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Praveen Gupta Last Updated at June 20, 2020 23:48 IST
https://www.business-standard.com/article/pf/covid-19-brings-insurance-policies-for-directors-back-into-mainstream-120062001389_1.html : Companies need to learn from all that is unfolding and anticipate what is in store. The lesson is straightforward. If you are in any form of business, whether local or global, and do not have a directors and officers cover, seriously reconsider. If you have one, revisit the coverage and limits. If you do not offer them adequate protection, quality independent directors will not agree to serve on your board, if they foresee risks to their personal assets. This is a growing trend. Do not go for cheaply priced covers, avail reasonable coverage limits, and also look at all other insurances in conjunction with the D&O cover. And remember, insurance is but a part of overall risk management. There should be no trade-off.
Pierre-Eric Lys is both a space and telecom scientist who successfully dabbled in space insurance for many years. He started as the Director of Space Risks at Allianz. Subsequently founded Paris based Spaceco, later moving it across to Dubai – where he founded another successful space insurance venture Elesco. It eventually became a world leader. An ace competitive sailor, Pierre is also a helicopter pilot. During the last five years he is involved in aeronautical research on solar power stratospheric UAVs and other humanitarian projects. Pierre is a keen observer of anything and everything to do with space. In this conversation he highlights the race, rivalry, and collaboration within the exclusive space club. He recalls the magic of live launches from the launch pads and how they sent his adrenaline gushing. In his view space projects fuel ‘positive visions’ thereby helping cope with the challenges we face today. The International Space Station, he believes, is the safest place to be in these times!
Praveen Gupta: Does the successful SpaceX mission to the International Space Station (ISS) by the USA gets it ahead of Russia, in the manned launch capability?
Pierre Lys: To answer this question, you would have to look back into the entire history of manned spaceflights. It all started back in the days of cold war between USA and Soviet Union. Both parties have had their own path – with USA flying to the moon in the late 60’s and Russia flying long duration spaceflights using their Mir station in the late 80’s. As of today, the longest duration flight record is still held by cosmonaut Valery Polyakov, who spent 438 consecutive days onboard Mir in 1994-1995. China later joined the club in 2011. The ISS was then put together as a joint effort between Russia and Western countries, at the end of the 90’s.
Talking about the manned rated launch vehicles – USA developed the Space Shuttle, which was operated between 1981 and 2011, now replaced by SpaceX Falcon 9. Russia has used the Soyuz rocket and its evolutions and has flown nearly 2000 times since 1966. Russia remains today the most experienced country in launching and flying humans into space. Their technology is getting old but has reached an unprecedented level of reliability. In terms of capabilities and technology, Falcon 9 is indeed way more advanced than the Soyuz. However, I believe we would need to see a few more successes before it becomes the reference in the field of human rated launch vehicles.
Russia remains today the most experienced country in launching and flying humans into space. Their technology is getting old but has reached an unprecedented level of reliability.
PG: Is the entrepreneurial zeal of Elon Musk the differentiator over an established bureaucracy of Boeing?
PL: It is certain that Elon Musk had a vision and has remained committed to it, even in difficult times of early failures of Falcon 1 rockets. Both the technical and the manufacturing efficiencies of SpaceX give them a very substantial advantage over any competition. Boeing needs to re-focus on making good aircrafts and good space vehicles in the hard environment of Covid crisis and strong aerospace competition. It is even more challenging for them to switch all their staff to a “nothing is impossible” mode – like SpaceX staff seems to have adopted since day one.
Boeing needs to re-focus on making good aircrafts and good space vehicles… It is even more challenging for them to switch all their staff to a “nothing is impossible” mode – like SpaceX staff.
PG: Did you watch the SpaceX launch from its own ‘trampoline’? Did you feel any different from any past onsite launches? Which of them has been the most memorable?
PL: Indeed, I watched the entire live cover for both the first attempt and the actual launch on May 30th. I would not miss any step of the amazing launch preparation sequence. I was lucky enough to be involved in many manned space program starting from Shuttle to Mir docking and ISS key life support systems. I attended many launches in many countries but launch of humans is always more emotional than satellite launches. I have seen Shuttle launch from Cape Canaveral and Soyuz inhabited launch from Baikonur cosmodrome. I cannot help from thinking about the exceptional number of equipment and qualified people who need to be ready and work exactly as planned at T-0 (launch second).
As an engineer, I am also always impressed by the performances necessary to bring astronauts to a much faster speed than a bullet. This Dragon 2 Demo flight was no different. However, attending a live launch on the launch pad is incredibly special and cannot be forgotten. When the sound of the rocket hits you, your body physically feels the power of the vehicle. And when you know someone is sitting on top of the vehicle, the adrenaline connects directly to your emotions. I was lucky to seat just next to Dennis Tito’s family on the launch pad of Baikonur in April 2001. Today, I still remember every moment of this event, not only because he was the first tourist to fly to space.
When the sound of the rocket hits you, your body physically feels the power of the vehicle. And when you know someone is sitting on top of the vehicle, the adrenaline connects directly to your emotions.
PG: Would space tourism generate enough traffic to make it commercially viable? Would it commence with visits to the international space station?
PL: Space tourism has always been extremely popular. Just ask your friends and relatives, you would be surprised by the number of people who would like to fly to space. The hurdle is usually not the risks but the financial part of it. Dennis Tito’s flight to the space station cost him USD 20 million in 2001. Twenty years later, the price has reduced by a factor 100. No doubt this trend will continue. I need to add the numerous number of near space experience offered today from accurate simulators to 0-gravity flights in airplanes.
