New Delhi, April 9: Energy transition refers to the global energy sector’s shift from fossil-based systems of energy production and consumption — including oil, natural gas and coal — to renewable energy sources like wind and solar, as well as lithium-ion batteries. The Global Energy Transition Index is a fact-based ranking intended to enable policy-makers and businesses to plot the course for a successful energy transition.
Contextual background of Global Energy Transition Index
The Global Energy Transition Index is a tool for energy decision-makers that strive to be a comprehensive, global index that tracks the performance of energy systems at the country level.
The increasing penetration of renewable energy into the energy supply mix, the onset of electrification and improvements in energy storage are all key drivers of the energy transition. Regulation and commitment to decarbonization has been mixed, but the energy transition will continue to increase in importance as investors prioritize environmental, social and governance (ESG) factors.
As more investors and companies seek greater clarity and confidence in accounting for long-term climate risks and opportunities, businesses are adapting to the “energy transition” — a transformation of the global energy sector from fossil-based systems of energy production and consumption to renewable energy sources. Switching from non-renewable energy sources like oil, natural gas, and coal to renewable energy is made possible by technological advancements and a societal push toward sustainability. Spurred by structural, permanent changes to energy supply, demand, and prices, the energy transition also aims to reduce energy-related greenhouse gas emissions through various forms of decarbonization.
Global Energy Transition Index incorporates geopolitical conditions
Global Energy Transition Index also incorporates macroeconomic, institutional, social, and geopolitical considerations that provide enabling conditions for an effective energy transition. Meanwhile, after years of depending on regulation for growth in the sector, renewable energy sources have become a powerful and cost-effective source of electricity. The costs of both solar and wind have fallen so drastically that in some regions of the U.S., as well as in the U.K. and Europe, wind power has become cheaper than traditional high-carbon energy resources. As costs continue to fall and wind and solar become mainstream, the renewable energy sector will only keep growing and solidify as a strong investment opportunity.
The International Energy
Agency forecasts the world’s total renewable-based power capacity to increase 50% between 2019 and 2024. In response to this shift, utilities have begun a rapid energy transition away from coal. While some market observers expect that transition to slow, pressure is mounting on power generators to retire existing assets that depend on coal supplies and build out other forms of power generation. Many major oil companies are accelerating spending on and diversifying into renewable and low carbon energy in response to growing concerns over climate change.
What is Energy Transition Index (ETI)?
· The ETI is a fact-based ranking intended to enable policy-makers and businesses to plot the course for a successful energy transition.
· The benchmarking of energy systems is carried out annually across countries.
· Part of the World Economic Forum’s Fostering Effective Energy Transition initiative, it builds on its predecessor, the Energy Architecture Performance Index.
· The ETI is a tool for energy decision-makers that strive to be a comprehensive, global index that tracks the performance of energy systems at the country level.
The ETI framework
– The ETI is a composite score of 40 indicators, sourced from reliable international data providers to ensure comparability across countries and consistency over time. The indicators are standardized and grouped together to derive scores for higher order dimensions which are equally weighted to obtain scores for the system performance and transition readiness sub‑indices. The composite ETI score is the average of these two sub‑indices.
– The ETI framework consists of two parts: current energy system performance and the enabling environment for the energy transition
– System performance provides an assessment of countries’ energy system related to their delivery in three key priorities: the ability to support economic development and growth, universal access to a secure and reliable energy supply, and environmental sustainability across the energy value chain.
– The objective of energy transition in a country should be to deliver simultaneously across these three priorities, thereby maintaining a balanced “energy triangle”.
– While countries will inevitably choose a diverse set of short‑term objectives, pursuing the long‑term goal of achieving a balanced “energy triangle” can support the choice of appropriate policies and instruments, and help the synchronization of efforts across countries and the maintenance of a steady course on the global energy transition.
India’s performance in the ETI
– India has moved up two positions to rank 74th on a global ‘Energy Transition Index’ with improvements on all key parameters of economic growth, energy security and environmental sustainability, according to the World Economic Forum (WEF).
– It said the “emerging centres of demand” such as India (74th) and China (78th) have made consistent efforts to improve the enabling environment, which refers to political commitments, consumer engagement and investment, innovation and infrastructure, among others.
– For India, gains have come from a government-mandated renewable energy expansion programme, now extended to 275 GW by 2027.
– India has also made significant strides in energy efficiency through bulk procurement of LED bulbs, smart meters, and programs for labelling of appliances. Similar measures are being experimented to drive down the costs of electric vehicles, the WEF said.
– India is one of the few countries in the world to have made consistent year-on-year progress since 2015. Argentina, China, India and Italy are among the major countries with consistent annual improvements.
– India’s improvements have come across all three dimensions of the energy triangle — economic development and growth, energy access and security, and environmental sustainability. It indicates a strong positive trajectory, driven by strong political commitment and an enabling policy environment.
When it released the annual rankings, the Geneva-based international organisation for public-private cooperation had said COVID-19 will compromise the transition to clean energy without an urgent stakeholder action as unprecedented disruptions due to the pandemic threaten this transition. Sweden has topped the Energy Transition Index (ETI) for the third consecutive year and is followed by Switzerland and Finland in the top three.
Surprisingly, France (ranked 8th) and the UK (7th) are the only G20 countries in the top ten.
(Rate of change in ETI score in the last 5 years. Source: World Economic Forum)