Renewables in India: A Work in Progress

by Julie Jojo Nielen

As a nation of more than 1,2 billion people, the tenth economy of the world and one of the most rapidly developing countries globally, India is becoming an increasingly important player in terms of energy. The urgency of India’s energy needs is not only underlined by its rapid economic growth and thus burgeoning energy consumption, but also by the fact that energy diplomacy has been the main pillar of the recently elected government of Prime Minister Narendra Modi’s foreign policy.

Apart from energy security, affordability and accessibility, Modi has underlined the necessity of transitioning to a more sustainable energy model. Modi’s public commitments to renewable energy sources (RES) are a watershed moment for India. However, although India is definitely a promising player in the RES field and will undoubtedly move towards a more RES heavy energy mix in the future, there are still a myriad of problems to overcome.

What particular problems will India encounter on their path to a more sustainable energy model and how promising is India as an RES player? What are Modi’s specific RES strategies and are his policies sufficiently encouraging to achieve these targets?

India’s Electricity Mix

India is currently the fifth largest consumer of electricity in the world after the US, China, Japan and Germany. India has 258,7 GW of installed electricity capacity. Most of this is accounted for by coal, which is the absolute king of the country’s energy mix. As can be seen in Figure 1, coal accounts for around 60% of India’s electricity mix with non-hydro RES representing 12,3%.

A closer look at this 12,3% (or 31,7 GW) of RES reveals that the bulk of it is accounted for by wind. As can be seen in Figure 2, India currently has 21,1 GW of wind power capacity installed, which is two-thirds of country’s total installed RES capacity. This is followed by biomass (4,2 GW or 13%), small hydro (3,8 GW or 12%) and solar (2,6 GW or 8%).Untitled

India currently has the fifth largest wind generation capacity globally, after China, Germany, the US and Spain, and accounts for 6,1% of total installed wind capacity worldwide. Another notable point is that although their solar capacity is still negligible, it has seen a hundredfold growth since 2010.

Targets

The Modi administration has stated they want to increase the share of RES in India’s energy mix, which is definitely underlined by the current targets in place and modelled after Modi’s 2014 campaign slogan, “India will generate enough renewable power to run a light bulb in every house by 2019.” This is a good example of how ambitious Modi’s goals are in regards to RES. Considering the fact that over 80 million households (>400 million people) in India are either energy poor or have no access to the grid whatsoever, one might even say overly ambitious.jul1

Campaign slogans aside, Modi has also launched two official strategies. These are divided into two time periods; from now until 2022, (when the country celebrates 75 years of independence), and from 2022 until 2050, a strategy that is commonly referred to as ‘Desert Power India’.

The 2022 target is to increase RES generation capacity by 160 GW, 100 GW of which will be solar power and 60 GW of which will be wind. If achieved, renewable energy would then account for 15% of their total energy supply.

This 160 GW strategy is mostly focused on mega solar and wind facilities, for which €7,3 billion has been allocated and which will be primarily located in four areas in the northwest and far southeast: Rajasthan, Gujarat, Tamil Nadu and Ladakh. Additionally, money has been set aside for solar powered water pumps (€5,8 billion) and solar panels to cover canals and rooftops (€1,4 billion).

‘Desert Power India’ has a similar focus, with the overall objective being to increase generation capacity from RES to 445 GW by 2050, which would translate to over 35% of their total electricity consumption. Again, the main focus lies on mega wind and solar farms, which are set to account for 300 GW of capacity and would be located in the far northwest, which is desert land. Additionally, 55 GW would be derived from the four regions that currently already hold the highest wind capacity: Tamil Nadu, Karnataka, Andhra Pradesh and Maharashtra. Furthermore, 70 GW would be derived from smaller solar and wind projects and 30 GW from offshore wind farms.

These plans are far reaching and mostly focused on mega facilities that are to be located in roughly the same areas. Although not a fraught strategy per se, it could lead to certain problems over time and fail to provide for the intended goals.

Drivers of RES growth

Although there are the overarching issues of pollution from heavy reliance on coal and global climate change, India also has some specific reasons to pursue a more sustainable energy mix. The primary reason is India’s heavy dependence on energy imports accounting for around 30% of total primary energy mix and this number is rising. Import dependency does not only affect their energy security, but is also a huge strain on the government budget. The Indian government currently spends €136 billion per year on energy imports, which accounts for 7,5% of the country’s GDP. Decreasing import dependency could mean a big change for the country’s economy.

