Green economy to the economy's rescue

Can the green economy save India’s economy? For the first time since Q4 of 2012-13, real GDP growth might slip below 5 per cent for Q2 of 2019-20. Growth can stem from government spending, infrastructure investment or consumer expenditure. Government spending is constrained by fiscal responsibility rules. The economy needs $1.4 trillion as infrastructure investment to reach $5 trillion by 2024. But outstanding payments for infrastructure and lack of dedicated financing facilities make it harder to sustain investments. Consumer spending has dropped 6.5 per cent between Q1 and Q2 of 2019-20.

Against this macroeconomic malaise, anything “green” is instinctively presumed to be an added cost. Many believed this when a decade ago the first generation of green economy policies were put into effect. Since then, however, India has scored successes in industrial energy efficiency, lowered costs of super-efficient appliances, expanded green buildings, enacted fossil fuel subsidy reforms, pushed big on renewables (especially since 2015), lowered tariffs to record levels, and demonstrated international leadership. 

Now momentum has slowed — for the economy and the green economy. In September, the prime minister announced in New York an aim for renewable energy capacity of 450 gigawatts (GW). The original goal of 175 GW by 2022 flounders due to delays in contracting or threats to cancel power purchase agreements. While impressive, mere target-setting no longer suffices to excite investors. 

India’s economy needs a renewed boost of structural reforms, just when a second generation of green policies is also needed. For the two to go together, certain conditions are necessary: Untapped growth markets; reduced operating expenses to compensate for upfront capital investment; indigenisation to ensure net value addition; and social and equity considerations. I outline four levers for the decade ahead. 

First, distributed energy is largely an untapped opportunity. Installed rooftop solar photovoltaic capacity is about 4.3 GW, far lower than the 40 GW target or much higher overall potential. Commercial and industrial consumers have the bulk of installations and five states (Maharashtra, Rajasthan, Tamil Nadu, Gujarat and Karnataka) make up 45 per cent of capacity. There is much scope for expanding to residential consumers and to other states. Rooftop renewables reduce transmission and distribution losses, save land, and have low opex. But residential consumers have struggled to get loans. CEEW has developed new business models to align power distribution companies with consumers and facilitate on-bill financing via savings in power costs. And rooftop projects create seven times more jobs per megawatt-hour than utility-scale solar. 

Second, the mobility transition offers new possibilities. According to the Rocky Mountain Institute and NITI Aayog, vehicular stock in India will grow 3.4-3.8 times during 2015-30 and electric vehicles (EVs) could dominate three-wheelers and commercial cars/jeeps by 2030. CEEW researchers estimate that if EVs hit cost parity with internal combustion engine vehicles by 2030, India would have 27 million EV four-wheelers by then. Our studies indicate that CO2 emissions per electric car would be 2 per cent to 16 per cent lower in 2030 (depending on renewable energy penetration). Another CEEW survey found that nearly 37 per cent of respondents used buses, trains (suburban or metro) or other forms of public transport. Most walked 1.4 kilometres, on average, to access public transport. Quality of infrastructure and frequency of service are leading barriers. There is potential to simultaneously shift to more equitable and more sustainable mobility through the EV transition. 

Distributed generation and sustainable mobility solutions would make more sense if we paid heed to the need for indigenisation. India’s automotive sector could have 5.7 per cent higher value addition with 30 per cent EV sales in 2030 — as long as both the powertrain and battery pack are largely (90 per cent) manufactured at home. Without domestic manufacturing, the sector’s value-add drops by 8 per cent compared to business-as-usual.

Remarkable progress in battery technologies presents a timely chance. Lithium-ion battery prices have dropped 85 per cent since 2010 but Korean, Chinese and Japanese manufacturers dominate the market. Meanwhile, in India, ISRO, Indian Oil and Tata Chemicals are among the innovators and manufacturers experimenting with new battery tech (low-cost Li-ion, or ultra-light metal batteries) and seeking joint ventures to increase production. Further, stationary storage applications could rise from 24 gigawatt-hour in 2018 to 270-365 GWh in 2025, offering another opportunity to develop a manufacturing base. 

Integration of clean tech applications is the fourth lever. Significant energy demand will come not only for distributed infrastructure and electric transportation but also cooling needs. By 2038, refrigeration and air conditioning in residential, mobile and commercial settings will increase eight-fold. Synergies across these sectors could attract far more investment. When the sun shines, residential energy demand might be low, so the load could be balanced with EV charging or for cooling applications in retail establishments. Such applications reduce payback periods for capital investment. 

In rural areas, efficient motors powered by distributed energy could energise income-generating enterprises. The market is estimated at $53 billion. Distributed energy firms have already created more than 300,000 direct (formal and informal) jobs. Solar-based irrigation, another growing sector, can become sustainable if systems were integrated, so that surplus power could be fed to other rural consumers or into the grid. This would give farmers additional income and reduce over-abstraction of groundwater. 

Distributed energy, sustainability mobility, indigenisation (particularly battery manufacturing), and integrating clean tech applications are new drivers for a green economy. Each lever attracts additional investment, reduces opex and payback periods, contributes to net value addition, increases consumer spending, and creates additional jobs. Rather than a burden, green reforms 2.0 could be just the rescue that the economy needs. 

 The writer is CEO, Council on Energy, Environment and Water (https://bsmedia.business-standard.comceew.in). Follow @GhoshArunabha@CEEWIndia