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Reliance’s Green Energy Push Could be a Game-Changer

Mukesh Ambani put forward a three-fold strategy and roadmap a few days back for implementing Reliance's 15-year-old commitmen

Five years after disrupting the telecom industry with the launch of Jio, at the end of the last month, 24th June 2021, Reliance announced yet another game-changing move, a mega entry into renewable energy (1).

Mukesh Ambani, Chairman of Reliance Industries (2), put forward a three-fold strategy and roadmap a few days back for implementing Reliance’s 15-year-old commitment to be net carbon zero by 2035 (3).

“The global New Energy plan requires us to move from talking to action, from commitment to urgent implementation. It isn’t enough to be carbon neutral. Today, the world needs to achieve absolute emissions reductions,”

said Ambani in the company’s 44th AGM annual general meeting.

“With the new initiatives, Reliance is looking to put Gujarat and India on the world solar and hydrogen map. All the products will proudly proclaim Made in India, by India, for India, and the world,”

added Ambani.

India’s GDP per capita is at 2k USD today while the global average is 12k USD, and its power consumption per capita is only one-third of world consumption.

“Such wealth and energy disparity are not acceptable,”

said the billionaire, announcing the launch of a new energy business looking to bridge the green energy divide in India and across the globe.

Reliance’s New Energy Bet

Here is Ambani’s three-step plan (4) with renewables:

  • Hyper-integration: Build and operate integrated systems by blending scientific knowledge with technological innovation.
  • Robust Business Model: Build a model that catches the irreversible upward curve in demand for green energy in the country and worldwide with a downward curve in its production cost.
  • Scaling Capacity: Improve the efficiency, life-cycle, and performance of assets and operations to achieve total system optimization and economics.

Using The Old to Build Anew

Reliance is developing the Dhirubhai Ambani Green Energy Giga Complex on 5k acres in Jamnagar, Gujarat. It will be among the world’s most prominent such integrated renewable energy-making facilities (5).

“Jamnagar was the cradle of our old energy business. It will also be the cradle of our new energy business,”

stated Ambani.

Creating a New Energy and materials ecosystem and decarbonizing and repurposing the present O2C business will be a multi-decade growth plan for Reliance.

The Top Announcements

  • Reliance will build four Giga factories to make and integrate all critical components for the New Energy ecosystem: solar photovoltaic module factory, energy storage battery factory, electrolyzer factor, and fuel cell factory.
  • Over the upcoming three years, Reliance is looking to invest more than 60k crore INR to create a fully integrated, end-to-end renewable energy ecosystem.
  • Reliance will also invest an additional 15k crore INR in the value chain, collaborations, and future technologies like upstream and downstream industries. Making the overall investment in New Energy business 75k crore INR in three years.
  • The company has created Reliance New Energy Council with some of the finest talents globally.
  • Reliance will build two additional divisions to further strengthen the ecosystem: a dedicated Renewable Energy Project Management and Construction Division and a dedicated Renewable Energy Project Finance Division.
  • The organization is evolving a vision for New Materials and Green Chemicals, starting by strategically investing in India’s first world-scale carbon fiber plant for supporting India’s hydrogen and solar ecosystems.

Ambani’s Green Vision

“We will transform our legacy business into a sustainable, circular, and net-zero carbon materials business. We will do it by repurposing our current assets to extend their economic lives and earning capabilities,”

said Ambani.

With its new renewable energy project, Reliance is looking to create a capacity to produce solar power of 100 GW in the next decade. It is a stunning ambition since India’s current solar power capacity is only at 40 GW, including ground and mounted rooftop (6).

Reliance will have integrated manufacturing for solar manufacturing starting from raw silica and polysilicon ingot, wafer to finished products modules. It will be a major addition to India’s solar manufacturing plans. However, the company has not revealed its capacity.

While on the topic, it is also worth highlighting that India imports over 90% of its solar cells and module needs. And about 80% of it is from China. As per the industry data, India has 3,100 MW of cell manufacturing capacity and module manufacturing of 9,000 MW.

Early this year, the Indian government announced the production-linked incentive scheme for solar photovoltaic panel manufacturing domestically. The 4,500 crore INR scheme looks at building an additional GW capacity of integrated solar PV manufacturing plants in India (7).

Reliance will concentrate on rooftop solar and decentralized solar installations in rural places in a major way. The second part of the plan includes building a value chain for Giga factories and will be part of the Jamnagar complex of the company.

Reliance’s green energy project management and construction division will offer end-to-end solutions for large renewable plants globally.