I believe, however, that the International Space Station is not the easiest place for tourism. First, it was designed as a laboratory and it requires specific and complex training. Second, I do not believe that tourists would want to fly for more than a few hours, simply because the body reactions during long spaceflights are still difficult to accept just for pleasure. Third, going to and returning from the International Space Station requires a difficult in-orbit rendezvous. It is inefficient to fly there and return just for fun. I believe that short term flights to experience no gravity and to see the earth from above using a dedicated vehicle is certainly the future.
I believe that short term flights to experience no gravity and to see the earth from above using a dedicated vehicle is certainly the future.
PG: Are actuaries and underwriters ready to price such risks?
PL: Underwriting space risks is usually not an actuarial exercise, for the simple reason that the statistics are usually too low in numbers to draw any inference. Space underwriters are usually qualified space engineers who would consider the flight data, manufacturing record and testing of the equipment that are used – to price the risk. I remain proud to have provided insurance for the first commercial Falcon rocket.
Space underwriters are usually qualified space engineers who would consider the flight data, manufacturing record and testing of the equipment… to price the risk.
PG: Do hedge funds continue as risk carriers for launches?
PL: From my experience, space risks is like any other high volatility risks. The first benefit of only insuring launches is that you can actually ‘watch the claim live’ – right in front of your eyes. However, if you decide to insure satellites, it is the opposite, you cannot send an expert to assess the damages! You would have to rely on temperature, voltage, current data to assess the loss and determine the claim value. Hedge funds are looking for risks which are de-correlated from large natural disasters on earth as a good supplement to their portfolio.
The first benefit of only insuring launches is that you can actually ‘watch the claim live’ – right in front of your eyes. However, if you decide to insure satellites… you cannot send an expert to assess the damages!
PG: Jeff Bezos believes fastest way to Mars is via moon. Is he on the drawing board? What kind of time frame could he be nurturing?
PL: Bringing humans to Mars is a challenge in many ways. I would just start with an analogy which helps to visualise the distances: if the earth were a size of a football, the moon and mars would be the approximate size of an orange. The moon would be a few meters away from the earth ball, but mars would be a few kilometres away. This generates a large list of issues but just to share a few would help to answer your question. Communication with the earth would necessitate for the signal a few minutes to reach planet earth and then again, a few minutes for the mars inhabitants to receive an answer. Scenarios like “Houston we have a problem!” would then be somewhat different.
Bringing humans to Mars is a challenge in many ways… Scenarios like “Houston we have a problem!” would then be somewhat different.
The mars inhabitants would have to be autonomous in many ways. They would have to solve all kinds of problems (technical, medical, etc.) on their own. This brings me to my second point: you need to carry a lot of mass on the planet in order to embark all life support systems, and by the way you would also need to have the rocket and fuel to come back to earth at some point. This is a big challenge. Of course, we can imagine that fuel needed to return is produced on mars (therefore the search for water is so critical). However, the quantity of hardware is so significant that it cannot be a single rocket mission. One would first need to aggregate the cargo outside of earth gravity and then move this assembled cargo to mars.
The moon is certainly a good base for this because it is a lot easier to leave lunar gravity than to leave earth’s gravity. Interestingly, it took a decade to put the ISS together, but SpaceX has shown that it is possible to reduce the delays by a large factor. Once qualified for orbital missions, it is likely that Bezos’s Blue Origin program will show same pace. It is quite conceivable that building an infrastructure in the earth orbit or on the moon could be done in less than 5 years from now.
PG: Last but not the least, what makes you believe that we need projects like this, in these times?
PL: Our world is permanently subject to difficult challenges such as natural disasters, malnutrition, and more recently the Covid pandemic. Humanity has shown its resilience, however, there are multiple benefits for the people to have ‘positive visions’ as well as challenges to face. In today’s world, international cooperation is often reduced to international organisations like United Nations and World Health Organisation. Apart from large sports events like the Olympics or World Cups the outcome is never as visible as an actual project which everyone can see, understand and be part of. Space projects are exceptional, in this respect, in several ways. The International Space Station is a good example.
The Chandrayaan missions have been followed by millions of people around the world. Thousands of Indian engineers have been involved directly or indirectly in this project. I am amazed by the level of details known by your countrymen about the past and future Indian exploratory missions.
There is certainly an enhanced pride when significant projects have a national content. I would just refer to a speech from Dr APJ Abdul Kalam during the International Astronautical Congress 2007, in Hyderabad. His speech was a direct message to the young generations. Dr Kalam explained the importance for a country to have a sustainable growth path, and the vision to see India proud of its leadership. He explained to the young generations that every one of them will be an active contributor to these goals. During the following decade, the Chandrayaan missions have been followed by millions of people around the world. Thousands of Indian engineers have been involved directly or indirectly in this project. I am amazed by the level of details known by your countrymen about the past and future Indian exploratory missions.
PG: Many thanks for these ‘out of this world’ insights, Pierre!
BIMAQUEST, Volume 20, Issue 2, May 2020: To those who may have missed out an eye-opening interview with Shailabh Kumar (do please also look at the TEDx Dharavi link – right at the beginning of this post) and his remarkable mission, this is but a gist. Shared with the Journal of National Insurance Academy, as a guest author.
http://northwardho.blogspot.com/2020/06/new-story-coming-here-with-links.html?m=1
Saa Yue the shark spirit, around which I penned “An Appeal” whilst in HK 25 years ago, reappears here. From a physical causation of typhoons in the South China Sea, this #CliFi entails a play of quantum biology. The Saa Yue eventually succeeds allying with two driven Homo sapiens and fixes the disruptive bug in the human genome. Welcome to lookout for the twists in the tale, including a hindsight into what ‘troubles’ us today…
The Journal – Insurance Institute of India (April-June, 2020).
June 5th is the World Environment Day. This year’s theme is “Celebrate Biodiversity”. How have we changed, what David Attenborough calls, the ‘complex web of life’? To quote him – 96% mass of mammals on this planet is us and the livestock we have domesticated. Likewise, 70% of all birds is domesticated poultry!
