The changing shape of energy security

**Akshara** (0:04)
In today's episode, we'll break down two important stories. First, we'll talk about energy security no longer being a fuel problem. And then we'll talk about India's missing poor. Welcome back to The Daily Brief by Zerodha, where we cut through the noise to help you understand what's actually happening in the most important stories from business and markets. If you're listening to this on your commute, on a walk or at the gym, you can also find The Daily Brief as an audio podcast on Spotify, Apple Podcasts, or wherever you listen to your podcasts. I'm your host Akshara, and today is Monday, 1st June. Coming to the first story.
So India is doing two seemingly contradictory things at once. On one side, we're shifting to clean power as fast as any large economy on earth. Five years ago, for every rupee we put into fossil-fueled electricity, we spent roughly a rupee and a half on renewables and nuclear power.
But today, that has climbed to thrice as much. Solar and wind now make up more than half of our installed power capacity, with solar investment alone climbing about 25% a year. But at the same time, we're building oil refineries at the fastest pace in years. Our refining investments have grown at around 23% a year over the past five years, and we're on track to add roughly 15% more by 2030
Almost all the crude we process is imported, and so the more we expand our refining capacity, the deeper our reliance on imported oil grows. So why are we simultaneously trying to insulate ourselves from fuel imports while also placing a bigger bet on the most import-dependent part of its energy system? So the energy world is in a weird inflection point, and at the moment, all we can do is hedge. But it isn't just us. As a new report from the International Energy Agency or IEA notes, what the world considers energy security is changing rapidly. Now, for most of the last half century, energy security meant you needed to keep fuel flowing. 50 years ago, when the world had been hit by the oil shock of 1973, it responded by finding more oil in safer places, like the North Sea. It also moved to use each drop of fuel it had more carefully, with fuel economy rules and efficiency standards. We now find ourselves in such a moment again, this year. So this time around, the IEA describes a very different instinct taking hold. The most reliable defense against being held hostage for oil, countries are quickly discovering, is not to need any.
If you can get energy in the form that you don't have to import or burn through, you are immune to being embargoed, blockaded, or priced out from another corner of the world. That logic is pointing the world to one direction, electricity. An electrified economy doesn't perennially wait for its fuel to reach its borders. It's already saving the world hundreds of billions in import costs. Which is why close to 60% of all energy investment in the world now goes into electricity in some form. Generating it, moving it, storing it, or running things on it. And the recent Hormuz crisis has given this trend wings. As oil prices jumped this year, interest in electric vehicles climbed across the world, from the European Union to Vietnam. Countries like Japan and Korea, which import nearly all their fuel, are now putting public money into electrifying buildings and heating. They're selling this to voters as national security, not climate policy.
As the IA warns, however, electrification doesn't end a country's dependence on the outside world. It only changes how that dependence looks. An economy that runs on oil has to keep buying oil, often from far away. An electrified one, meanwhile, has to get two different things right. It needs to spend a large amount of money upfront, and it needs to source a steady supply of manufactured hardware, solar panels, batteries, transformers, and other equipment that makes up a grid. If those are built and paid for, running costs drop, and the fuel risk mostly goes away. But that comes with its own hurdles. The first is manufacturing. As we harp about endlessly on The Daily Brief, most of the world's electrification hardware is overwhelmingly made in China. The country accounts for approximately 85 percent of the world's solar manufacturing capacity, approximately 80 percent of its lithium ion battery production, and approximately 95 percent of the capacity to make the wafers that go inside solar panels. It also controls more than 70 percent of the market for 19 out of the 20 minerals CIA considers strategic. No single oil producer in the world enjoys anywhere near this level of dominance. Now the second hurdle is money. Clean power is capital-heavy and front-loaded, and almost all your investment is compressed at the very beginning, while the savings only trickle in over decades. This makes electrification unusually sensitive to the cost of borrowing. So if money is hard to raise at the time infrastructure is being set up, the future earnings it could bring matter for little.