A critical requirement for modern human wellbeing and supporting productive economic activities is reliable and adequate access to affordable energy. This is especially crucial for India as it addresses various developmental challenges. India’s per capita energy consumption was about 570 kgoe (kilograms of oil equivalent) in 2016, which was about one-third of the global average of about 1,780 kgoe and nearly one-fourth the Chinese per capita consumption of 2,273 kgoe. The picture is nearly identical even for per capita electricity use. This energy poverty is being addressed by various central and state government initiatives, and energy demand is expected to increase significantly in the coming years. This is important because just a small increase in per capita modern energy consumption correlates to a significant improvement in Human Development Index (HDI) levels for countries with low development indices such as India.
However, energy use contributed approximately 83 percent of India’s Green House Gas (GHG) emissions in 2013 with this share increasing over time. With its long coastline, rainfall dependent agriculture and glacier-fed rivers, India is also highly vulnerable to the impacts of climate change, and workable solutions to this global problem are clearly in India’s interests. While India has recognized the need to mitigate climate change, it has also reserved the right to increase its consumption of energy for its development needs.
As a result, India has resisted taking on absolute GHG emission restrictions and instead adopted “measures that promote our development objectives while also yielding benefits for addressing climate change effectively” as part of the National Action Plan on Climate Change (NAPCC). This plan views climate change mitigation as one among many objectives alongside items such as employment generation, economic growth, improved living standards of its citizens and better local environment. This approach, which focuses on decreasing the carbon intensity of future economic growth, informs India’s international pledges. India’s pledge at Copenhagen in 2009 stated that it would voluntarily reduce its emissions intensity of GDP by 20 to 25 percent by 2020 compared to 2005 levels. Under its Nationally Determined Contribution (NDC) to the 2015 Paris Agreement, India’s 2030 commitments are to reduce the emissions intensity of its GDP by 33 to 35 percent compared to 2005 levels. This corresponds to roughly continuing the 16 percent reduction in carbon intensity already realized from 2005 to 2016. The NDC also included a pledge to achieve about 40 percent cumulative installed electricity capacity from non-fossil fuel-based sources.
India clearly needs a comprehensive approach to its energy future given the multiple imperatives of universal and affordable energy access, energy security, limited fossil fuels reserves and their socio-environmental impacts, local as well as global. The United Nation’s Sustainable Development Goals (SDGs) clearly lay out a global vision for energy featuring universal access to affordable, reliable and sustainable energy. Therefore, renewable energy is a critical foundational element of that vision, and shifting to a less carbon-intensive energy mix over time is imperative for India’s contribution to global climate change mitigation.
With its vast potential resources and ever-falling costs, renewables (especially large-scale wind and solar PV) have finally become a serious mainstream electricity supply option. They are no longer seen as mere alternate conventional sources and the environmental problems they create, but critical elements to enhance a country’s energy security and improve its macro-economic situation by reducing energy imports and thus minimizing account deficits. Absence of fuel (for wind and solar PV), low gestation periods (approximately 1.5-2 years) and minimal marginal costs make them amenable to long-term fixed price contracts, thus reducing electricity price volatility and reducing traditional financial risks. All of these factors have contributed to a strong policy and regulatory framework supported by the central and state governments for the rapid deployment of renewable energy.
Buoyed by this facilitating framework, renewable energy based electricity generation capacity has seen a strong annual growth of 20 percent over the last 15 years, with total installed renewable energy capacity at 70 GW (34 GW wind and 22 GW solar) or 20 percent of total installed capacity as of May 2018. As a variable source of energy, procuring renewable energy (especially wind and solar) potentially entails higher system-integration costs (especially for balancing), which need to be factored in to comparing prices with any baseload capacity like coal. However, a recent study by Central Electricity Authority in India found that “even after including the financial implication on account of variable renewable generation, it would still be cheaper in the future to set up renewable generation capacity as compared to coal-based capacity.” Consequently, generation prices will not be a hurdle for increased adoption of renewable energy in India.
A large part of the 100 GW solar target involves distributed generation. Specifically, 40 GW has been earmarked for rooftop solar projects, which are expected to be set up by industrial, commercial and residential consumers with available roof space. Consumers whose electricity tariffs are higher than the cost of generation from rooftop solar power will find it economical to deploy such systems and reduce their electricity bills. This is in part due to ‘net metering’ which is a billing mechanism that credits solar energy system owners for the electricity they feed into the grid.
For example, if a residential customer has solar panels on his or her rooftop, it may generate more electricity than the home uses during daylight hours. If the home is net-metered, the electricity meter will run backwards to provide a credit against what electricity is consumed at night or other periods when the home’s electricity use exceeds the system output. Customers are only billed for their “net energy use.” As of 2018, more than half of sales of distribution utilities could cost-effectively switch to rooftop solar. Further, the government of India offers a 30 percent capital subsidy for residential consumers for system sizes smaller than 5 KW. However, progress under this segment has been much slower than anticipated (with only approximately 2 GW installed till date), mainly due to operational and procedural issues around net-metering and subsidy disbursal rules.
