Tackling climate change is tough but it’s also a huge business opportunity
The road to waste recycling company Let’s Recycle’s plant on the outskirts of Ahmedabad, is lined with opportunity. You could be forgiven for failing to recognise it, however.
On this journey through Pirana, far from the city’s urban sprawl, mounds of refuse dot the fields beyond the kerb on both sides. This is where most of the solid waste ends up, in this city of 5.6 million. The giant landfills further ahead look the same as in other Indian cities — open and overflowing hillocks of garbage, turning the air all around acrid.
A small part of this waste is now making its way to Let’s Recycle’s four-storied, dry-waste processing unit, spread over 1.2 acres. Here, half-a-dozen workers do a cursory sorting of the waste to remove glass and metal pieces. A conveyor belt then carries the waste into a whirring machine. Inside, an optical sensor scans through the rubbish to sift plastic and paper, based on how light reflects off these. The various kinds of plastic are then manually separated and sent to recyclers or turned into granules or lumps and sold to plastic makers. The recycled output becomes raw material for units making plastic containers and PVC pipes, among others.
They might have set out to turn garbage into gold, but Sandeep Patel and Dhrumin Patel (not related), two of the founders of Let’s Recycle, are allies in India’s efforts to fight climate change. Theirs is among a string of ventures, big and small, in sectors such as renewable energy, electric vehicles, climate-resilient agriculture and waste management, that are at a happy confluence where business success also means a better environment. The collective opportunity in these sectors in the next decade is in the billions of dollars, as India and other large economies race against time to clamp down on emissions and meet obligations under the Paris Agreement of 2015.
But how does a small waste recycler in Ahmedabad help the environment?
Urban waste management is key to slowing climate change. Recycling plastic means eliminating the use of hydrocarbons that would otherwise have been used to make new plastic. And those overflowing landfills by the way? Deadly for the environment.
Organic waste that decomposes in landfills produces methane — a greenhouse gas (GHG) whose impact on the environment is 25 times greater than carbon dioxide (CO2) over 100 years. Methane from waste accounted for 17% of India’s total non-CO2 emissions in 2016 and 5% of its GHG emissions in 2016, according to PBL Netherlands Environmental Assessment Agency.
India’s obligations under the Paris agreement are onerous. And if climate change is not contained, the impact on India’s people could be cataclysmic.
The 2015 Paris Agreement, signed by 195 countries, vowed to keep the global temperature rise this century to well below 2° Celsius above pre-industrial levels and strive to further limit the increase to below 1.5° Celsius. India, the world’s third largest emitter of CO2 in absolute terms, has committed to cutting its emissions by a third by 2030 from 2005 levels.
According to a recent World Bank study, if India does not act on climate change, by 2050, living standards (as measured by consumption expenditures) could fall by 2.8 percentage points. Nearly 150 million Indians live in climate hotspots where living standards could decline by more than eight percentage points. Inaction could shave $1.12 trillion off the country’s GDP by 2050. Besides, coastal cities like Mumbai and Kolkata face the risk of flooding over the next century. In the event of a temperature rise of 2° Celsius by 2050, India will have to import more than twice the foodgrain it will be required to without climate change. It’s a mission whose importance can’t be overstated.
Let’s Recycle’s efforts in Ahmedabad are part of a 14-year public-private partnership with the city’s municipal corporation. The plant, built at a cost of Rs 11 crore to handle 100 tonnes per day (tpd), currently processes around 55 tpd of solid waste. Ahmedabad generated 2,500 tpd of solid waste in 2015-16 (latest available figure). According to a central government estimate in 2014, more than 80% of urban India’s 62 mt annual solid waste went to landfills.
“From our plant, we don’t send anything to landfills,” says Sandeep, the entrepreneur. Let’s Recycle’s parent company Nepra Resource Management has raised Rs 72 crore in equity funding from Aavishkar and Asha Impact — impact investors who prioritise beneficial social or environmental impact alongside a financial return.
With the latest round of funding, Nepra is looking to expand to three more cities. Sandeep says Nepra’s revenues will double to Rs 60 crore this financial year and the company is ebitda-positive (ebitda is earnings before interest, taxes, depreciation and amortisation). Ebitda indicates a company’s financial performance and earnings potential.
