition of these 20 emerging economies of the world?
Sudarshan Varadhan: Okay. Yeah. So in terms of summary of what's happened on the energy front with regard to India's G20 presidency, among the most turbulent of times, like you rightly pointed out. I think Shreya, the headline that you wrote was the most appropriate characterization of what happened. I mean, it's one step forward, India's G20 chair and two steps back for energy transition.
It comes back to a theme that we have discussed at the beginning and towards even the middle and the end of the conversation so far, is that this emboldening of fossil fuel producers. So that has kind of played its part in making India's role as G20 chair difficult this year.
So one of the main, I mean, the takeaway from G20 has been that the big countries have decided, I mean, and these are significant countries, right? They account for more than 75% of both emissions and GDP. So from an economic standpoint, emission standpoint, very important that these guys come to an agreement.
So it's the cloud of Russia-Ukraine war has hung over India's G20 presidency throughout. It's made the conversation very, very difficult. Consensus pretty much impossible. So it is important to acknowledge that India was off to a rocky start and it was not its fault at all. And it's been conveyed by a lot of countries which attended meetings that India did an admirable job as G20 chair, despite all the challenges that it had to face. But despite that, it is fair to say that we failed. I mean, it's not on India, the G20 has failed to reach an agreement on fossil fuels. That has been the big story emanating out of there.
And in terms of energy, there are three things that are key. One is, of course, like I said, the cloud of Russia and Ukraine, they've not been able to agree on a language to describe the war and point out heroes and villains. The Russian side has argued that the Nord Stream pipeline was sabotaged and it placed question marks over energy security of its own people. So that was Russia's accusation. And then you had the US saying that it was the war which started it all. And all the G7 allies of the US agreeing with it. And so that kind of subplot played out throughout. And this cloud was hanging throughout. So that was one, the Ukraine-Russia war. Not just the energy debate, but it played on every single debate during the whole G20 negotiations. But I think the impact was most pronounced. And it got the ugliest with energy because energy was one of the main pain points of the setbacks of the whole Russia-Ukraine sanctions regime. So that's one.
And the second thing is, of course, the fossil fuel producers, for instance, there was no agreement. But beyond that, there is this thing that always comes along, this catchphrase that everybody holds on to from time to time. Every time we have a serious discussion, this catchphrase kind of trivializes it and takes it in another direction. And now the flavor of our times is CCUS and CCS. It was clean coal. And for me, clean coal, the image that comes to my mind when I think of clean coal is Donald Trump in one of his campaigns to coal miners describing clean coal by scrubbing off something off his hand. Apparently, in his head, that's how clean coal works. So that was a catchphrase back then. Thankfully, we are done with that. We don't talk about clean coal anymore. But then now we're talking about CCS.
There was a very practical solution which was put forth based on solid analysis by the International Energy Agency and the IRENA, which called for tripling of renewable energy capacity by 2030 by the G20 nations. And given the trajectory of energy demand, that proposal made complete sense. And I recently had an interview with the Canadian Energy Minister, and he acknowledged that it was brave of India to kind of put that as a point of discussion in the first place. And making that report and that kind of ambition the basis.
And India has walked the talk. Though India has failed to achieve its 2022 goals. And that needs to be acknowledged. The fact remains that despite India's progress, India has failed to achieve its 2022 goals. And we have our 500 gigawatt non-renewable and non-fossil fuel goal of 500 gigawatt by 2030. So we are tripling while we ask other countries to triple as well. And China has that trajectory as well.
So they put this forward and on behalf and they wanted all the countries to accept. But the army of fossil fuel producing countries were opposed to any kind of timeline based target or a body like G20 comprised of many nations telling individual countries what they should be doing because they thought it compromises on the idea of sovereignty or things like that. So you had Russia and Saudi Arabia, most certainly opposing it. And then you had China opposing it. You had South Africa opposing it, Indonesia opposing it.
All on the principle of not having a timeline based target.
Now, how did this debate play out on paper in the fine print? It eventually played out by the language being diluted, wherein it was said that the fossil fuel face down was spoken about, face down of unabated fossil fuels was spoken about. But then there was an additional disclaimer of sorts, which was added to reflect the views of the fossil fuel producers in the chair summary, wherein it was said that some countries also reckon that they could go the abatement route or they could go the CCS route to address concerns about rising emissions.
