“Please tell us about IEEFA & its role in the Indian Renewable Energy Sector?”
IEEFA is a public interest think tank focussed on the global energy-finance-climate space, looking at the inevitable technology disruption impacting the energy sector, and analyzing how government policies, corporates, and financial markets are interacting in this change. While the Paris Agreement highlights the global imperative to decarbonize to avoid accelerating global warming impacts, IEEFA’s focus is more attuned to the technology and financial trends that are underpinning and accelerating the energy sector shift.
Ultimately the impact of global warming is one driver, but in India the more pressing issues of energy security, excessive exposure to expensive imported fossil fuels, and rising pollution pressures (across air, particulate and water) are combining with the ongoing deflation of renewable energy costs to disrupt the traditionally dominant domain of thermal power generation in the electricity sector.
The convergence of the transport and power sectors is accelerating this disruption, with the development of the electric vehicle set to increasingly disrupt the automotive and transport sectors, in addition to the power sector.
“As per the IEEFA report “Flexing India’s Energy System Through Market Mechanisms”, India needs a multi-technology approach to renewables integration. What are the recommended ways to achieve this integration?”
It is increasingly accepted that intermittent or variable renewable energy (VRE) is now the low-cost source of new power generation. It is also clear the government of India’s clarity of vision to accelerate this trend to exploit sustainable domestic energy sources is unleashing an unstoppable positive momentum in terms of corporate investment in renewable energy and grid transmission, supported by increasing global capital flows.
One of the biggest obstacles to the integration of every more VRE is the ability of the grid to handle the intermittency of VRE. But we have water 24/7 even though it does not rain all the time. Likewise, commercially proven technologies exist to deliver a reliable 24/7 grid supply of electricity despite an increasing share of VRE.
The first key is to have the right policy framework to provide the right long term pricing signal to incentivize the least cost financial market support for new technologies for peak power generation supply. This is likely to be a range of technologies from pumped hydro storage (PHS), distributed behind the meter and utility-scale centralized batteries (mostly but not limited to lithium-ion), solar thermal with storage, fast ramping gas and coal peaking capacity and demand response management to reduce demand in peak periods.
The second key is for India is to continue to aggressively invest in a smart national grid transmission and distribution network that is progressively expanded to accommodate the likely 4-6% annual electricity demand growth over the coming two decades, particularly as electrification is extended towards 100% of the population, and ii. Into the transportation sector via electric vehicles, firstly in taxis, buses, 2 & 3 wheelers, and then into light trucks and 4-wheel passenger segments, as well as rail.
Developing international grid connectivity (Bhutan, Nepal, Bangladesh, Sri Lanka) could also enhance India’s export of zero-emissions electricity and assist in grid optimization.
“What are the key areas that hold the potential to meet India’s ambitious RE targets of 175 GW”
As the grid modernization and expansion is undertaken, and the price signal is implemented to incentivize balancing/peaking power supply, the biggest constraint for India will be the procurement of suitable land access in a way that doesn’t build up a community backlash along the lines of what has stymied the coal, gas and hydro-electricity sectors before. As coal mining and dams, solar projects are very land-intensive. The good news is that solar can be deployed in inhospitable remote areas of poor land productivity, so long as the grid transmission capacity is enabled at the same time. So the Indian government’s focus on industrial solar parks is providing the scale of centralized solar capacity that India needs, but in locations where the community impact is minimized. Rather than forced acquisition, the leasing of low productivity land from farmers can provide a second sustainable income stream for regional communities.
Solar provides the greatest opportunity for India, be that utility-scale and distributed rooftop solar, as well as solar with thermal storage, floating solar and in specific applications like solar agriculture irrigation pumps. The wind has a significant complementary role, particularly in certain states like Gujarat and Tamil Nadu, but India is somewhat constrained by the seasonality of wind patterns. Modern biomass and biogas have a more limited role but do have some key opportunities as distributed energy sources and in terms of reducing particulate pollution e.g. given the alternative of burning crop stubble. Hydroelectricity is likely to play a supportive role, but large hydro projects have significant adverse community impacts and projects take upwards of a decade to come to fruition. Smaller scale, closed-loop or run-of-river PHS are ways to maximize the value of limited hydro capacity.
“India is set to overachieve its Paris Agreement Targets by 60 percent. What are the key drivers that are playing an important role in fulfilling this ambitious commitment?”
clarity of the Modi-government vision to rapidly deploy domestic renewable energy at increasing scale has provided the focus for both domestic and foreign corporates and financial houses to see the magnitude of opportunity available. IEEFA estimates upwards of US$500bn needs to be invested in renewable energy infrastructure, as well as peaking power capacity (PHS, batteries, gas-peakers) plus upwards of US$200bn in the grid modernization and expansion through to 2030.