A series of missed opportunities over the last few decades has brought us into this situation. What really did happen or did not or ought to have happened – Ambassador Navtej Sarna helps me navigate through the developments during the past 40 years. A three-pronged approach involving Climate Change, Biodiversity and Desertification, he believes, is best way to address the Climate Crisis. In our conversation, we explore the whole range of diverse issues – the dynamics of climate movements becoming international agenda and their handling by multilateral agencies. Lessons from arms control negotiations and tailoring them to climate realities. The power of and abuse thereof by the fossil fuel companies. The competing and adversarial interests that come in the way of sustainability. Literary narratives or activism, something that catches the world’s attention – like the carbon neutral voyages of Greta Thunberg – ought to be quickly followed by agreements that bind nations. Environmental damage can bring further global disasters like the pandemic, he warns.
In his near four decades of distinguished diplomatic career – Ambassador Sarna has served as India’s envoy to Israel, United Kingdom and the USA. He has had the distinction of being the longest serving Spokesperson for the Foreign Ministry. He headed International Organizations division in the Foreign Office and oversaw work related to India’s Presidency of the UN Security Council, arms control, nuclear negotiations, environment negotiations and peacekeeping operations. He spearheaded India’s entry as Observer to the Arctic Council. Ambassador Sarna is an established author of fiction and non-fiction.
Praveen Gupta: From your time, as a young diplomat, at the UN desk do you recall any missed opportunities in addressing the menace of escalating Climate Emergency?
Navtej Sarna: There was a time when environment was the next big frontier – I am talking of the early nineties. The Cold War was getting over, the Soviet Union was on the brink of collapse, the nuclear face-off was no longer an immediate threat. Mankind, it seemed, could turn its attention to other matters. Soon there was enough momentum behind environment to make it a subject attractive to world leaders. This led to the Earth Summit in 1992 in Rio de Janeiro. The Summit had a huge hype, the prep meetings were long and protracted, and it resulted in clear definition of three areas of work – Climate Change, Biodiversity and Desertification. Follow up action did take place in the shape of framework conventions and setting up bodies that would take forward this agenda on a multilateral basis.
However clearly somewhere along the way we could not keep the required pace, the focus was lost, there was too much wrangling for political advantage and a loss of the ideal objective – to protect the earth’s environment for the next generation. This was true of the climate change arm and now the present generation can rightly blame us for a loss of opportunity – the fight may have been easier if it had been fought in the nineties.
However clearly somewhere along the way we could not keep the required pace, the focus was lost, there was too much wrangling for political advantage and a loss of the ideal objective – to protect the earth’s environment for the next generation.
PG: Don’t you think the Climate Change agenda today is saddled with excessive bureaucracy which is impeding real action? As an outsider I tend to get flummoxed with the number of agencies involved and the abbreviations!
NS: Unfortunately, this tends to happen in a multilateral setting. Multiplication of agencies, agendas is a natural corollary when interests of so many countries, leave only careers of individuals, have to be balanced. There is a time when something is a movement – fueled by thinkers, activists, NGOs and so on. Then it becomes a part of international bureaucracy and all that comes with it. The effort has to be to keep that international agenda moving and that comes only when individual governements feel strongly enough – either on their own, for their own reasons, or under pressure from domestic lobbies, powerful countries and so on.
There is a time when something is a movement – fueled by thinkers, activists, NGOs and so on. Then it becomes a part of international bureaucracy and all that comes with it.
PG: In your view did the three-pronged approach – Climate Change; Biodiversity and Desertification – a more appropriate format to address the challenges faced by our Planet, rather than ‘clubbing’ it all together?
NS: Yes, I think since we must deal with a multilateral set up, separating these areas probably gives us more flexibility and agility to handle the problems, even though they may all be inter-related.
PG: The EU recently announced a plan for a climate law. Given your work in the space of International Law and the UN (agencies), is there a case for structuring this on the lines of Strategic Arms Limitation Talks/Treaty?
NS: This is an interesting parallel that is now being drawn – a sort of equivalent not so much of the SALT but of the Nuclear Nonproliferation Treaty (NPT). SALT was a bilateral treaty between the US and the USSR during the cold war. But the NPT was a multilateral treaty, though not global in its reach. India for instance is not part of the NPT, as we considered it a flawed treaty, discriminating between haves and have nots in terms of nuclear weapons.
A Climate agreement would necessarily have to be multilateral and to have any real meaning it should cover the whole world. Most important it should not be discriminatory and what that means would be very different in arms control issues and climate issues. Also, arms control is a more exact science, dealing with specific weapons, specific thresholds and a very detailed verification system. This may not always be possible in Climate treaties – these begin with being aspirational, and then add on national contributions and so on. Though there is a science to climate, verification aspects may be far too wide and far too intrusive. Also, arms control issues deal ultimately with governments. They are usually not the concern of ordinary people nor do they usually impact day to day life. Quite the contrary in climate issues. So yes, there can be lessons from arms control negotiations, but they would have to be tailored to climate realities.
So yes, there can be lessons from arms control negotiations, but they would have to be tailored to climate realities.
PG: The fossil fuel companies seem to be behaving like the East India Company – trying to push opium under the guise of free trade. Any thoughts?
NS: That is an interesting connection you draw. Fossil fuel companies have been among the most powerful companies in the world because they control a very valuable and limited resource. More so when this resource is not evenly distributed around the world. So, they have exerted power, sometimes more power than some nations. Fossil fuel companies have been among the most powerful companies in the world.
Fossil fuel companies have been among the most powerful companies in the world… Fossil fuel companies have been among the most powerful companies in the world.