Furthermore, India is very heavily dependent on coal. This does not only cause wide-scale air pollution, but also affects public health in more direct ways. Because of the high occurrence of energy poverty in India, many people still use coal for cooking and household heating, which leads to a plethora of serious health problems mostly in rural areas. Moreover, the coal sector in India has continually been troubled by inefficiency and infrastructure problems that leaves them ever dependent on imports despite having considerable domestic reserves.

Tackling climate change is a growing matter of urgency for the country. Although formerly a great proponent of the ‘catching up’ principle, India has come to acknowledge the dangers of climate change in recent years. Most alarming are emerging assessments such as the Maplecroft Climate Change Vulnerability Index. According to Maplecroft, India is one of the most vulnerable countries in the world when it comes to the adverse effects of climate change. This is mostly because of desertification and the loss of associated farmland adding to food scarcity and the dangers of flooding as a big part of the population lives below the flood line.

Although push factors are indeed most notable when it comes to India’s reasons to move towards RES, there are pull factors involved as well. Firstly, RES development is associated with job generation and it is estimated that in 2014, 70 000 jobs in the country were directly associated with RES. Secondly, and most importantly, RES suit the specifics of the Indian situation. RES are mostly associated with distributed generation, i.e. smaller scale plants close to market. In a country as big as India and with a population as spread out, distributed generation would be a perfect solution to reach energy-poor regions that could only be connected to the main grid with great difficulty.

Policies and Planning

India’s current budget has €14,5 billion allocated to RES, which is a 25% increase from the last budget under Prime Minister Manmohan Singh. Most of this is to be invested in the construction of mega wind and solar farms. The Modi government has also increased the levies on coal, which have gone up from €0,75 to €1,50 per tonne. The income derived from these additional levies will in turn be used to fund RES projects. In contrast with the coal levy, customs duties on solar panels and wind turbine parts were lowered from 10% to 5%.

Another showpiece of India’s RES strategy is the development of so-called ‘green corridors’, which are a holdover from the Singh era. This project focuses on the transit of electricity and is designed to get power from mega plants to market. This has been a continuing issue in India, where mega plants do add to overall generation capacity, but this capacity does not always reach the market.

Lastly, there is a clear focus on creating the best possible investment climate for RES in India. Although India is perceived as relatively reliable in terms of investment, there are still many hurdles for foreign direct investment (FDI). However, in terms of energy investment, the RES sector is absolutely hospitable for foreign investors. For instance, apart from more conventional incentives such as feed-in tariffs and fiscal incentives, RES are the only energy sector in which 100% FDI is possible and it also works with a ‘build, own, operate’-structure. This means that investors are allowed to be in control of every part of the RES value chain and makes investing considerably more attractive.

Evaluation: problems

Despite the clear commitment of the Modi government to move towards a more sustainably powered economy, the variety of motivations to do so and the elaborate strategies in place, the implementation of certain policies might yet prove problematic. Modi’s plans are globally lauded, but there are reasons to be cynical about India’s ‘green future’ still.

One of the most problematic issues regarding the current strategies is the lack of budget. Although the current government has allocated significantly more towards RES development than the last, €14,5 billion is still considered to be too modest by many experts. Construction of one GW of solar power within a mega plant is estimated to cost around €1 billion, it is unlikely India can met its goals. Hence, many experts state that at least a tenfold increase in budget is needed.

Secondly, although there are mechanisms in place to raise more tax income for renewables, funds are not always correctly allocated. According to the Economic Times, only one per cent of collected taxes were being allocated to RES under the previous government and Modi has also announced plans to use money from the Ministry of New and Renewable Energy to clean up the Ganges, which is considered to be a dubious allocation of the funds.

Other problematic issues mostly relate to the location and size of the proposed RES facilities. One point is the big focus on mega plants, a curious choice considering the fact that demand in India is distributed over vast territories and, consequently, already existing problem of getting electricity to end users. Mega plants take years to build, whilst smaller scale plants could satisfy demand much quicker. Generation capacity is being added in a very limited number of regions. All these factors together suggest that even if green corridors could be constructed to get the power to market, most of this will be in the same areas, leaving the rest of India lagging behind.

All this is exacerbated by a serious lack of effective legislation. For instance, there are discrepancies between the national and regional legislation in regards to the use of farmland for RES. As of now, it is yet unclear whether farmland can be used for RES projects.

Similarly, there is no legislation in place regarding rooftop solar projects. As the Vice President of Welspun Energy, a New Delhi based independent power company pointed out, “There is no database. We don’t know where the roofs are. We don’t have any policy or laws on rooftop solar energy. Roof rights, maintenance of roofs and access rights are not defined by the law”. Also, there is a lack of research regarding wind development; wind patterns as well as grid infrastructure to transmit overcapacity are currently insufficiently researched.