Now, I'm working on a story. It's not been published yet, but some data point I was looking at was about CCS projects which have been announced. And there is an IEA report. It's downloadable on their website. So many of these projects have been announced. I don't have the exact numbers, but the number of these projects announcements which have translated into realized projects are miniscule. They're not even comparable to the success rate that your solar and wind follows, the trajectory that they follow.
And I also attended some of the ministerials and the technical meetings on the sidelines of the G20 and the clean energy ministerial which was held. And one of the things that the bankers kept saying was that, boss, we're not going to be financing these projects so easily because one, there is no precedent. And when there is no precedent in terms of bankability of a project, you struggle to understand whether it will give you returns or not as a banker.
So there are all these questions over bankability of CCS and CCS projects that people are struggling with. There's a question of hubs. There is a question of leakage. So given all these question marks and all these uncertainties and the reality that's playing out, what's the reality that's playing out? The reality is that you have announcements and then most of these announcements don't go through with CCS.
Do you really want to go in that direction with so much uncertainty or do you want to add and deploy more and more renewable capacity? The right thing to do, the economically practical thing to do is for you to add more renewable capacity. But then the fossil fuel producers, just because they want to put up a political opposition at these forums, they're saying that we want CCS also to be a part of solutions. So that is a bit of a sticking point. I think the sooner the countries come to realize that CCS is not working out, unless something dramatic happens in the next few years, which could be a game changer for CCS.
But since we don't have that kind of clarity on what's going to happen in terms of any radical technology evolving, we should work with what we have right now, which is that we have solar and wind and all other renewable forms picking up in a big way and we should deploy them instead of fighting about it. As has been pointed out by many experts, it's political that there is an opposition to tripling renewable capacity than economical or practical.
For instance, China is opposed to opposition, but China is going to increase its capacity to 1200 gigawatt of solar and wind by 2030. So it doesn't make any sense. You're saying that you're principally opposed to it, but then what you're doing and what you're promising to do to your countrymen is something completely different. You want to double down, triple down on renewables. So despite the political opposition to renewables, I think we are firmly on the trajectory of adding more and more renewables. We'll get very close to that stated target of tripling of renewable capacity by 2030.
The third sticking point was hydrogen. Hydrogen is a discussion that, again, I'm viewing hydrogen like I was viewing energy transition in 2017. I'm not very optimistic. I don't know what's going on. First of all, the prices are too high and then there are discussions and debates about the colors and we don't know how that ecosystem is going to play out. What's very clear at this point in time is that there's not enough demand. You need enough demand to create a market and that's also been the argument of some of the producers there.
The fossil fuel producing countries are saying that let's not talk about the color of hydrogen. Let's just produce hydrogen, create a market, freely trade the commodity and then see where it goes from there.
Do we want to do that is a question. Do we want to produce so much hydrogen using high carbon technologies?
In fact, India's argument. The power minister said that for every ton of hydrogen you produce using gas, you release 10 tons of carbon dioxide. Not sure about the math on that, but I'm quoting him verbatim. Yeah. So do you want to produce such high carbon commodities at this point in time or are you willing to look for an easier cleaner solution? So that was another sticking point at G20.
So broadly speaking, three main points,
the Russian-Ukrainian language and
then what they were going to do on fossil fuels, no agreement.
Then lastly, hydrogen. How were they going to go ahead and do what they want to do with hydrogen?
So these were the three main points.
But I think in the midst of all this criticism that some fossil fuel producers rightly got from G7 and other people, I think there is some logic to what they're talking about. I mean, whenever there is some kind of a political clash between the liberals and conservatives and the liberals seem to be having the upper hand, it should not, we are supposed to take the other side of the argument a little bit seriously because there will be merits there based on other logics and these mostly relate to existential logic. So I think what the fossil fuel producers are doing, sometimes rightly and sometimes wrongly, tapping into existential fears of most people.
For instance, there was India Energy Week conference that happened at the beginning of this year. There is this conversation that's going on about energy transition. Great. The numbers seem to be backing it, but then there are some complicated events that happen in different pockets of the world and these people's voices are not heard as much as they should be.
Zimbabwe is an example. Zimbabwe had a dictatorial regime under Mugabe, which ended pretty recently, and they're finally coming out of years of exploitation, currency devaluation, and their economy is just starting to thrive and they have a new regime in place. And their power demand, unsurprisingly, is starting to go up.
All they needed was one coal-fired power unit and because of sweeping directives given to global financial institutions and multilateralists which finance power plants and because of Xi Jinping saying that we will not finance any other power plants outside of China right now.