The East India company too showed a deeply avaricious nature. It played politics, controlled armies, fought wars, and gathered immense wealth which then helped build huge influence back home. Trade was at the heart of it, but so much more then followed as a consequence of this trade, because this trade was no longer between equals. It stopped being trade, it became loot. And soon the flag followed the trade and continued the loot. Perhaps the power of these companies can only be challenged when the power of the resource they control is challenged.
PG: What is your vision for ensuring – urgency, collaboration, and timely action to restore sustainability in today’s fragmented world? Given its vulnerabilities, any specific thoughts on the Asia Pac?
NS: I believe the issue of sustainability is as complex as it is fundamental. If it was that simple, it would have been done by now. There are competing and adversarial interests – of industry, of technology, of fossil fuel lobbies, of the imperatives of development and these have to be balanced by a rising awareness of sustainability, accentuated by the current crisis. Ultimately there is no one vision – or silver bullet – that will take us where we want to be. So, we have to take whatever comes – multilateral bench marking, national action by States, people-driven action, activism and so on.
I believe the issue of sustainability is as complex as it is fundamental… Ultimately there is no one vision – or silver bullet… So, we have to take whatever comes – multilateral bench marking, national action by States, people-driven action, activism and so on.
I think the Asia Pacific is a hugely important region for the world and this will only be more evident in the decades to come. It is home to populous countries like India and China, it is the area which will be the center-point of global trade, global energy transit, small island vulnerable states, and the power play between China and the US. A focus on sustainability, given the potential of the Blue economy for states such as Seychelles or Mauritius or even the Pacific islands is absolutely essential. Many of these countries cannot do this by themselves so multilateral action, or imaginative bilateral or regional frameworks assume great importance.
PG: Silent Spring – by Rachel Carsen – inspired the creation of EPA in the US. Unfortunately, a very critical institution is being dismantled just when it is most required. What can recreate something similar – environmental activism, literature?
NS: Literary narratives can provide a philosophy for activism, but the world has to be ready for them. Else they sound like science fiction. Again, something catches the world’s attention – like the carbon neutral voyages of Greta Thunberg – and that then must be quickly followed by agreements that bind nations. These narratives be they a book, a film, an individual act of courage can at best be catalysts. We live in a world where policies are made by states, albeit under influence from society, and that is where the ultimate direction of change comes in on a national and thence, a global level.
Again, something catches the world’s attention – like the carbon neutral voyages of Greta Thunberg – and that then must be quickly followed by agreements that bind nations… We live in a world where policies are made by states, albeit under influence from society, and that is where the ultimate direction of change comes in.
PG: The coronavirus outbreak may exacerbate nationalism and stall climate change action. Do you believe any such concerns are unfounded?
NS: I think such concerns are valid. Covid 19 has the world in disarray. Health systems, economies, social engagement, work practices and so on have to come to terms of with the new reality – of hundreds of thousands dead, economies in sharp contraction, unemployment, travel disruption, anti-globalization trends and so on. It is only natural that countries are going to have to look inwards and handle the crisis situations on their hands first. This is the time to reactivate the climate narratives so that policy makers see them on their radars.
Environmental damage can bring further global disasters like the pandemic. Loss of biodiversity, loss of forest cover, rising sea levels and so on all have their potential for immense damage.
Environmental damage can bring further global disasters like the pandemic. Loss of biodiversity, loss of forest cover, rising sea levels and so on all have their potential for immense damage. These concerns need to be handled at the national as well at the multinational levels. At present it seems that a hard effort will have to be made to achieve this.
PG: I really appreciate all these rich & wonderful insights, Ambassador Sarna!
Chartered Insurance Institute Blog: May 28th, 2020
Will COVID – 19 bring a much-awaited trigger for class action? There have been several near-misses in the recent past – Coal India, Nestle, Infosys and ICICI Bank, to name a prominent few. Time will tell. However, it is surely high time to take D&O seriously.
https://thejournal.cii.co.uk/blog/india-directors-and-officers/
Electric power plants are responsible for almost half of global CO2 emissions the world over. At the peak of the global coronavirus shutdown – pinpointed by researchers – plant emissions were down only 7.4% compared to 2018 averages, from about 44.6 million metric tons per day to about 41.3 million. Given that India is world’s third largest emitter of CO2 – calls for a radical shift from fossil fuels to renewables, to ensure a sustainable future.
Tim Buckley addresses all related concerns, the required transitioning and the need for urgent strategic shift. A very erudite and hands on energy expert, Tim is the Director of Energy Finance Studies, Australasia at Institute for Energy Economics & Financial Analysis (IEEFA). He covers the global electricity markets, with a focus on India and greater Asia. Tim also did a long stint with the Citigroup as Managing Director, Head of Equity Research.
India has the potential to be a clear world leader in embracing and benefiting from the current technology – driven, deflationary, energy system disruption, believes Tim. However, he has a word of warning, too – that policy conflicts need to be resolved before they are announced. The long term opportunities for strong, sustainably – driven economic growth across India are too important to be undermined by short term contradictions and missteps.
Praveen Gupta: Why is energy pivotal for any country in ensuring sustainability?
Tim Buckley: Energy is pivotal for economic activity. The more a country drives strong economic growth, the more energy is required. Different countries are blessed with different natural resources. In India’s case, it’s thermal coal, hydro, solar and wind energy resources.
Before I get to your question of sustainability, I’d start by saying that for sustainable economic growth, energy security is best served by a primary reliance on domestic resources.
When we consider India, the current economic model is unbalanced due to an excessive reliance on fossil fuel imports. This creates a massive drain on the trade account and the value of India’s currency, and generates excessive inflationary pressures that are keeping India’s interest rates at levels many multiples of global averages.
