China’s offer has been generally welcomed by independent policy analysts and it puts India in the crosshairs of the global green movement. We will of course point to the big difference in per-capita emissions between the two countries. But that will not be enough. What can we offer that sounds as bold as the Chinese pledge without seriously compromising our development agenda?
I would submit that we can do this if we build our INDC around energy efficiency, accelerated reforestation, and the ambitious 175 GW renewable energy target that the government has announced recently. The institutional and financial means for the first two are in place. But there is some justified scepticism about our financial and institutional capacity to implement renewable energy goal. Our INDC will be credible only if we spell out the measures we intend to take to ensure success.
Renewables have already moved up in the energy priorities of many countries and energy corporations and, at the global level, investment in new capacity for renewables (excluding hydro projects over 60MW) has exceeded investment for new capacity for fossil fuels since 2010. In India they have averaged around $9 billion over the past five years. Recently a consortium involving SoftBank, Bharti Enterprises and Foxconn announced a $20 billion commitment for investing in renewable energy in India.
Renewables are also becoming more cost competitive. An assessment by the Climate Policy Initiative reports current costs and projections to 2022. In round numbers, the cost is Rs 4/kWh for domestic coal and Rs 7/kWh for imported coal, with both numbers projected to rise. As against this wind power is already competitive with a cost around Rs 6/kWh while solar with a current cost of Rs 8/kWh is marginally more expensive now — but, with falling costs, could become competitive by 2019.
But relying on changing investor sentiment and improved price competitiveness is not enough. The transition to renewables is not just a change in the technology of generation. It is a deep and profound change in the structure of the energy system. Implementing it requires large-scale changes in the design of electricity transmission and distribution, in the ownership patterns of energy supplying entities, in energy financing modalities, in restructuring the old economy energy behemoths, in urban and housing design and lot more than that.
The key transition is in the electricity system, which will have to turned inside out. At present our grid system is designed to deliver power from a few generating stations to a large number of consumers. Its management is centralised in a few load dispatch centres. Renewables are a form of distributed generation where, in options like rooftop solar, the consumer can also be a supplier of electricity back into the grid. Moreover even the commercial entities producing solar or wind power can be very dispersed geographically. Load balancing and maintaining stability in a grid where millions of sources are feeding electricity is the challenge. The answer may lie in hundreds of independently managed smart mini grids linked in a regional and national network.
We also have to move to a market-friendly system that allows competition in generation and distribution. We need this because the private sector, which accounts for 87 per cent of current renewables capacity, will become the major investor. A market-friendly system requires that power tariffs be determined by the forces of market demand and supply. The key to this lies in creating competitive wholesale spot and forward markets for power supply where price discovery can take place. At the consumer end competition must involve not just competitive bidding for markets but competition in markets so that users have a choice of suppliers.
One important caveat here: The different energy products are so interlinked that price reform for one is not possible without doing the same for the other products.
To take care of the system dimension we need an independently managed transmission and distribution network and national and regional coordinators who run the spot and forward markets, where price discovery takes place and trades are assessed for system stability and then sealed.
The financing needs of solar, wind and bio-mass energy pose an implementation challenge for three reasons. First, the up-front capital costs of solar and wind power can be significantly higher than for coal and oil-based power. This may pose a challenge if capital markets are myopic and do not take full account of the savings over the years in operating cost. Second, investment in renewables – for instance, in rooftop solar – is smaller in scale and often undertaken by entrepreneurs who do not have a foothold in the traditional energy economy. A financing system for renewables that will reach these new entrepreneurs will probably require a specialised institution that operates like a venture fund, providing not just money but also advisory and technical support. Third, for the next few years they will need fiscal support. This could be as feed-in tariffs that assure a reasonable return, or as viability gap funding in the form of a capital subsidy or interest rate subsidies or accelerated depreciation - perhaps as options that the entrepreneur chooses to fit his circumstances.
We can and should offer at Paris an ambitious programme for reforestation, energy efficiency and renewables. Such a programme will allow us to offer carbon intensity reductions comparable to the Chinese offer and have large co-benefits for energy access, energy security and local air pollution control. But for this offer to be credible, we must also promise a radical reconstruction of our electricity system and improved institutional arrangements for delivering finance and technology for renewables and energy efficiency.
nitin-desai@hotmail.com