Whether the world and India needs an energy transition is no longer in question. Rather, the question is how to achieve it, and how soon. The answer to both of those questions could depend on how India gets the manufacturing and supply chain story right, as it will be not just India that benefits, but the world stands to gain as well.
KPMG in India recently launched a report titled 'Pivoting to Leadership – Re-imagining supply chains for India’s emergence as a credible alternative for global clean energy manufacturing'. The report was launched by Hon’ble Minister, Shri Hardeep Singh Puri, Minister, Petroleum & Natural Gas and Housing & Urban Affairs, Government of India at ENRich 2023, KPMG in India’s marquee energy and resources conclave.
The report talks about how India needs to rethink its supply chains in order to be a viable alternative for producing clean energy on a global scale. It highlights India's advantageous location in relation to China and Europe for assisting with the global energy transition. In order to take advantage of the investment opportunity in the energy transition, the document also emphasises how crucial it is for India to play to its strengths and address its weaknesses.
High speed and large-scale energy transition is required, and it presents a huge investment opportunity. Rapid economic development and climate change have fueled an urgent need for an energy transition that will require an annual investment in energy of USD 4.5 trillion until 2050. India needs to accelerate the energy transition due to the country's expanding population, infrastructure development initiatives, and rising energy demand. By 2047, India will require an average of USD 350-400 billion per year to meet its clean energy goals.
Speaking at the event Anish De, Global Head - Energy, Natural Resources & Chemicals (ENRC), KPMG International said that “A transition to clean energy is a huge economic opportunity for a country like India. The growing economy needs more energy than ever and energy needs resources, materials and manufactured products and systems. Beyond energy projects development where India has excelled, the full value chain needs addressing. Geopolitical upheavals have brought to the fore the broader challenges on energy security and the risk that it poses for many countries especially India. As a very large energy importer India needs to find alternatives that make the country less vulnerable. For this it is extremely important that India gets its manufacturing and supply chain story right, as it would serve not only the nation but also de-risk the world.”
Supply chains will need to be redesigned for the energy transition to be successful. A significant risk for the deployment of renewable energy capacity globally is the centralization of supply chains and the ensuing loss of price control as a result of an overreliance on one country. Therefore, a global effort to diversify renewable energy supply chains by implementing strategies like the China + 1 strategy may be necessary. India is a strong competitor in this market thanks to high captive demand, robust manufacturing clusters and processing capabilities, government support, regulatory enablers, and special domestic capabilities, including skillsets.
Sharing her views, Anvesha Thakker, Partner and Industry Lead - Clean Energy, Energy Transition Co- Lead: Global Decarbonisation Hub, KPMG in India said “India as a country has the ingredients to emerge as a credible alternate frontier for clean technology manufacturing, but the industry must strengthen its manufacturing and sourcing strategy and focus on value engineering, effective expansion management, digital technologies and other levers to grow.”
It has a market opportunity for manufacturing clean energy worth USD300-400 billion if both domestic consumption and exports are taken into account within this decade. When we take into account not only the local requirements but also the global demand of talent and requirements of global capability centers of energy majors in India, KPMG in India estimates that the energy transition could create the need for 5–6 million jobs by 2030 and 9–10 million by 2047, of which 30% is expected in manufacturing. To address the need for deep skills and to ensure rapid talent development at scale, a comprehensive skilling strategy would be necessary.
“If we get our strategy right, we can really convert these areas of opportunities though policies, robust supply chain strategies, creating an ecosystem that focusses on innovation, debottlenecking financing by innovative commercial frameworks and instruments and other measures” added Anvesha.
Between Europe and China, India is in an ideal spot to aid in the global energy transition. India has everything it takes to become a center for the production of clean technology. In order to achieve this, the sector needs to focus on value engineering, effective expansion management, and other levers while also strengthening its manufacturing and sourcing strategy.
Due to government policies and a favorable demography, China is firmly ranked at the top of the list of cost-effective locations, contributing 28.4% of the world's manufacturing output. Europe, on the other hand, is renowned for its innovations and high-quality goods despite its expensive labor and onerous regulations. The world economy is looking for a dependable supplier who can offer premium goods at a price that is reasonable.
India, one of the top five countries in the world for producing clean energy, has a thriving manufacturing ecosystem with clusters spanning numerous industries. It has strong processing abilities, including those for machining, fabrication, and other tasks essential for the creation of clean energy. Automobile, auto-related products, industrial manufacturing, and electronics are just a few of the industries with numerous manufacturing clusters in southern and western India. These areas, which have a variety of processing capabilities, are popular investment locations.
India has a supplier network that is adaptable and flexible enough to meet the demands of the clean energy industry. Indian suppliers can provide components and assemblies in which they already excel by operating across industries and regions, leading to supplier consolidation and capability augmentation. Additionally, it has strong export and domestic demand potential. India has already surpassed its goal of installing 40% of its electricity capacity from non-fossil fuel sources and aims to install 500 GW by 2030. Manufacturers of clean energy equipment now have a sizable market for both domestic and international sales.
To encourage the production of clean energy, the Indian government has implemented incentives and regulatory support measures. Support for electrolyser and green hydrogen production is offered by programs like the SIGHT program and the National Green Hydrogen Mission.
India's manufacturing industry for clean energy is rated favorably in terms of supplier ecosystem, partnerships, and collaborations. While R&D, innovation, and financing have become important areas of concern, there is still room for improvement in areas like government support and skill availability.
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