When we consider India, the current economic model is unbalanced due to an excessive reliance on fossil fuel imports. This creates a massive drain on the trade account and the value of India’s currency, and generates excessive inflationary pressures that are keeping India’s interest rates at levels many multiples of global averages.
The Government of India is very focussed on two key energy strategies: renewables and electrification. Both strategies are a clear reflection of the pressing need to improve India’s energy security by reducing reliance on imported fossil fuels. This context is important when considering the drive to improve sustainability in India’s energy system. The acceleration of energy efficiency initiatives combined with a greater rollout of renewable energy investments reduces reliance on fossil fuels.
Driving electrification of India’s transport system, be that for automobiles, 2- and 3-wheelers, trucks and buses will reduce India’s reliance on imported oil. Similarly, electrification of India’s enormous railway system will reduce reliance on imported diesel. And an acceleration of investment in wind and solar infrastructure will progressively reduce India’s reliance on imported thermal power generation.
For India, the dual move to electrification and renewable energy will also dramatically reduce pollution pressures and all the associated health costs. Fossil fuels are the largest source of air and particulate pollution, the largest contributor to carbon emissions, and the largest user of India’s precious water resources.
Where thermal power generation is enormously water intensive, renewable energy is almost zero-water reliant. It has significant sustainability benefits of reducing water scarcity in India as well as reducing the pollution in India’s water systems.
To limit the rise of more frequent and extreme weather events, we must all contribute to reducing the carbon emissions intensity of our economic footprint, as per the Paris Agreement. Energy is the single largest contributor to global warming.
The good news is that India has some of the best wind and solar resources in the world; the cost of renewable energy is already well below alternative fossil fuels; and the cost of renewables are expected to decline dramatically over the coming decade. Energy system deflation will help India deliver sustainable economic growth, and in doing so, will improve sustainability in the process.
PG: What makes fossil fuel / coal addiction so compelling despite its known downside?
TB: The global economic growth model of last century was entirely tied to an ever greater use of fossil fuels – coal, oil, nuclear and gas/LNG. We have all benefited from these energy sources before knowing/believing the damage they caused to our planet, but by then, the financial power of the fossil fuel industry had entrenched itself into political power.
The fossil fuel industry is very effective at internalising the economic gains of their activity, and externalising the costs – in terms of communities forcibly removed from their land, the inordinate use of the limited supply of water, and the right to pollute the air via carbon emissions.
Fossil fuel firms also rely on using public assets for largely private gain, more than any other industry globally. Following a Supreme Court ruling (2014) to address the Coalgate scandal, the Indian Parliament took decisive action in 2015 to address the growing portion of India’s coal resources ending up in the hands of a few billionaires by nationalising coal mining.
If we are to build sustainability, we need to change the economic paradigm of the last century by forcing polluters to value our common environment: the air, water, land, and national parks that we all rely upon.
Forcing a price on carbon emissions is a way to internalise the costs of fossil fuel use, levelling the playing field for cleaner alternatives. Requiring power generators to install pollution controls likewise puts the nation’s health at a higher priority. Mandating cleaner-burning vehicles and fuel also addresses sustainability pressures, as would the move to electric vehicles powered by renewable energy with mandated recycling of cars, solar modules and batteries.
PG: Would falling price of coal and oil not make it compete with the renewable sources?
TB: We have seen a dramatic decline in oil and gas prices in 2020 (dropping more than half relative to year-start levels). This price decline has had no real impact on renewables as electric vehicle penetration rates in India are immaterial and oil is not a primary fuel source in India’s power generation.
The vast majority of India’s coal is from domestic sources (some 80%). While international coal prices have fallen some 25% year-to-date (20% net of India’s currency devaluation), there has been little relief for electricity generators. And with electricity demand collapsing 25% in April 2020, the utilisation rate of coal-fired power plants has dropped dramatically, more than offsetting any fuel price relief.
A key lesson of the COVID-19 lockdown in India has been that once built, renewable energy has a distinct advantage over coal-fired power generation. Renewable energy has a zero marginal cost of operation (and is supported by a ‘must-run’ mandate predicated on the merit order dispatch model). This has seen coal-fired power generation wear 100% of the electricity demand destruction during the pandemic.
A key lesson of the COVID-19 lockdown in India has been that once built, renewable energy has a distinct advantage over coal-fired power generation.
While spot international liquid natural gas (LNG) prices have fallen 80% in the last few years, there is little ability to lock these prices in for the long term. As a result, few investors are likely to build multi-decade gas-fired power generation assets and the associated import infrastructure assets (ports and pipes). By the time a project was approved and commissioned, the LNG price could have doubled or tripled, making the project just another fossil fuel ‘stranded asset’.
PG: How do you manage a transition plan? 1.3 billion people need to alter their lifestyles and aspirations dramatically. What would it take to achieve that?
TB: Ever lower cost renewable energy is fundamentally disrupting the world’s electricity markets, and therefore people’s behaviour.
Thanks to record low tariffs of Rs2.50-3.00 per kilowatt hour (kWh) for both wind and solar, India is a world leader in the global energy transition, motivated by economic savings and energy security improvements. The gains from deploying ever more renewable energy are also clear in terms of reduced water stress, improved air quality and lower carbon emissions.
However, let’s not pretend renewable energy, lithium ion batteries and electric vehicles are the perfect panacea. Any industrial activity has negative consequences. If India is to double its economic activity over the coming two decades to accommodate the near 20 million new people entering the workforce every year, there will be huge negative consequences for sustainability.
If India is to double its economic activity over the coming two decades to accommodate the near 20 million new people entering the workforce every year, there will be huge negative consequences for sustainability.