The Centre’s waste management rules of 2016 and the Swachh Bharat Mission have forced municipal corporations to take waste management more seriously. Letting private companies take the lead is the best option available for bloated, fundstarved city administrations. “Everybody is trying to make a model independent of urban local bodies,” says Roshan Miranda, cofounder of Hyderabad-based Waste Ventures, a digital waste pickup platform for households and small enterprises.
World Bank’s sister organisation, the International Finance CorporationNSE 0.00 % (IFC), estimates that between 2018 and 2030, municipal solid waste management in India has an investment potential of $11 billion. Among the other climate-related sectors with huge investment opportunities are EVs ($667 billion, based on the government’s initial target of disallowing non-EV cars by 2030), renewable energy ($404 billion) and climate-smart agriculture ($194 billion).
Clean Energy, Green Planet
Renewable energy is crucial to India’s emission-reduction plans. In 2015, the government set a target of 175 GW (1 GW is 1,000 MW) of renewable energy capacity by 2022, which it recently said might be achieved earlier. As of now, India has an installed renewable energy capacity of 69 GW. Wind power accounts for half of this capacity and solar power almost a third. India wants to double the contribution from renewable energy sources to 40% of total capacity by 2030
Thermal power, predominantly based on coal (a major pollutant), makes up almost two-thirds of India’s energy capacity now.
Three-fourths of the government’s target of 175 GW are set to come from solar and that is reflective of the increased investor interest in the sector. The price-perunit developers quote in bids has slid by more than 65% from five years ago — a sign that solar power is becoming affordable. The fall in bid prices was accompanied by a fall in the cost of solar panels over the same period. Ashish Sethia, Asia-Pacific head of research at Bloomberg New Energy Finance (BNEF), says China’s phasing out of subsidies for the solar industry will bring down panel prices by a third this year, as a result of China’s not adding as much capacity as earlier thought.
India provides capital subsidies for rooftop solar installations but not for groundmounted ones. Shashi Shekhar, vice-chairman of Acme Group, among the country’s largest solar power developers, says the sector is attractive even without government incentives. Acme Solar Holdings has an operational capacity of 1,700 MW and 1,900 MW under construction and development.
The potential these companies see have made them raise the bar. Acme and ReNew Power, which has the largest renewable energy portfolio (wind and solar) in the country, are both planning to go public. ReNew hopes to raise Rs 2,600 crore from the initial public offering. Its investors, including Goldman Sachs, are selling a part of their stake, with the size of the total issue reportedly being around Rs 7,000 crore. ReNew in April acquired Ostro Energy, a competitor, for an undisclosed amount. It has an operational portfolio of over 3,920 MW and a capacity of around 1,670 MW under development.
For the nine months ended December 2017, ReNew reported revenues of Rs 2,105 crore, up nearly 80% from the corresponding period in 2016. Its net profit slid from Rs 184 crore to Rs 140 crore, partly on account of a doubling of finance costs. ReNew declined comment for the article, due to the silent period ahead of the IPO.
Renewable energy in India, particularly solar, is a key focus area in climate finance, which refers to financing from public, private and alternative sources to help developing countries mitigate or adapt to climate change. In 2016, global climate finance totalled $383 billion, nearly two-thirds of which came from the private sector, according to the Climate Policy Initiative. This included fund sources such as project developers, commercial finance institutions, national budgets, multilateral agencies and development banks. India was the largest recipient of financing by climate funds, a small component of climate finance, as of January 2018, at $1.13 billion.
Renewable power projects have become a “straightforward, bread-and-butter business” for Indian lenders, says Shalabh Tandon, head of operations, South Asia, IFC.
Electric vehicles (EVs) have also become central to the discussion on business in times of climate change. The Indian government first said by 2030, all new cars that would be sold would be electric. Later, a more realistic target of 30% of new cars sold was set. BNEF estimates passenger EV sales in India will be only 6.6% of total sales by 2030, much lower than the government’s target, and 27% by 2040.
EVs are important for India to reduce emissions and to pare its crude oil import bill (estimated to be Rs 5.7 lakh crore in 2017-18).
