India continues to raise its ambition for renewable energy

Urmi A Goswami writes in The Economic Times about the latest developments in India’s “dazzling” renewable energy ambition. This is certainly a good example for others to follow.

 

India’s renewable energy targets catch the attention of global investors, still need ground work

“India is an interesting and inspiring example. The ambition is amazing,” says Adnan Amin, director general, International Renewable Energy Agency (IRENA), the Abu Dhabi-based intergovernmental body promoting renewable energy.

It is difficult not be dazzled by India’s renewable energy ambition. In 2014, when Prime Minister Narendra Modi announced the 100gw target, India had 3gw of solar energy and 33.8gw of renewable energy capacity. The government did not stop there. In January 2015, it upped the 2022 target to 175gw of renewable energy (RE) capacity, including wind and biomass.

Then in October 2015, India pledged — as part of the Paris Agreement, the UN-sponsored global effort to tackle climate change — that by 2030, non-fossil fuels would account for 40% of the total energy generation capacity. This, according to officials involved in drawing up the plan, translates to almost 300gw of RE capacity. IRENA estimates that by 2030, India’s solar photovoltaic (PV) deployment would be about 209gw.

Can India pull it off? While the targets appear daunting, the increased pace of capacity addition shows the government’s serious intent. India’s RE capacity has gone from 33.8gw to 43gw, overtaking hydroelectric capacity. “Unlike before, there is political support for the renewable energy programme at the highest level — the Prime Minister’s Office is directly supporting it,” said a senior energy sector official.

Still, India will need to step up the pace—something in the neighbourhood of an average of 20gw+ annually. Translating the government’s “bold, ambitious, ambitious” RE targets does present some challenges. Accessing affordable finance, the poor financial health of state electricity distribution companies and technological challenges — be it grid stability or storage — are at the top of the list.

Energy minister Piyush Goyal is sure that the 175gw target will be met. “India is moving rapidly towards realising the clean energy vision of Prime Minister Narendra Modi,” Goyal said earlier this year on the micro-blogging site Twitter. Bolstered by the progress, in May, Goyal said that he was considering an upward revision for 2022 solar target.

Goyal has cause to be optimistic. Renewable energy tariffs have hit record lows—an all-time low price of Rs 4.34/unit was achieved for solar energy capacity in January. Goyal says that solar tariffs are becoming competitive in relation to thermal power costs. Increased interest in India is another factor underlying Goyal’s optimism.

REN21, the global renewable energy multi-stakeholder network, in its 2016 Global Status Report listed India among the top five countries for investment in renewable power and fuels in 2015, behind China, the US, Japan and the UK. Consulting firm KPMG estimated in the November 2015 edition of The Rising Sun that in energy terms the market penetration of solar power could be 5.7% (54gw) in 2020 and 12.5% (166gw) in 2025.” Such optimism is not sufficient to achieve the goals.

“To make good on these targets, we need to surmount the twin challenge of finance and technology,” says Ajay Mathur, director general of the Delhi-based think tank Teri, who, till the beginning of the year, headed the government’s Bureau of Energy Efficiency.

The total investment required to make good on the promise of 100gw solar energy capacity is estimated at about Rs 600,000 crore or almost $100 billion. The government’s outlay for the 12th Plan period is Rs 13,690 crore, barely a fraction of the required investment. A boost of Rs 10,000 crore in the 2016 Budget is a good sign but not enough.

Adding to the problem is the high cost of capital. “The ecosystem of renewable energy in India is still fraught with constraints, in particular with respect to financing,” said an expert group set up by the Niti Aayog.

Financing is available, but the terms are unattractive— high cost of debt, short-tenor loans, variable interest rates, adding up to as much as 30% of the cost. Policies to facilitate finance resulting in scaling up private sector investment are required. The risk of extreme and unexpected currency devaluation needs to be addressed to facilitate foreign investment.

“Currency hedging in India is expensive, making foreign financing as expensive as domestic,” explains Gireesh Shrimali of the Climate Policy Initiative. “I think that the whole issue of cost of finance and especially currency hedging is a big issue,” said Amin. The government has been considering innovative solutions but these are works in progress.

But, resolving the finance piece alone would not be enough. “That brings us to the technological challenge, which would be about grid integration technology, including storage,” said Mathur.

Amin describes the technical challenge as a “big barrier”. Niti Aayog concurs: “It is apparent that the attainment of the goal of 175gw of renewable energy by 2022 is no longer a financial challenge, but a technical one.”

Can the transmission system handle renewable energy, which, given the nature of the source, is periodic — unlike coal, gas or hydro? “India’s grid is outdated,” says Nitin Pandit, CEO of WRI India, the India centre of the Washington-based think tank World Resources Institute. “The inability to evacuate power from renewable energy sources and the lack of sophisticated operational mechanisms to accommodate intermittency are substantial stumbling blocks which make renewable energy integration on a large scale very difficult,” explains Pandit.

Members of the Central Electricity Regulatory Authority, the country’s apex power regulator, say the focus must shift to the grid, and the manner in which intermittent power like solar and wind energy are introduced. Sources say that the regulator is working on rules for ancilliary services, which will allow thermal and hydro stations to step in when renewable energy is not available.

The Niti Aayog estimates that the cost of upgrading the interstate and intra-state transmission network to ease the injection of renewable power into the system is little more than Rs 120,000 crore. The government has set out public investment of Rs 38,000 crore for transmission in the green energy corridor.

Srinivas Krishnaswamy, CEO of Vasudha Foundation, a Delhi-based not-for-profit working on renewable energy, says that the central government needs “some out-of-the-box thinking and innovative plans to push states to contribute to a smart and flexible grid.”

Buy-in from the states is crucial. The government and the electricity regulator have taken some steps to encourage state participation in the renewable energy programme. Discoms are now mandated to source 8% of electricity from RE sources, interstate transmission charges have been waived for solar and wind. But Pandit points to the fact that big potential buyers, state distribution companies (discoms), “continue to be a challenge because they are broke.” Foreign investors also cite the financial ill-health of discoms as a concern. The government says that the Ujwal Discom Assurance Yojana (UDAY), a turnaround scheme announced in November, will help distribution companies become financially healthier.

As the government focuses on surmounting the financial and technical challenges, KPMG points to another factor that could impact the rise of solar energy: a disruption in the manufacturing ecosystem on account of the slowing Chinese economy. This could be an opportunity, but one that needs working on. “Industrial competitiveness in manufacturing needs improvement because currently most Indian manufacturers are still below competitiveness with, for example, the Chinese manufacturers. There is some work to be done there,” the IRENA boss points out.

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