Despite the significant costs of large scale wind and solar, India’s industrial solar parks like Bhadla in Rajasthan and Rewa in Madhya Pradesh – the largest in the world – are some of the lowest cost. They do have an enormous land footprint, however it is equal in size to the land requirements of a similar sized coal-fired power plant (when the coal mine area is also considered). And any utility scale renewable energy facility requires an enormous associated investment in grid transmission infrastructure, like any thermal power generation. Renewable energy microgrids, particularly when supported by rooftop solar, can address many of the negative externalities and are an ideal solution. At the moment however they lack the scale to meet India’s total energy needs.
PG: Any thoughts on incentives and disincentives?
TB: Let’s look at the facts. India is the world’s second largest producer and consumer of coal, behind only China (having overtaken the U.S. in the last year or so). Government owned Coal India Ltd contributes around 80% of the country’s total coal production.
While many environmentalists tend to consider only the adverse impacts of Coal India Ltd, I’d balance that by saying the company is playing a key role in India’s current economic development.
Coal India Ltd is a massive employer with almost 280,000 direct employees, most of whom are in the least developed parts of the country. Indian Railways gets more than half of its revenue from transporting coal and this is used as a cross-subsidy to reduce the cost of passenger rail transport. Finally, Coal India Ltd is most probably the highest taxed coal company in the world. Some 40% of Coal India Ltd’s total revenues are returned to government in the form of GST, duties, royalties, corporate tax and the Rs400/t coal cess. (Most of the coal companies I examine in Australia are either tax-haven based and/or structured to ensure they pay next to no corporate tax. On top of this, Australia’s coal industry is adept at extracting subsidies.)
India requires a financially strong government, and despite the destructive downsides in using fossil fuels, at least Coal India Ltd is contributing to state and centre coffers.
With coal paying its way to a large degree, the key opportunity now for India’s energy system transformation is renewables, which are the least cost source of new power generation and the lowest cost in terms of externalities.
With this in mind, the government is correctly focusing on accelerating renewable energy deployments to deliver on its target of 450 gigawatts (GW) by 2030. Achieving this ambition would rightly put India on the centre stage globally.
The government is correctly focusing on accelerating renewable energy deployments to deliver on its target of 450 gigawatts (GW) by 2030. Achieving this ambition would rightly put India on the centre stage globally.
The Paris Agreement identified the “common but differentiated” emission reduction requirements of developed and developing nations. India is on track to deliver more than its share of this globally important goal, even as richer countries like the U.S. renege on their treaty obligations.
PG: In a most optimistic scenario, how long do you think it would take India to accomplish the Paris Agreement target?
TB: In the area of energy, India made three key commitments under its nationally determined contributions – the (intended) reductions in greenhouse gas emissions under the United Nations Framework Convention on Climate Change (UNFCCC). Firstly, to drive energy efficiency by decoupling energy needs from economic growth; secondly, to aggressively invest in renewable energy; and thirdly, through reforestation.
Under Prime Minister Narendra Modi’s leadership, India could well be five years ahead of its 2030 Paris commitments. As a result, this is driving energy system deflation and improving India’s energy security.
The technology driven disruption of the world’s energy system has huge economic, political, and environmental prospects for India, and the country is responding well to these opportunities.
PG: What in your vision would be an ideal energy mix for India?
TB: Prime Minister Modi has outlined a clear and ambitious vision: 450GW of renewables by 2030. The whole-of-industry and regulatory buy-in to this goal is really impressive.
However, achieving this vision requires a fourfold increase in annual investment, with a clearly overdue immediate step-up in the deployment of distributed renewable energy (particularly rooftop solar). Further, all coal-fired power plants should either be put on a formal closure path over the next 5-10 years or immediately retrofitted to reduce their environmental impact (the centre government has mandated this but enforcement is entirely lacking till date).
All coal-fired power plants should either be put on a formal closure path over the next 5-10 years or immediately retrofitted to reduce their environmental impact.
India has huge hydro-electricity resources yet water is growing scarcer. This is a key constraint to sustainable economic growth. It would be in India’s interest to incorporate a plan looking at the viability of a limited expansion of hydro-electricity capacity as part of a wider flood management and whole-of-system clean water plan (bounded by the constraints of the loss of too much fertile rural land). The country should also immediately embark on a retrofit and modernisation of India’s existing 46GW of hydro capacity, given its key value for peaking electricity generation (pumped hydro storage (PHS)).
This would require an accelerated modernisation and expansion of India’s national grid infrastructure, including firming capacity (batteries, PHS, coal- and gas-peakers and demand response management).
India should also leverage its surplus electricity capacity via a tenfold increase in two-way renewable energy electricity exports to adjacent countries like Bangladesh, Sri Lanka, Nepal and Bhutan.
Along with this, India should leverage the technology convergence of the transport and energy sectors to accelerate deployment of electric vehicles (starting with buses, taxis and 2- & 3-wheelers) and continue with the electrification of Indian Railways.
This progress should be combined with a stepped-up focus on the many “Make in India” manufacturing opportunities that come with transforming and modernising the combined energy and transport needs of 1.35 billion people. The scale of domestic market opportunities means global capital will flood in, thereby supporting the government’s sensible long term investment plan.
In turn, the progressive replacement of fossil fuel imports by lower cost, clean, domestic energy alternatives would reduce currency devaluation risks and lower inflation, and hence interest rates, in India. This in turn would create a virtuous cycle, as lower interest rates are the key to lower renewable energy tariffs.
The progressive replacement of fossil fuel imports by lower cost, clean, domestic energy alternatives would reduce currency devaluation risks and lower inflation, and hence interest rates, in India.
India should also enforce a more positive centre-state dialogue to invite buy-in and regulatory compliance nationally, including mandated and enforceable recycling or reuse systems of all end-of-life components, be it fly ash from coal-fired power plants, solar modules or lithium ion batteries.