The key driver of positive momentum is the fact that the government of India has procured upwards of US$20bn of renewable energy in the last two years consistently at tariffs of less than Rs3/kWh, with zero inflation indexation for 25 years. This has shown the financial markets and corporate capacity to deliver on the Government of India’s target of affordable energy for all at a progressively lower system cost – at least at the wholesale level of electricity supply. Discom reform is still sadly lacking to complete the picture.
There is also the growing issues of policy contradictions and headwinds emerging. India’s Make in India vision led the government to introduce solar module import duties in a way that massively undermined solar installs across India. A lack of clarity and consistency, vacillation and contradictions meant this imposition not only increased the cost of solar tariffs by 10-15%, but it also cost 12-18 months of lost momentum. Similarly, the center-state political games are impeding installations and undermining investor confidence, be that in Gujarat or AP for example.
“What are your views on India’s Energy Transition?”
India’s energy transformation is truly staggering in its vision and clarity. Now the implementation is key. The energy transition is putting India on the centre stage globally on how to embrace the opportunities of ever-lower cost sustainable domestic sourced renewable energy so as to improve the economic opportunities for the country at the same time as starting to address the chronic issues of pollution, reduce reliance on fossil fuel imports and all while concurrently delivering on the Paris Agreement commitment re decarbonisation. India has become a role model for other emerging nations across Asia and Africa. The ability to catalyze US$700 billion of new infrastructure investment by 2030 is a huge carrot for the Modi Government, but so is the increased international competitiveness of India’s domestic industry, and the health benefits to the community. And at a time when the U.S.-China trade war is undermining international co-operation, India is showing that the world’s largest democracy to be a third path forward. A real win-win-win!
“What are your thoughts on the opportunities that the Indian renewable industry presents? Please tell us about the key factors that impact RE financing in the country?”
As discussed above, investor confidence is key. Domestic power sector majors like NTPC, NLCIL, India Railways, Power Grid Corp of India, the Adani Group and Tata Power are all embracing the investment opportunities of this technology disruption. Giving India even more incentive to stay the course, international capital leaders like SoftBank of Japan, ENEL of Italy, Fortum of Finland, CLP of HK, Sembcorp of Singapore and Macquarie Group of Australia are likewise embracing the investment opportunities for sustained economic growth in India. This is leveraging capital market access and building technical capacity and confidence, opening up what has historically been a relatively closed financial market in India.
India needs to avoid excessively competitive behavior in bidding at unsustainably low tariffs that provide an insufficient buffer to cover financial risks. Tariff caps have been introduced of late to most tenders, with a tendency to ignore the different resource qualities and financial risks in different states. A state with a poor discom payment profile will invariably face higher tariffs to reflect the worse risk-return profile. Rather than creating sovereign risk, Chief Ministers need to address the root-cause of this, rather than invalidating legally binding contracts in a way than undermines the rule of law. Failure to do so – as is at risk of happening in AP right now –puts half a trillion capital investments at risk. To me this is penny wise and pound foolish – if certain historic contracts were corruptly awarded, it is entirely right the court system be allowed to cancel onerous contracts, but only after proof of wrongdoing is shown. The cost to both AP and India more generally of doing otherwise is potentially huge.
“Indian Power Ministry has committed to achieving 24x7 Power For All by 2022. What role will renewables play in meeting this target?”
For India to deliver 24x7 Power for All by 2022 would be an excellent entirely worthwhile achievement. VRE will play an increasingly important role in the delivery of this goal by accelerating fast-to-deploy, sustainable and low-cost electricity generation infrastructure investment. Even as capacity is expanded, the advent of VRE in India at zero inflation tariffs of Rs2.40-3.00/kWh means India can plan on improving energy security, reducing the current account deficit, reducing inflationary pressures, underpinning sustainable economic growth and addressing the pollution headwinds involved. Least cost deflationary VRE also provides some scope for the Power Ministry to concurrently address the entirely unsustainable cross-subsidies and unfunded losses of most discoms across India. A move to state government’s budgets reflecting all costs – starts the process of working out how to sustainably grow India’s economy whilst not leaving the poorest parts of the community behind in the dark. A move from subsidizing electricity towards a direct benefits transfer (DBT) might well be the solution to better define and separate the conflicting policy objectives. An efficient, sustainable, financially viable electricity system can’t occur whilst most discoms are continuing to lose huge amounts of money and while transmission and distribution system losses are running at 18-20% annually or more. VRE can create some system deflation in wholesale generation costs to progressively offset more to cost-reflective pricing at the retail level in India.
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