Orderly Exit: On India and Energy Transition Issues

UPSC Syllabus: Gs Paper 3- Infrastructure

Introduction

Global energy shocks have been recurring, from the 1973 Yom Kippur War to the 2022 Russia’s invasion of Ukraine. However, the present crisis involving U.S.–Israeli strikes on Iran is different as it disrupts both oil and gas flows. This disruption comes at a time when the global energy system is already shifting towards cleaner sources, making it a deeper structural change rather than a temporary shock.

Changing Nature of Energy Systems

1. Dual energy disruption: The present crisis affects both oil and gas flows together, unlike earlier shocks that were mainly oil-based. This increases the scale and impact of disruption.
2. Energy transition underway: International Energy Agency shows that electric vehicles displaced 0.9 mb/d of oil demand in 2023, rising to 1.3 mb/d in 2024, indicating a clear structural shift.
3. Limited but significant impact: This shift still forms only 1–1.3% of global oil demand, but it signals long-term change in consumption patterns.
4. Shock as accelerator: A disruption of around 8 mb/d supply can speed up the transition away from fossil fuels.

Fragmentation of the Global Energy Order

1. Decline of petrodollar system: The earlier system ensured oil trade in dollars and supported U.S. financial dominance through recycling of surplus revenues.
2. Shift to mineral-based system: Energy is moving from global oil trade to geographically concentrated supply chains of critical minerals.
3. Concentration of key minerals: Lithium is concentrated in Chile (30%), Argentina (13%), Australia (20%+), while cobalt is over 70% in DR Congo and nickel is dominated by Indonesia.
4. Role of new producers: Copper is concentrated in Chile and Peru, while Canada and Australia are emerging as key suppliers of multiple minerals.
5. China’s processing dominance: Control over processing and manufacturing lies mainly with China, giving it a decisive advantage in the new system.
6. Possibility of new currency shift: Future energy systems may depend on China and possibly the yuan, similar to earlier dependence on dollar-based oil.

India’s Strategic Dilemma

1. Opportunity for energy security: The transition offers India a chance to reduce fossil fuel dependence and move towards cleaner energy.
2. Risk of new dependencies: Dependence may shift from oil imports to critical minerals and foreign technology supply chains.
3. Technological vulnerability: Heavy reliance on external manufacturing and processing can limit strategic autonomy.
4. Balancing transition and sovereignty: India must ensure that new energy systems do not recreate old patterns of dependence in a different form.

Building India’s Energy Transition Ecosystem

1. Rapid renewable expansion: India’s renewable capacity crossed 250 GW by 2025, driven by solar and wind deployment.
2. Ambitious targets achieved early: The target of 500 GW non-fossil capacity by 2030 was achieved five years ahead of schedule, showing strong policy execution.
3. Ecosystem-based approach: Transition now involves coordination among policy, finance, industry, research and consumers to scale innovation.
4. Solar sector success: Long-term policy support, concessional finance and Production Linked Incentives made solar energy cost-competitive.
5. Digital model as example: Systems like UPI show how coordinated action can create large-scale impact across sectors.

Strengthening Innovation and System Integration

1. Green hydrogen push: The National Green Hydrogen Mission targets 5 million tonnes annual production by 2030, supported by incentives under the SIGHT programme.
2. Energy storage expansion: Battery storage and pumped storage are being promoted, with viability gap funding to reduce risks.
3. Grid infrastructure development: The Green Energy Corridor is improving transmission and reducing curtailment.
4. Multi-stakeholder participation: Governments, financial institutions, manufacturers and research bodies are working together for reliability and affordability.
5. Priority innovation areas: Focus includes advanced storage, recycling of materials, long-duration storage, industrial decarbonization and AI-based energy systems.

Way Forward

1. Diversified resource strategy: India should secure access to critical minerals from multiple regions to reduce risk.
2. Domestic capability building: Strong focus is needed on manufacturing, processing and technology development within the country.
3. Integrated ecosystem approach: Innovation must move from isolated efforts to coordinated systems involving all stakeholders.
4. Use of policy instruments: Tools like incentives, demand aggregation and finance support can accelerate investment and reduce risks.
5. Global South alignment: A non-aligned strategy can help India avoid dependence on any single power and maintain strategic autonomy.

Conclusion

The current energy transition marks a major shift in global economic and geopolitical structures. India must ensure an orderly exit from fossil fuels by combining clean energy expansion with strong domestic capabilities. A balanced strategy, focused on diversification, innovation and autonomy, will help avoid new dependencies while securing long-term energy and economic stability.

Question for practice:

Examine how the ongoing global energy transition, combined with recent geopolitical disruptions, is reshaping energy systems and creating both opportunities and challenges for India.

Source: The Hindu