Achieving a sustainable energy system means finding a path to ongoing economic viability of state electricity discoms. Cross-subsidies from industry must be progressively removed, and a national Direct Benefit Transfer (DBT) scheme put in place to support those most in need in the rural sector. This would replace the problematic system of trading ‘free’ electricity for votes, which is in turn preventing sustainable economic growth for India as a whole.
PG: Could the Covid-19 be a game changer for good?
TB: Yes. COVID-19 has reinforced a key lesson for many countries: real leadership means relying on the advice of experts, in this case medical experts. There is another crisis in which the experts have long been ignored – the scientific experts calling for emission reductions to reduce catastrophic global warming. Ignoring climate science and the need for sustainability in the mindless pursuit of short term economic growth ignores the power of nature to give us system shocks of enormous economic and personal cost. The COVID-19 lesson is that we must work together for the common good and put the benefits of a safe and healthy environment ahead of the questionable merits of unsustainable economic growth.
Ignoring climate science and the need for sustainability in the mindless pursuit of short term economic growth ignores the power of nature to give us system shocks of enormous economic and personal cost.
PG: Imposition of duty on imported panels, does it make the economics of renewables unviable? Any thoughts on the local capabilities?
TB: This is an important question. The COVID-19 pandemic has highlighted the shortcomings of global supply chains and the risks associated with the loss of domestic manufacturing expertise.
The “Make in India” strategy provides India with an opportunity to expand its domestic manufacturing expertise, leveraging huge ongoing demand growth across a range of new low emissions industries of the future.
This opportunity was not realised with India’s temporary solar module import duty of 2018-2020. Due to poor implementation of this policy, and state-centre and centre-centre policy contradictions, no new manufacturing capacity has been established. After extremely positive renewables momentum evident in 2018, India installed with just 8GW/US$7bn of solar in 2019/20, including rooftop. This was just a third of what should have been possible absent massive regulatory uncertainty and confusion, much of which stemmed from the unexpected cost impost of the solar module import duty. Some $15-20 billion annually of new additional investment in zero pollution, zero emissions, low cost domestic power generation was lost. The 15-25% import duty undermined investor confidence and reduced the well-established value gap between solar and thermal power.
The “Make in India” strategy provides India with an opportunity to expand its domestic manufacturing expertise, leveraging huge ongoing demand growth across a range of new low emissions industries of the future… Due to poor implementation of this policy, and state-centre and centre-centre policy contradictions, no new manufacturing capacity has been established.
By comparison, the 2GW/6GW manufacturing-linked solar tender won by Adani Green and Azure Power in January 2020 should achieve the policy objectives in a win-win manner (the Rs2.92/kWh pricing is still 20% below the wholesale price of electricity in India, while the 25-year contract provides investor certainty), without negative installation issues and disruptions.
Policy conflicts need to be resolved before they are announced. The long term opportunities for strong, sustainably-driven economic growth across India are too important to be undermined by short term contradictions and missteps.
India has the potential to be a clear world leader in embracing and benefiting from the current technology-driven, deflationary, energy system disruption. Post COVID-19, a central focus on sustainability and accepting the advice of scientific experts is more important than ever.
PG: Many thanks Tim – for these exceptional insights into the Indian energy sector.
Whatever China does – tends to generate a host of conspiracy theories. However much we may disagree with the numbers, the fact remains that today it is already world’s second largest economy. ‘In many ways ahead of the US, which at the moment seems to be a bumbling power at best’, says Dr. V. Raghunathan (www.vraghunathan.com). A renowned author, thinker, distinguished academic, ex banker – his list of accomplishments is truly phenomenal and interests eclectic.
While Dr. Raghunathan reminds us that despite its rise to the top league, only less than 2% of world trade is determined in Chinese RMB. It’s desire, therefore, to correct this imbalance is quite natural. Needless to mention that what China is proposing today will go way beyond what others have tried or are trying. ‘Usually, what China strategizes, China delivers’, he says. However, in his belief ‘even if the e-RMB is rolled out, it could be a long way to go in winning the trust of the world as much as the US did in the Post World War 2 era’.
Praveen Gupta: Do you believe that national digital currencies could mean greater financial inclusion, less financial crime, and more efficient cross-border transmissions?
V. Raghunathan: At the outset, I must confess that I do not regard myself an expert in International Finance, beyond teaching the subject at the IIMA in the past. But let me answer your questions the best I can…
I am assuming of course that your question is in relation to China’s digital currency experiment, with their stated position:
“A sovereign digital currency provides a functional alternative to the dollar settlement system and blunts the impact of any sanctions or threats of exclusion both at a country and company level”.
We understand financial inclusion to mean availability and equality of opportunities to access financial services. Currently, less than 2% of world trade is determined in Chinese Renminbi, which is disproportionately small as compared to China’s share of international trade. So, if China wishes to correct this imbalance, that’s certainly financial inclusion.
PG: Digital payment platforms are already widespread in China, namely Alipay, owned by Alibaba’s Ant Financial, and WeChat Pay, owned by Tencent, but they do not replace existing currency. Facebook’s Libra has reportedly triggered the fast tracking by the Chinese?
VR: The difference lies in what is State sponsored and what is privately floated. Consider this: In its experiment on digital currency, limited to Shenzhen, Suzhou, Chengdu and Xiong’an, China plans to transfer salaries in to government workers in the form of the new Digital Currency (internally referred to as DC/EP) and tying up with a set of designated merchants to facilitate transactions using the currency. Their end goal is to have full-fledged functionality by 2022. So, you can see where the private players fit in. I guess that is the difference between their planned e-RMB and the private players.
In its experiment on digital currency, limited to Shenzhen, Suzhou, Chengdu and Xiong’an, China plans to transfer salaries in to government workers in the form of the new Digital Currency.
