Recent years have seen India’s economy being a leader among developing nations, with gross domestic product (GDP) growing at 6.9% between financial year (FY) 2012 and FY2018 along with simultaneous growth in energy and electricity demand with the economy, resulting in India now having the third-largest electricity grid in the world, with a gross installed capacity of 344 gigawatts (GW) in March 2018 (the end of FY2018).
With India’s population of about 1.4 billion people, nonetheless, the grid supplies just under 900 kilowatt hours (kWh) of generation per capita (FY2018), which is one-third of the world average and 14 times less than average U.S. consumption. In addition to low average consumption, approximately 32 million homes still lacked electricity connection as of April 2018.
However, Indian government had ambitious plans to connect all homes to electricity by 2019, and believes that this could be facilitated through the installation of Renewable energy (RE) infrastructures. Although RE capacity has been growing rapidly in India with wind and solar accounting for 65% of the overall power sector, RE has not been growing fast enough to meet incremental power growth, as coal remains the residual source of capacity addition and generation. RE was only 6.6% of gross generation in FY2017, rising to 7.8% in FY2018. Although India’s share of RE generation in 2017 was comparable to the United States and even China (wind and solar only), it was just a tenth of that in Costa Rica and a number of countries in Europe.
Before signing of the Paris climate agreement, the Indian government had announced ambitious renewable energy targets aimed at quadrupling the country’s RE capacity to 175 gigawatts (GW) between late 2014 and 2022, which drew the world’s attention given India’s relatively small RE base, as this target also implied an annual growth of 25%, a build out rate even faster than China’s, which has been the world’s leader in deploying RE.
However, analysts pointed to some contradictions, both political and economic, suggesting that this plan might be difficult to achieve, the assumption being due to two core facts.
Firstly, there existed certain unresolved aspects despite there being a vibrant approach regarding potential investment, which has now come to the forefront because of the COVID pandemic and its economic repercussions. Expectedly, foreign capital has not been coming in. The functional difficulty has been enhanced due to costly foreign currency hedging and wariness about securing contracts and steady payments. Also, it is increasingly evident that RE cannot yet compete with most existing coal-fired generation, which remains the dominant source of power in India. The decreasing RE costs have generated discussions of “grid parity” – a hypothetical scenario when RE might be able to push coal off the Indian grid. It has become clear that such a scenario is still far in the future when including the full costs of integrating RE into the grid. Notably, the best performing RE systems pertaining to the cost of integration are competitive with the most expensive new coal projects, but not with existing coal plants.
Another key challenge, it has also been found, is India’s weak grid and utilities. The electricity distribution companies (DISCOMs), almost all owned and controlled by state governments, play central roles as most of them are struggling financially in ways that can lead them to delay payments, renegotiate power purchase agreements (PPAs), or avoid signing new PPAs. Consequently, there’s a realization that the difficulties of integrating RE into India’s power grid will worsen as RE’s share of generation increases, causing disproportionate strain on states rich in RE resources. Other sources of generation-notably coal-will then need to back down to accommodate rising yet variable RE generation. RE integration would be easier across larger balancing areas within the grid, but that approach would require substantial investments in long-distance RE-centric transmission, a move which has been limited so far. It’s worth noting here that such a factor had been overlooked earlier, and has now become even more evident after the economic effects of the current prevailing pandemic.
Additionally, there have also been questions raised on working a better energy storage capacity, as clearly for India, to implement its plan, it would require massive new storage capabilities at acceptable cost by the early to mid-2020s. A roadmap in this regard, till now however, appears to have not been completed, and despite these facts, the Indian government has repeatedly emphasized its RE goals as the core of its energy policy. This insistence remains despite interesting growing evidence about India not needing to meet its RE targets to achieve its goals under the Paris climate agreement, leading to attracting a fair share of attention from the opposition political parties.The Indian central government however believes RE to be a suitable vehicle for building new industries and rewiring investment incentives in the power grid, a belief partially resulted from the positive experience of Prime Minister Narendra Modi achievement when he was Chief Minister of Gujarat, a pro-business state in India that has become an inspiration for private sector-led shifts to renewable and cleaner power, along with an improved electricity grid.
All this while, Coal remains the dominant supply source and RE’s impact on coal in India has been relatively limited, with economists remarking that this is likely to grow at approximately 4% per year in terms of generation through 2030, a growth rate being high in absolute terms, but lower than the past. Within this context, the central Indian government must be lauded for their goal with regard to RE, at the same time however, they might need to be more proactive in terms of creating the requisite political, policy, and regulatory conditions that allow those goals to become reality.
It has to be noted that some of the Indian States have not openly agreed with the central government’s plan of action, and have pointed out that high RE growth will in all likelihood mean high costs, especially when factoring in the impact on the rest of the grid and also the post-pandemic scenario. Similarly, some of the states might have the central government’s RE ambitions but still have not agreed as yet, on Renewable Purchase Obligations (RPO) that can add up to the national targets.
Brookings India’s detailed analysis on Indian coal demand through 2030 suggested a total coal growth inclusive of industrial use of approximately 3.8% of generation capacity, forcing some scientists to point out that the question today is not one of sufficient energy, but of energy available at the right time and place with the right characteristics, such as ramping and predictability, remarking RE as sometimes being disruptive in a power system designed for large, centralized supply.
Consequently, as in Europe, China and Canada, it has been observed that in the future equation, growing RE’s share of generation will require institutional and regulatory actions to reduce the cost of grid integration, with new market incentives also needed to create the right types of supply based on location, seasonal or daily availability, and ramping capabilities, with particular importance needed to focus on the DISCOMs, a weak link in the existing system and quite vulnerable to disruption. Additionally, it might be mentioned here that the highest paying commercial and industrial customers normally are among the biggest investors in rooftop solar resources. Like in Bangladesh, where there’s a growing focus on them. A bigger push toward RE by these important customers could accelerate the downward spiral of DISCOMs finances.
India’s transition to cleaner energy is being watched keenly by the whole world, many of whom are ready to support the growth of RE, particularly at the expense of coal. However, one needs to analyze India’s RE ambitions not in terms of specific targets and numbers, but broader trends. As in Canada and the Republic of Korea, holistic policies will help to accelerate the transition.
It needs to be pointed out here that the share of hydropower, prized for its flexibility, has decreased in India due to social concerns over land. India has approximately 25 GW of gas-fired capacity, but the plant load factor (PLF) for these facilities is very low due to high gas prices. Government policies have also continued to prioritize gas as a feedstock, especially for fertilizer production, and the economic value of gas is higher in non-power uses. Most gas capacity is base-load oriented combined cycle technology, which is not ideal for fast-ramping or fast-starting generation. Overall, lack of such nimble generation to balance RE is a substantial challenge.
