India’s move to net-zero to rearrange global trade flows and supply chains
Since India’s commitment last year to net-zero carbon by 2070, investors have debated the implications for global commodities given India’s status as a top-five importer of oil, LNG and coal. To address these debates, we collaborated with 30 analysts covering 16 sectors to map out India’s potential path to decarbonisation. We developed an in-house India energy model (identifying the need for solar, battery and hydrogen) to estimate the total capex needed to achieve net-zero, which we estimate at c.US$20trn over the next 50 years. In that period, we expect India to stop importing 3%/3% of current global coal/oil demand and expand its solar generation capacity by 100x. By 2040, we see global trade flows and supply chains rearranging to accommodate India’s changing status from primary energy importer to an exporter of renewable supplies.
Can India decarbonise despite increasing energy demand?
UBS proprietary India Energy model sees India’s primary energy demand nearly doubling by 2070E, with renewables share rising to 72% by 2070E (from just 1% in 2019), and 9% of energy from bioenergy and 9% from green hydrogen. We estimate c.US$20trn capex to achieve this (1.2% of GDP over the period), mainly led by private investment. But in the short to medium term, India's dependence on fossil fuels will rise, peaking around 2040E, further complicating the dynamics of the global energy transition. We expect India to overtake China as the leading growth market for oil during this period. Continued import dependence would mean sustained pressure on India’s import bill, with current account deficit to last at least till 2045E. We introduce interactive models for solar and green hydrogen for investors to analyse cost/installation sensitivities.
Can India achieve self-reliance in solar cells, batteries and electrolysers?
Though India’s entry into solar Photovoltaics (PV) and battery manufacturing is later than China's, past experience (e.g., 4G implementation) suggests fast-tracking is indeed possible, assuming we see supportive government policies, financing incentives and large corporates backing the transition. Recent production-linked incentives by the government have sparked significant local capacity additions in solar cells, batteries and bioenergy. India’s 265GW/1000GW of renewables installations and 600/7400GWh of battery additions by 2030/40E could support domestic manufacturers, as we expect Indian utilities and OEMs to invest c.US$2trn by 2040E. We think India can achieve manufacturing capacities of 80GW pa of solar PV and 190GWh pa of batteries by 2030E, placing it among the world's top-three producers. We think India’s solar PV manufacturing capacity, if achieved, could reposition India in the next decade as a net exporter vs a net importer now.