PG: In 2015 Ecuador launched an electronic money system followed by Uruguay piloting its e-peso in 2017. The Dutch are experimenting with a bitcoin based “DNBcoin”. And Canada, Australia, Sweden, Israel are actively exploring a national digital currency. Could China be the biggest mover and shaker in this space?
VR: Well, yes. China is among the top two world powers today. The manufacturers of the world. The exporters to the world. Financiers of the world. And with muscle to match gun-for-gun, in many ways ahead of the US, which at the moment seems to be a bumbling power at best. China’s foresight and world leadership is evident in their projects like the OBOR, China-Russia-Canada-America rail project, or the Russia China Gas project et al, which are just a few examples of China’s scale and grandiosity of their ambitions and plans. Their clout in the UN, the spread of their tentacles in Asia, South Asia and Africa, and even South-America (Nicaragua, Colombia and Brazil), and even their muscle in high-end technology and R&D are all evidence that they have arrived. And arrived in a fashion that rivals the USA true and proper.
China’s foresight and world leadership is evident in their projects like the OBOR, China-Russia-Canada-America rail project, or the Russia China Gas project et al, which are just a few examples of China’s scale and grandiosity of their ambitions and plans.
So yes, what China is proposing today will go way beyond what others have tried or trying. Usually, what China strategizes, China delivers.
PG: A decline in cash usage is expected to continue amid the growing popularity of digital payment platforms and as people avoid physical contact during the coronavirus pandemic?
VR: Yes. That is bound to happen worldwide. As a matter of fact, Europe and UK have had little use of cash currency for a long time.
But a more rural and a poorer nation like ours may have a little longer wait. That said, the fact is that various payments involving both smart and non-smart phones have gained significant currency in India in recent years. But India also suffers from connectivity issues which will be crucial if we are to move in the direction of digital currency all the way.
That is bound to happen worldwide. As a matter of fact, Europe and UK have had little use of cash currency for a long time... But India also suffers from connectivity issues which will be crucial if we are to move in the direction of digital currency all the way.
That said, I do not think China’s ambition with e-RMB has much to do with Covid-19. I think China wishes to rival the USD. Others have tried. The sterling, the Deutsche Mark, and the Swiss Franc.
PG: While Mesopotamia may have been the birthplace of the currency system, the Chinese civilisation is also one of the oldest known users of physical money. As a behaviour finance expert what implications would you anticipate? Would there be a generational bias for and against?
VR: Ha ha ha! Well, I do not really know if behaviour of 2000 years ago gets embedded into the DNA of the subsequent generations or whether there is a gene for singling out the propensity to hold on to physical money as opposed to digital money. But on the generational point, I am all the way with you. When the very mention of sending out a Zoom invite or live streaming something on the Facebook can get any senior citizen to break into cold sweat, carrying absolutely no cash on one’s person can certainly be mildly traumatising. True, many of them do on-line banking or on-line payment of bills aplenty. But to think of money digitally without a back-up currency to hold in one’s hand perhaps comes more naturally to a youngster than the older generation like ours!
But to think of money digitally without a back-up currency to hold in one’s hand perhaps comes more naturally to a youngster than the older generation like ours!
Besides, the behavioural attitude towards money is also about the level of education. A less educated person is more bound to see a transaction as an exchange of something for something else, with money usually being on one of the things in non-barter economies. So, when you get your salary online and spend online, it takes some getting used to.
PG: Do you foresee any privacy issues?
VR: Of course. Actually, both privacy and security issues. The two are linked.
KYC (Know your customer) norms of a bank alone, if shared widely, can seriously compromise the clients’ privacy. Often, digital applications go with significant amount of personal information, especially financial applications. Unscrupulous governments, corporates, politicians, and others are known to have misused such data in large scale for profit, for targeted selling, targeted vote-spiels, or for perpetuating frauds. Individuals can be monitored for their lifestyles, leaving nothing private or confidential. And what is available to some can easily become available to anybody, for a price. So yes, privacy issues could be dire.
Often, digital applications go with significant amount of personal information, especially financial applications... Individuals can be monitored for their lifestyles, leaving nothing private or confidential.
There is no on-line transaction or content which is not open to hacking and therefore misuse. More often than not illicit hackers operate as much at the cutting edge of technology as the ordinary coders or may be more so. You will be surprised at the quality of talent and the level of cutting-edge technology that goes into hacking, at minimal costs! If a legit corporate could do at a time frame, cost, and talent what a hacker does, they would be proud of themselves.
PG: As one of the largest economies, in what way/s could China’s full-fledged migration disrupt the global financial order?
VR: In the foreseeable future the disruption may not be significant. When the Euro was spawned, one imagined it would become a rival to the USD, as nations started replacing some of their USD reserves with Euros. That did not happen in any significant manner. Nor did the Pound Sterling, Swiss Franc or the Deutsche Mark ever become a serious threat to the USD even in the pre-Euro days.
In the foreseeable future the disruption may not be significant. When the Euro was spawned, one imagined it would become a rival to the USD, as nations started replacing some of their USD reserves with Euros.
Besides, I do not see a lot of countries in the world, barring a few African or South American countries and a Pakistan here or a Nepal or Sri Lanka there denominating their trades in e-RMB. I think even if the e-RMB is rolled out, it could be a long haul for China.
Notwithstanding their world-vision, China is still viewed a bully of sorts and its political leadership in the world is yet not at par with what the US had post-World War II. True, Trump may have taken the sheen off the US somewhat for now, and US too may be a bully of sorts especially if you ask some countries in the Near East and Middle-east Asia, China has a long way to go in winning the trust of the world as much as the US did in the Post World War II era. Yes, World War II was a good 75 years ago, but the benchmark remains firmly entrenched in the world psyche.
PG: Many thanks for these valuable insights!
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