Learning the wrong lessons from the coal experience for renewable energy

Why India's weak budget support for RE could be hurting now

What is common to the development path of shale oil, solar power, nuclear fuel and natural gas? “All of them were put on the path of growth by government research support, instead of depending on market forces,” points out Prof Michael Grubb. 

New energy technology needs disproportionate government support before they are up and running, says Grubb, Research Director and Professor of Energy and Climate Change at University College London, Institute of Sustainable Resources and Energy Institute. He made the comments in Delhi recently, in a lecture on Energy Revolution. India would seem to be an outlier in that respect, as policy-making is still scarred by the impact of state support provided to coal for two decades. It is unwilling to provide state support to renewables ever since. 

Yet Grubb’s insights make sense in the context of the scare that has hit the Indian renewable sector in 2019. The new government of Andhra Pradesh under Y S Jaganmohan Reddy has threatened to unstitch the power purchase agreements solar power companies had sewn up with the state under the earlier government under N Chandrababu Naidu. Other states are watching to see if they could profit from the rewrite too. The principal reason why states jumped to solar was the promise of low prices offered by generation companies. The low prices would keep the bills of state owned electricity distribution companies (discoms) low as well. But to ensure these low prices, the generation companies have cut down all spending on research and development going in for the cheapest material available in the market to remain competitive. The states were happy as none was willing provide any research support to renewables.

Unlike most economies India has approached renewable energy, especially solar power through the use of market led incentives. This has also worked till now saving the government an expensive subsidy bill. Since March 2014 till the end of December 2018, the installation rate of renewable energy has risen by a cumulative growth rate of almost 20 per cent in four years. From 35.51 Gw to 73.35 Gw. Compare this to countries like Germany which have spent about $80 billion to migrate to renewable energy since 2000. India’s support for renewables is less than $1 billion a year (International Institute for Sustainable Development). Over a ten year period it would be less than $5 billion since the sum has inched close to the billion figure only in the past couple of years. The Geneva based institution which has been closely monitoring subsidies as a way to change pricing of energy, estimates that even this level of support for solar could come down as “the largest subsidy for renewables (made through) viability gap funding is likely to decline in line with increasingly competitive pricing for renewables”.

India, has stayed off providing support to energy generation projects because of the concerns of offering coal the generous policy support it was showered with in the past decades. As a result there is inefficiency in the energy policy, but no accusations of graft. The support made available to the private sector coal miners included preferential access to rail lines and out of turn power purchase agreements to sell electricity from their plants, in the period 1993 to 2008. All of those were scratched by the Supreme Court judgment of 2014. Coincidentally it was also the year when renewables begun to come into favour. But scarred by the experience of coal that wrecked political havoc besides court cases that are still running, both the union and the state governments have stayed away from offering any major fiscal support to the energy sector, ever since. As of now, IISD estimates that the annual government budget support for coal is just about Rs 16,000 crore. Of the total Rs 1,52,000 crore of support for energy, more than half is paid to mostly state run electricity distribution companies to partially pay for the dues of these companies. Their unpaid dues to the states have crossed Rs 72,000 crore. 

India has instead asked renewable energy companies to bid for electricity projects on the basis of offering competitive prices. It offers only a thin line of viability gap funding from the state budget and only to some of them. One of those is renewable power obligations (RPO) i.e. discoms have to buy a certain percentage of renewables into their grid. For 2019-20, it is 17.5 per cent, expected to reach 21 per cent by 2021-22. In these too discoms are slipping up as their is weak penalty for missing the RPO targets. As a result, India has not been able to come with a cost competitive design for solar cells or for storage battery or in terms of raising the efficiency of the grid. Its spending on International Solar Alliance is just $2 million per year. Once the states begun to get leery about the bids there is no additional line of support to hold up the renewable energy revolution. Nandita Baruah, India country representative of Asia Foundation which works on energy and water issues says “innovation in both financing and the technological models are essential to save the renewable energy story in India”.  

The risks are becoming obvious. Rating agency Crisil has written a note this month saying India’s target of adding 175 GW of solar power to its grid by 2022 could fall short by 42 per cent. The ministry of new and renewable energy has promptly issued a statement denying the possibility. Yet there is justifiable concern, as the ministry has postponed its flagship event, Global Renewable Energy Investors' Meet & Expo (Re-Invest) to October, next year. This was to be third annual edition of the event but according to informed sources in the government, investor interest has flagged. 

Grubb would agree. “Market forces and government support are not antithetical”, he commented in his lecture organised as part of Science, Technology and Innovation Policy Forum series in New Delhi. 

Renewable energy: The story so far

Guidelines provided for procurement of solar and wind power through tariff-based competitive bidding process involving reverse e-auction

Waiving of Inter State Transmission Systems charges and losses for inter-state sale of solar and wind power for projects to be commissioned by March 2022

Target of Grid Connected Solar Power Projects from 20,000 Mw by the year 2021-22 to 100,000 Mw by the year 2021-22 under the National Solar Mission

India currently has the fifth highest solar installed capacity in the world

Bidding for entire 100 GW capacity additions expected by March 2020 leaving two years’ time for execution of projects

47 solar parks are being set up in the country