Other problems are more systemic and thus even less easily solved.

There is great hesitation among investors to go big on RES. Many private investors find both the Indian investment climate and the particulars of the market too unstable; apart from the fact that the India economy is still unstable, the sector itself is also anything but static. This leads to fears that by the time certain mega-projects might be completed, the technology would already be outdated. As for public funding, many public financial institutions currently have funds tied up in thermal energy, which was a focus of the Singh government, and are hesitant to jump into new projects.

There is also a problem of cost. With a GDP per capita of less than €1 500 per year, there is a strong need for low energy prices in India. This means that more costly projects would need to be subsidized largely erasing the advantage of lowering import expenditures as a switch to renewables is made.

Lastly, land scarcity is a serious concern. Apart from the discrepancies in legislation between the different levels of government regarding (farm) land acquisitions, there are projects that have been cancelled for environmental concerns as well. The best known example of this is the Thar Desert solar project, which would have been the biggest solar plant in the world with 4 GW of capacity. The project was cancelled because of bird migration and the close proximity to a nature wetlands reserve. Because of land scarcity, no other location could be found. Land scarcity was also underlined in the struggle between the military and the national government in regards to land acquisitions for solar plants. The national government tried to acquire vacant military land in order to repurpose it for RES development, but the military refused, citing land scarcity.

Evaluation: Positives

The Indian path to a RES-heavy economy will not be easy. Ambitious plans do not make up for the fact that there are still a lot of problems and insecurities associated with RES development. The peculiarities of the strategies chosen, the lack of a clear legal and economical framework and systemic issues such as land scarcity and inability to charge high prices to the population might make one sceptical about India’s RES potential. However, there are currently several positive developments under way and if the Indian government chooses wisely, they might still achieve their ambitious goals.

One of the most promising aspects of Indian RES is the current rise of small-scale solar projects. For instance, the American solar panel company First Solar is currently working together with several bigger corporations in India (such as Microsoft India and Cisco) to power offices with solar panels. Developments like these have great spillover potential and allow for the development of best practices, the experience of which could then be used in policy making.

A good example of the potential of bottom-up developments in RES is the case of the Indian snack major Halidram. This company started out with solar panels on a few factories and is now involved in government tenders to develop larger solar plants. Similarly, Indian Railways – the biggest electricity consumer in the country – has recently announced that they will allocate €1 billion for RES development to power not only trains but also train stations in rural areas, thus providing smaller villages with sustainable energy.

Moreover, the decentralized RES market has seen great growth in the last several years and there are currently over 40 companies active in the development of solar lanterns and small-scale solar home systems. According to a Climate Group report in cooperation with Goldman Sachs, the market penetration of solar lanterns will be 35% by 2018. It is exactly these sorts of small-scale projects that are not only perfectly suited to India’s highly distributed demand, but are also beneficial from a cost and time perspective.

Conclusions

India is committed to transitioning towards a more sustainable energy model. India’s heavy reliance on coal and energy imports, combined with high energy poverty, an intense – it is clear from Modi’s rhetoric, policies and strategies that vulnerability to climate change and a very distributed demand, makes the choice for RES almost a so-called ‘no brainer’.

However, there are many potential stumbling blocks on the road to a more sustainable energy model. Understandably from a political perspective, Modi’s focus on mega plants and a very limited amount of regions might not be the best choice for India. The problems with getting the power from these concentrated mega plants to market will be one of the biggest hurdles for India in the future and it is not unreasonable to assume this might not be the best strategy. One of the main comparative advantages of RES, namely distributed generation, seems to be lost on the current government.

Furthermore, there is a definite lack of a legal and economical framework. India is still regarded as an insecure investment destination and this, combined with a lack of legislation on land and rooftop usage, is a major damper on possible investments. This is specifically problematic because the funds allocated by the government are not yet in line with the size of its RES ambitions.

However, all hope is not lost. If India manages to develop more conclusive legislation and research for RES and would encourage small scale, bottom-up initiatives rather than focusing solely on mega projects, India could yet become a massive RES player. The willingness, ambition and determination are already present, now it is time to tailor the policies to meet the needs of the country.

Julie Jojo Nielen is a graduate of the ENERPO program at the European University at St. Petersburg (academic year 2014-2015). Currently, she is enrolled at the University of Amsterdam studying the global political role of Europe with a focus on renewable energy. Her areas of scientific research include: geopolitics, oil & gas markets, renewable energy and the BRICS.

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