Zimbabwe is struggling to get that one coal-fired power plant up and running and as a result of that, so many of the households are still in the dark. So many of the industries and investments which could have come in are not coming in. And then there are question marks over some gas-fired projects.
Not all, but some gas-fired projects like Japan gets its way with gas. But then Tanzania recently said on this global forum, the India Energy Week, that the West needs to move away from hypocrisy and really think about energy equity because Tanzania needs that gas right now. They need to put a gas-fired plant, but they're not being able to put it because of climate dictates and high cost of financing because they are seen as fossil fuel investments.
So this well-intentioned move of placing a premium on fossil fuel investments or even making them impossible is having adverse effects on some countries, especially in the Global South and that needs to be paid careful attention to.
Though mostly the politics or the intent behind what Saudi or Russia might be saying could be something else, there are unintended consequences of sweeping policies which define climate politics. And they need to be paid attention to because you do not want up-and-coming countries which have faced harsh economic realities to be struggling just because they are not given an equitable energy access.
The same thing with Bangladesh which happened as well, which we discussed in detail.
So I think while we move towards energy transition and follow this path, we also need to be very conscious about what's happening to countries which do not have the economic prowess of the developed nations.
Sandeep Pai: Great, fantastic. This is great. I have one last question which is about, you know, we talked about Russia, we talked about India's G20 presidency. I just wonder what all of this and the geopolitics of all of this would mean for COP 28 which is around the corner.
Especially, what do you think would be some of the key expectations? I mean, some of these questions about CCS and fossil fuel phase out and all are likely to come back again.
But do you see, especially now that the COP is itself happening in UAE, do you see that, you know, this COP would have some, this COP would make some progress given the history of the background of the year?
Sudarshan Varadhan: Yeah, okay. That's how do I answer that question.
I don't know how do we define progress. I think, I fundamentally think that we are all gravitating towards this renewable energy capacity addition and energy transition because it makes economic sense and that's the only reason we are doing it. There's no philanthropy or greater purpose as much as, you know, the energy ecosystem wants us to believe. If solar was priced at 17 rupees like it was 15 years ago, I don't think we would be wanting to go solar. We might still acknowledge the realities of climate change and all that but we would say, well, it doesn't make economic sense. We're not going in that direction.
So, first of all, I don't think any of these global forums have the capacity to change anything. I mean, the more it changes, the more it remains the same is what they say, right? So, it's like that. So, I don't think one COP or even 10 COPs are going to change anything but what we can expect from COP is that there will be a very intense set of debates on carbon pricing because, again, of what we discussed about the renewed force with which the fossil fuel operators are happening and they seem to want to discuss this agenda.
It was discussed, Article 6 was a pain point even in the last two COPs and it is very famously playing out in Canada right now. It's playing in the United States. Like I said, discuss, it's a new catchphrase.
So, one of the main problems, practically speaking, is the lack of a carbon price and a global acknowledgement, a global recognition of a universally accepted definition for carbon pricing. So, that is going to come up as a big, topic of discussion and it remains to be seen where it goes.
I think without getting too excited about what this means for the climate, if you were to look at it purely as a play out of one set of economic events after the another, I think the most important thing that is going to come out of the COP this year is going to be Article 6 and this discussion on carbon pricing.
If not anything, it will decide the future of CCS and the bankability of a million zillion projects that have been announced. Hopefully, we will have a consensus and a finality to what's going to happen to all those projects. So, I think that is the most important aspect of COP this year.
Whether it's going to help us be the same planet in 2000 that we are today, whether it's going to stop that 1.5 degree such as rise that everybody's been talking about, I don't think not this COP, any COP would be able to give finality on something like that.
I think that is something that's going to be decided outside those negotiating tables and so many dynamic factors. But this COP, it's going to be about one thing and that's Article 6 and carbon pricing. At least for me, that's how I look at it.
Shreya Jai: Great. And we will have you again to discuss what happens at COP.
I think it would be an interesting one, especially with UAE hosting it. And as you mentioned, these are the issues that one should look forward to. Again, I think the turbulence would continue there. So, we would have some very interesting deliberations out there. What is the outcome? We'll see that.
But thank you so much. It was a great conversation.
When we started, I did not realize that we will touch upon so many issues, but we did.
All thanks to you for this very wide ranging conversation that we had with you.
Sudarshan Varadhan: Thanks, Shreya. Pleasure talking to you.
And thanks, Sandeep. And thanks to Tejas as well for organizing this.
It was fun talking to all of you!
Sandeep Pai: Thank you. Thank you so much.
Tejas: Thank you.
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