There is now little doubt that renewables will become the foundation of India’s future electricity sector in particular and energy sector in general. The drastically falling prices of wind and solar power and ever-increasing capacity have compelled even ardent skeptics to acknowledge that renewable energy will play a major role in the future. However, the pace of this transition will depend on how specific technical and regulatory challenges associated with renewables are handled. The major challenge now is providing reliable and cost-effective grid integration, which requires state-of-the-art modeling studies to understand the additional stress and complexity on system planning and operations due to renewables. It also requires a framework for greater cooperation across states and to equitably distribute additional costs, if any, of grid integration among the various stakeholders. A crucial variable that would determine the future trajectory of renewables is the development of technology and the regulatory regime around electricity storage, which could greatly help eliminate the intermittency associated with renewables.
The low costs of renewable energy coupled with its various benefits have now nudged policymakers towards envisioning significantly higher shares of renewable energy in the medium term. Recently, the Ministry of Power has issued guidelines to state electricity regulators to fix the minimum renewable energy procurement targets or purchase obligations (RPO) at 21 percent by 2022, with equal focus on solar at 10.5 percent and non-solar (mainly wind) at 10.5 percent. In recent statements, the Ministry of New and Renewable Energy showed confidence that the country will not only meet the 175 GW target but possibly surpass it and reach 225 GW by 2022.
It was further noted that the share of renewables may further increase to 55 percent by 2030 (500 GW), inspiring potential plans to bid out 40 GW of capacity (30 GW solar + 10 GW wind) every year from now until 2028. Various new policies for offshore wind power, solar-wind hybrids and solar parks coupled with incentives such as waivers in the inter-state transmission charges and concessions in open access (third party sale) charges for renewable energy projects and streamlining of rules around captive (self-consumption) projects and grid connectivity are further accelerating the deployment of large scale renewables.
A new and emerging sector of the distributed solar program is usage in the agriculture sector to power irrigation pump-sets. For areas with zero or poor access to grid electricity, the use of solar-PV pumps is being encouraged with 30 percent capital subsidies, and close to 1,75,000 such pumps have been deployed as of March 2018. Looking ahead, the Ministry has proposed an ambitious solar PV target of 28 GW for agriculture consisting of 10 GW of grid connected solar power plants with capacity of 0.5–2 MW and 2.85 million solar pumps. The entire scheme for agriculture may need massive capital support of close to US$22 billion.
With regard to transportation, a significant push towards electrification will be key to reducing emissions and import dependency through 100 percent electrification of railways, setting up of metros in major cities alongside electrification of vehicles including buses, cars, two and three wheelers. A National Energy Storage Mission aligning with the National Solar Mission is also in the works. While a significant element of this mission would be EVs, it also includes the use of storage for various applications of renewable energy grid integration.
Additionally, the Government of India recently approved of a national biofuels policy, which places focus on second-generation biofuels and has earmarked 50 billion rupees (over US$700 million) as viability gap funding for setting up ethanol bio-refineries over the next six years. The policy aims to reduce import dependency while reducing CO2 emissions at the same time. For 2017-2018, ethanol supply was roughly 1.5 billion liters, which saved 40 billion rupees (US$575 million) in foreign exchange and avoided emissions of 3 million tons of CO2.
In addition to deploying renewables, the government is also focusing attention on manufacturing. While India has significant manufacturing base of close to 10 GW/year of wind turbines, it relies significantly on imports of solar panels. The country has seen close to 100-percent annual growth in the value of solar PV imports from China over the last ten years, culminating with approximately US$3.4 billion worth of imports in 2017-18. This represents 90 percent of all solar PV imports coming into India, underscoring the dominant role of large-scale Chinese solar manufacturing in the Indian solar movement. To strengthen solar PV and electric battery storage manufacturing in India, the government plans to introduce large-scale solar PV deployment tenders which will mandate setting up a certain scale of solar and battery manufacturing in the country.
While the rapid large-scale deployment of renewables, especially at record low prices certainly promotes formation of a cleaner electricity sector, the transition will not escape a fair share of challenges. Such a paradigm shift will bring a sharper focus on some differing priorities and capacities of central and state governments.
The central government’s perspective is informed by macro-economic stability, economic growth, international climate obligations and geo-strategic issues, while states are driven more by local concerns and political realities including energy access and affordability, local jobs and economies. A well-planned transition will take regional realities into consideration, especially the poor financial health and capacity of some electricity distribution companies because a robust grid and economically viable distribution sector are critical to absorbing a large share of renewables. Further loss of employment and tax revenue in coal-rich states and grid integration issues in states with large concentration of renewable energy, such as Karnataka and Tamil Nadu, will need to be resolved through a more comprehensive and consultative planning process, especially given the rapid pace of the unfolding transition. India’s renewable energy future is not only dependent on how it deals with regional divergences, but also on how it manages governance and political questions.
The author is a fellow at Prayas Energy Group and has been working on renewable energy policy and regulatory issues.