As per Ambani, the center will also “enable and collaborate with thousands of green MSME entrepreneurs, who can roll out kilowatt-to-megawatt scale solutions in the industry, agriculture, residences, and transportation.”

All of them together would be part of the architecture of the country’s decentralized green economy.

Competitive Targets

The offered green transformation aligns with the priorities of the Indian Prime Minister Narendra Modi, which has been debating aggressively on climate targets that would get India’s net greenhouse gas emissions to zero by the mid-century, ten years before China (8).

“The world is beginning a new energy age, which would be highly disruptive,”

said Ambani.

“The era of conventional fuels, which powered economic growth worldwide for about three centuries, can’t continue any longer. The massive amount of carbon it has released into the atmosphere has jeopardized life on the planet.”
“I envision a future of India transformed from a huge fossil energy importer to a huge exporter of clear solar energy solutions,”

added Ambani.

The announcement comes a year after India’s most valuable company secured over 30 billion USD selling stakes in its technology and retail units and via a sale of shares to existing investors. Reliance brought Silicon Valley giants like Facebook and Google on board to help grow its ecommerce and digital footprint in a retail market worth over 1 trillion USD with over 1.3 billion people.

The investment inflows, which Ambani termed a “vote of confidence” in his businesses, have helped the conglomerate’s stock almost double in valuation since early April 2020. According to the Bloomberg Billionaires Index, Ambani’s net worth is about 84 billion USD (9).

Ambani or Adani?

The move has brought Reliance in direct competition with the Adani Group. Now, we think not.

Adani Solar has 3.5 GW of annual solar PV production capacity, and Adani Green Energy has a portfolio of about 25 GW of commissioned and under-development projects.

Let’s say India’s two richest men, Reliance’s Mukesh Ambani and Adani Group’s Gautam Adani, are at the forefront of Modi’s ambition to ramp up India’s green energy capacity more than 4x to 450 GW by 2030.

According to analysts, the billionaires have mostly avoided operating in each other’s sectors. The green energy push by Reliance and Adani Group will be the highest profit faceoff between them (10).

Both operate completely in different areas; Ambani built up his family-owned textiles and petrochemical business into a sprawling empire, including retail and telecoms. On the other hand, Adani is a self-made billionaire who is more focused on electricity generation, transmission, distribution, and operation of airports and ports (11).

Interestingly, both billionaires and Narendra Modi are all from the western Indian state of Gujarat.

Only three days after Ambani’s announcement, Adani announced that his green energy venture would add 5 GW annually for a decade.

Notably, Tata is also aiming to reach 25 GW by 2020 in green energy.

However, if you parse Ambani’s statement at the AGM, it seems that Reliance is more likely to play the role of input and OEM, original-equipment-maker to big Indian and even foreign firms than a fierce competitor.

Ambani spoke about building a “fully integrated end-to-end renewable energy ecosystem.” repeatedly.

We need an advanced time turner to go back over a decade, June 2010, to understand more about the statement.

While speaking at Reliance’s 36th AGM, Ambani had outlined the company’s “transformational initiatives in power” business, spanning generation, transmission, and distribution.

The statement had come when Reliance had annulled the non-compete agreement with Ambani’s younger brother, Anil, promoter of the Anil Dhirubhai Ambani Group with interests in the power sector.

Mukesh Ambani added at the 2010 AGM, “lack of availability in India’s socio-economic growth and employment generation, we are ready to bring into full play our investment mobilization capacities and our superior project execution capacities, into a segment that is screaming out for transformational mega-initiatives.”

He then went ahead and disclosed that the company is coming up with plans to clean coal-based power generation; the company is also focused on the alternative energy domain with priority on solar power, even though he didn’t give out any specific investment plan or even timelines to achieve it.

And then, those mega-investment plans were quietly forgotten, and Reliance instead focused on retail and telecom in the 2010s, and we know the result.

The recollection of that 2010 AGM, thanks to Shailesh Dobhal from Rediff (12), allowed us to see the far-sightedness that Reliance displayed in junking a plan so elaborately tom-tommed to the world. It also helped us read between the lines on what Ambani’s recent announcements mean for India’s other companies and elsewhere.

Now coming back to the present, if Reliance is aiming to create world-scale factories for renewables, it is obvious that it can’t be its only consumer.

It means Reliance will more likely compliment than compete with Adani, Tata, and others.

Reliance will be more of an enabler; an OEM/financier role is also clear from Ambani’s promise that a significant part of its 100 GW target by 2030 will come from “rooftop solar and decentralized solar installations in rural areas.”