Riding on Electric
The government provides buyers subsidy of up to Rs 22,000 for an electric scooter and up to nearly Rs 1.4 lakh for an electric car. China, the biggest market for EVs and the largest supplier of batteries, provides subsidies that are three times higher for electric fourwheelers, relative to the price of the vehicle, than India.
But that has not been enough to drive up demand. “How do you expect people to buy EVs when there are no good products?” asks Ravneet Phokela, chief business officer of Ather Energy, a startup that opened bookings for its first electric scooters in Bengaluru last month. Around 2,000 electric passenger vehicles were sold in India in 2017-18, compared with the overall passenger vehicle sales of 3.29 million. About 52,000 electric scooters were sold, compared with total two-wheeler sales of 20.2 million, in the period. Ather, which has raised $43 million in funding from Hero MotoCorp and Tiger Global, hopes to ship 7,000-8,000 units within the first year of launch.
There has been speculation that the government might withdraw the subsidy. The government will prioritise fleet operators over individual buyers when it comes to subsidies, says Sohinder Gill, spokesperson for the Society of Manufacturers for Electric Vehicles. But EV makers like Mahindra Electric Mobility and Ather Energy want the subsidies to continue till the industry achieves scale. “If we can’t succeed after that, we don’t deserve to be in this business,” says Phokela of Ather.
While it is clear the transition to EVs is a question of when, rather than if, challenges are abound. The inability of EVs to run for long on a single charge and the lack of charging stations, besides the relatively steep price tag, have kept buyers away. Ather wants to change this situation. By December, it hopes to have 50-55 charging locations in Bangalore, with 1-3 charging points at each.
As the battery is the heart of an EV and India cannot boast of a homegrown battery ecosystem, automakers have to depend on imports and partnerships with foreign companies. Earlier this year, Mahindra & Mahindra joined hands with LG Chem to develop lithium-ion batteries for its EVs. “For the next five years, lithium-ion is going to be the primary (battery) technology,” says Mahesh Babu, CEO of Mahindra Electric Mobility. The company sold around 4,000 units in 2017-18, nearly a third of which were cars and the rest rickshaws and vans. It is investing Rs 900 crore in the business over four years.
Mahindra, along with Tata MotorsNSE 0.98 %, also won a tender to supply electric cars to a government agency, which aims to replace cars used by government officials with EVs. In phase-1 of the project, Tata had to supply 350 units and Mahindra 150. It was part of a much bigger contract for 10,000 EVs for the two companies.
Smarter Farms
While renewable energy and electric vehicles will help India mitigate climate change, it also has to be better prepared to deal with the effects of climate change in agriculture — a sector that employs close to 50% of the workforce. The preparation would involve deepening the penetration of micro-irrigation systems, which brings down water use by half, and wider use of drought- and floodresistant varieties of crops.
Anil Jain, managing director of Jain Irrigation Systems, India’s largest and the world’s second biggest micro-irrigation company, sees a huge opportunity in this space. Only 10 million hectares of farmland in India have micro-irrigation. The potential is 70 million. Central and state government subsidies would mean the farmer pays only half the cost of the drip- and sprinkler-irrigation systems, which could go up to Rs 2 lakh per hectare (1 hectare is 2.47 acres). The Union government in May set up a Rs 5,000 crore microirrigation fund to expand coverage.
Jain, whose company logged a revenue of Rs 7,950 crore in 2017-18, says precision agriculture, of which micro-irrigation is a part, along with the use of solar pumps (subsidised by the government) could reduce both costs and the carbon footprint of a farm. BNEF estimates that there are 20 million pumps running on diesel or subsidised electricity. Diesel pumps use an estimated $2 billion worth of fuel every year.
There are economic opportunities in other climate-related sectors such as green buildings and energy efficiency. As awareness grows of risks associated with climate change, naturally more money will find its way to companies addressing related risks. However, as BNEF’s Sethia says, “Putting a climate-friendly tag on a project is nice, but it doesn’t move the needle on investment decisions. It works on economics.” In the end, caring about the planet is great, but money will only follow robust business bets.
Source: economictimes.indiatimes
