Economy to face green energy transition shock if not handled properly: KPMG

Suresh P. Iyengar | | Updated on: Dec 10, 2021

Says need to have transitional finance to manage the challenge

The transition from grey to green energy is expected to bring in a big shock to the economy, if it is not handled with care. The investment in high carbon sector is getting choked and external fund is getting expensive by the day.

Anish De, Global Sector Head (Power and Utilities), KPMG said the transition to green energy may cause a big shock if the transitional finance is not made available, especially to high carbon sectors which are getting only half the investment of what they actually require.

Following this, even if there is a small increase in demand, natural gas and crude prices are shooting up. Though it is a global phenomenon, both the treasury and corporates are exposed to this risk in India and may be a big challenge for the country, said De, launching ‘The Global Corporation: Preparing for a low-carbon world’ report.

Also read: Switch off internal combustion engines

“We need to have transitional finance to manage this challenge, otherwise the whole economy will be affected. It may also lead to stagflation where there will be high inflation and stagnation in growth. Though transitional finance will come eventually, people are not yet talking about it now,” he added.

It is important for corporates to break down the transition cost into small finite pieces and deal with them separately as the energy transformation has to happen across products, supply chain, vendors eco-system, markets and customers, and the cost involved will be mind-boggling, he said.

While large corporates have started taking the transition more seriously, the bigger issue is to prepare the smaller companies supply chain for the transition which needs hand-holding.

Developed nations had committed $150 billion every year to developing countries for promoting green energy projects but this is yet to become a reality. However, corporates have different options with investors coming out with specific funds to invest only in green energy and ESG projects. Green bonds is also an option which is used by several corporates, including the Railways, SBI and Adani Group. Though the rates are high for first issuance of green bonds, it comes down subsequently, De added.

Published on December 10, 2021
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