The creation of project management and construction and the finance divisions to offer end-to-end solutions to all manner of entrepreneurs and companies, from mega GW down to MW and KW ambitions, further strengthens the idea that Reliance would be more of a frenemy than a competitor.

But, Why is the Fossil Fuel Giant Getting Green Conscience Now?

The worldwide shift to renewables has been common knowledge for at least two decades now. Still, Reliance, refining, and petrochemical giant didn’t pander to the wind power fad in the 2000s or the solar power fad in the 2010s.

As noted, instead, Reliance picked retail and telecom.

So, why now?

“Better late than never.”

No matter when Reliance comes to a business when it does, it brings capital, scale, and technology.

There is also Reliance’s own massive carbon offset needs at play.

According to a BloombergQuint report (13), Ambani doesn’t believe in first-mover advantage. Instead, he would rather wait to see how a new industry is evolving. He first observes the technology trends, capital needs, policy maturity, big players, business models and then creates a strategy backed by a strong balance sheet and project executive muscle.

He did the same in telecom. Even its first entry in 2002, at the time of the undivided Reliance, was a few years after others had jumped in. The milestone 1999 telecom policy left a techno-regulatory gap for exploitation.

Its second foray into telecom came in 2012 when the industry was hypercompetitive. Now, there are only three surviving, and Reliance Jio is the biggest (14).

He also did the same with retail, launching five years after Kishore Biyani opened Big Bazaar, India’s first hypermarket chain. Now, Reliance Retail has more than 11,300 stores and all of Big Bazaar (15).

Now, is he doing the same with green energy? The early technology and pricing are somewhat settled. Even government policy has matured. The geopolitics (Paris Agreement) and economics are also aligning. There is a visible scale. Maybe, for Reliance, it is a point of acceleration in sight.

It is also interesting how Reliance has picked a technology supply chain approach this time, not betting on large generation projects but critical components like project management, construction, and finance.

It is new and interesting. It also comes with the fact that Ambani is back in project investment mode after two years of debt-cleanse. Back in 2019, he even called to sell real estate and financial investments to achieve net-zero debt (16). And now he is putting 75k crore INR on net-zero carbon.

So, what are his big plans?

Is Reliance Targeting Chinese Companies?

As noted, India heavily depends on China’s solar imports despite its heavy duties.

India imports over three-fourths of solar gear from China, with its mere 2 GW annual domestic capacity compared to its 20 GW capacity of its northern neighbor.

Reliance mega entry across the renewable ecosystem will drastically cut India’s and the world’s dependence on Chinese imports. And Ambani’s repeated emphasis that Reliance’s new energy venture will be a “truly global business” highlights that the group is not only playing for a share of the 450 GW Indian pie but is looking to be the OEM in the larger 5k GW worldwide market by the next decade.

Incidentally, the day Reliance unveiled its work on its four Giga factories; the United States barred its companies from sourcing polysilicon from China on human rights violations of ethnic minorities in the area allegations (17).

It is also worth highlighting that Xinjiang China produces almost half of the globe’s polysilicon, a key material for semiconductors and solar panels.

Reliance’s solar PV Giga factor will manufacture polysilicon from raw silica and turn it into the final product, the solar module, tailwinding the geopolitical shifts away from China.

Two of the four Giga factories, for electrolyzer and fuel cells, also almost play on jumping directly from internal combustion engine-powered autos to hydrogen and fuel-cell run vehicles.

The effort is to detour the present favorite lithium-ion batteries, which powers today’s electric vehicles. And in the process, wean the country away from materials such as lithium and cobalt, where the Chinese dominate the supply (18).

What Does it Say About India’s Renewable Sector?

Still nascent, India’s renewable industry is constantly growing and offers a cohort of opportunities. With an installed renewable capacity of 94.43 GW, as of February 2021, India has attracted investment worth 42 billion USD since 2014, as per IBEF, the Indian Brand Equity Foundation, the state-owned export promotion agency (19).

As per the IBEF, India could see around 500 billion USD investments in its new green energy industry by 2028. It also says that by 2040, about 49% of the total electricity in India will be renewable with more efficient batteries to store power, which will, in turn, cut the cost of solar energy by 66%.

And if it happens, as per Greenpeace India, Union Budget 2021-22 (20), using renewable energy in place of coal, India can save 54k crore INR, 8.4 billion USD yearly.

And Reliance’s announcement indicates that big businesses have considered the end of the fossil fuel power expansion era and started taking green energy more seriously.