India is set to witness a boom in the electricity sector. As things stand, India ranks third globally in both electricity production and consumption. However, our per-capita consumption is a shade over 1,200 kWh (kilowatt-hours), which is a third of the global average, a quarter of China’s and a tenth of that of the US. Moreover, India’s population is projected to increase by 270 million by 2040. And that will lead to a steep rise in economic activity as all these people will need homes, vehicles and several consumer goods. Our electricity consumption is likely to grow with rising economic activity, as studies show a strong historical correlation between the two.
The International Energy Agency estimates that to feed this demand, India will need to add a power system that is equal to the size of the European Union’s over the next 20 years. And this will need to be done while ensuring India meets its Nationally Determined Contribution (NDC) commitment—the long-term goals at the heart of the Paris Agreement on climate change—to reduce the carbon intensity of its GDP by 33-35 per cent compared with 2005 levels.
This is where renewable energy will play an important role as it can power economies while producing zero emissions. Furthermore, renewable energy, or utility-scale solar and wind specifically, is now the most affordable source of electricity due to technological advancements, rising economies of scale and a decline in capital expenditure. Thus, economic logic also reinforces the case to meet the growing electricity demand with renewable energy.
Taking cognizance of this, the Indian government has set an ambitious target of reaching 450 gigawatts (GW) of renewable energy capacity by 2030. This means boosting India’s current installed capacity of 96 GW by fivefold over the rest of this decade. For context, adding the remaining roughly 350 GW of renewable energy capacity to the grid is equivalent to what the Indian power sector has managed in its entire history. This leaves little scope to add any new thermal capacity to meet the next leg of growth in electricity demand.
The government is also taking myriad supportive steps to ensure renewable energy grows in line with its targets. Over the last decade, India’s renewable energy capacity has already grown sixfold, from 16 GW in 2010 to 96 GW currently. This incredible growth story was enabled by incentives such as feed-in-tariffs (promising producers tariffs above market-fixed rates), accelerated depreciation, GBI (generation-based incentive), RPOs (renewable purchase obligations), waiving interstate transmission charges as well as income tax breaks.
Going forward, the government is also striving to address many of the challenges that renewable energy producers face. Take, for instance, the “must-run” status afforded to producers, which implies that the power they transmit must not be curtailed for any commercial reason. This was introduced to solve the problem of artificially curtailing renewable energy because the current tariff mechanism—thermal power producers are paid fixed rates even if distribution companies (discoms) don’t buy the contracted electricity—does not support curtailing thermal energy.
Another problem that the government is attempting to solve is the poor health of the state discoms, which often results in delayed payments to electricity suppliers. The lacklustre state of discoms is predominantly due to the absence of competition in the sector, low collections from government departments, inefficient tariff-setting processes, expensive thermal power purchase agreements (PPAs) and the lack of technology and infrastructure development.
To improve the viability of discoms, the government has announced a reform-based, result-linked programme with an outlay of Rs 3.03 lakh crore (about $41 billion) over the next five years. This is expected to assist discoms in building infrastructure such as prepaid smart meters and feeder separation as well as upgrading systems tied to financial improvements. Additionally, the government has announced a liquidity infusion package of Rs 1.35 lakh crore (about $18 billion) to help discoms clear their dues. Furthermore, the government is working on privatising discoms in eight Union Territories in a bid to introduce competition in the sector. The auctions for the discoms in Chandigarh and Daman & Diu have concluded, indicating this effort is on track.
The government has also been endorsing manufacturing solar energy equipment domestically, under its broader goal of an “Atmanirbhar Bharat” (self-reliant India). Several policies such as the production-linked incentive (PLI) scheme, basic customs duty (BCD) and approved list of module manufacturers (ALMM) have been introduced to incentivise the sector. These are essential for the growth of a sector that is heavily dependent on imports. Since 2015, India has imported, on average, Rs 17,600 crore ($2.6 billion) worth of solar cells and modules each year.
Entering the field of cell and module manufacturing with fully integrated facilities will also give solar power developers an edge when dealing with currency fluctuations and supply-chain disruptions. Due to the geopolitical situation, energy security has become paramount. That is why we need to reduce our dependence on importing critical equipment to build renewable energy infrastructure, especially as they replace fossil fuels. Our domestic market is large enough to support manufacturing within the country and, as we grow in scale, we should be able to produce components at globally competitive prices. Domestic manufacturing will also create a component ecosystem, save the country trillions in foreign exchange and add a significant number of new jobs.
Renewable energy players also face the issue of intermittency. The consensus is that battery storage is the leading solution to this issue. Battery costs have been falling consistently over the last few years. A lithium-ion battery pack used to cost $1,200 per kWh in 2010. Today it costs around $120 and Bloomberg estimates that the price will fall by 8 per cent every year to reach $60 by 2030. Batteries, therefore, are becoming an economically viable solution to integrate renewable energy into the grid. The Indian government recently introduced the landmark “round-the-clock auction” to encourage coupling renewable energy with other sources and with battery storage to offer round-the-clock supply. Such innovative auctions will be instrumental to ensure that renewable energy sources can provide uninterrupted power to the grid.
The use of green hydrogen is also likely to increase as we go forward. While renewable energy sources can provide electricity to power homes and electric cars, green hydrogen could be an ideal power source for hard-to-abate sectors such as cement, steel and transportation. Better yet, using renewable energy to create hydrogen can also help solve the problem of intermittency. The government recognises this as well and has proposed to launch a National Hydrogen Mission to generate hydrogen from green power sources.
We also need to invest in the necessary technological infrastructure to support the move towards round-the-clock renewable energy supply, better grid and storage capacity as well as generating green hydrogen and newer forms of wind and solar energy (such as floating and offshore farms). This will include investments in R&D, evacuation infrastructure for moving captured carbon emissions and systems to carry hydrogen between ports and industrial zones. This sector is also likely to require skilled labour, opening job opportunities across multiple levels. The government’s pledge to scale up renewables to meet its NDC goals as per the Paris Agreement is expected to boost India’s net employment (measured in full-time employees) by an additional 30 per cent by 2030, according to a report by the CEEW, a policy research institute and think tank.
The future of renewable energy in India looks very bright. We are currently at an exciting juncture in the evolution of the sector. The steps India takes now have the potential to shape the global narrative on energy transition and place it among the front-runners on the global economic map. Our sheer size and expected growth place us in a unique position to pioneer a new blueprint for a less carbon-intensive development path that can be followed by other developing countries.
I am extremely optimistic about our future and eager to see our story unfold..
Source: Business Today