Mumbai: Experts say making the renewable energy (RE) sector more attractive for private investment through policy reform, reduction in duties and taxes, upgrading India's existing electricity grid infrastructure and an overhaul of power distribution companies (discoms) will help India achieve its goals of having clean energy as the source of 50% of its installed electricity capacity by 2030.

It has been a year since India announced its new climate pledges at the 26th Conference of the Parties (COP26) climate meet in Glasgow. As on November 11, 2022, India's non-fossil fuel electricity capacity stands at 171 GW (42%) of a total installed capacity of 407 GW. To achieve its pledge, India would have to increase current non-fossil capacity by 138.5% and reach 408 GW or 50% of the estimated electricity demand (817 GW) by 2030.

India's more ambitious energy pledge, to have 500 GW of installed capacity from non-fossil fuels by 2030 as announced by Prime Minister Narendra Modi in Glasgow last year, did not make it to the official climate pledges sanctioned by the country's Union cabinet.

Currently, the 27th global climate conference, COP27, is ongoing, and today, November 15 is Energy Day. We look at the big reforms that will help India achieve its renewable energy goals faster.

Growth in renewable energy capacity

The world uses two kinds of sources for almost all its energy needs: fossil fuels and non-fossil fuels [other sources are wood, dung and gaseous fuels]. Fossil fuel refers to coal, lignite, gas and diesel. Of these, coal is one of the biggest contributors to carbon emissions and therefore, to global warming. Non-fossil fuels include solar, wind, small hydropower, waste to energy, large hydropower and nuclear energy.

There is global consensus on the need to phase down the use of fossil fuels, particularly coal, and move to clean energy sources urgently to limit global warming.

India's non fossil-fuel capacity has grown manifold over the last five years. Though increased electricity demand due to a post-pandemic revival of the economy meant that India had to once again turn to coal, its non-fossil fuels' installed capacity has been growing faster than fossil fuels for at least five years. Yet, RE capacity is still short of the government's own targets. For example, India wanted to achieve 175 GW RE capacity (excluding large hydropower and nuclear) by 2022 but this capacity is currently at 118 GW.

To achieve its green energy goal of 408 GW (including large hydropower)--this is almost as much as India's current total installed capacity (fossil and non-fossil combined)--India will have to add around 30 GW each year until 2030. In comparison it has added an average installed capacity of 11.25 GW from non-fossil sources since 2018.

The Central Electricity Authority is optimistic about hitting the 2030 target and, in fact, in 2020, projected that in the year 2029-30, non-fossil fuels will make up about 64% of installed capacity and around 44.7% of generation.

India's climate pledge is based on installed capacity and not actual generation.

Installed electricity capacity refers to what an entity is capable of producing. However, the actual generation, or what that entity achieves, may differ drastically. At the moment, India's installed capacity of fossil fuel sources (coal, lignite, gas and diesel) stands at 57.9%, and of non-fossil fuels (solar, wind, hydro, nuclear) stands at 42.1%. In actual generation, coal still dominates India's power generation, while RE is at a low 26%.

Reducing custom duties to hasten solar sector growth

Of India's solar energy target of 100 GW by 2022, it has achieved 60%, 60 GW.

The Standing Committee on Energy had, in July this year, expressed its disapproval at the rate at which RE projects are being developed in India. India has a target to install 40 GW of solar power by setting up over 50 solar parks and ultra-mega solar power projects by 2022. Against this target, 39 solar parks of aggregate capacity of 22 GW have been approved to be set up in 17 states. Of these approved ones, infrastructure is almost fully developed in eight, and another four solar parks are partially developed.

"The committee observed that the remaining 11 solar parks of aggregate capacity of 17,121 MW [17 GW] have not even got the approval of the ministry," the Standing Committee report noted. "The major challenge is the acquisition of land that is dependent upon cooperation from the state governments and other stakeholders. But it is inexplicable as to why 11 solar parks are yet to get approval even after more than three years. The exercise of setting targets is rendered meaningless…"

In addition, by December 2021, India had added only 27% of its targeted capacity for rooftop solar in the residential sector; only about 21% of 359,000 standalone solar pumps that were announced in 2019 were installed as part of the ambitious PM-KUSUM scheme despite a 2022 target.

One of the ways of incentivising solar, experts say, is through reduction in imports and duties.

India hiked the GST rate on renewable energy devices and parts from 5% to 12% from October 2021, and imposed a Basic Customs Duty (BCD) of 40% on solar equipment effective April 1, 2022.

While the government's intention behind imposing a BCD of 40% on solar equipment was to reduce dependence on imports and give impetus to domestic manufacturing, experts have pointed out that India's domestic manufacturing capability is still short of its growing demand for this equipment.

"High reliance on imports creates uncertainty of prices and timely availability of modules," noted the Standing Committee's report from February 2022 in relation to BCD. "[But] owing to inadequate domestic capacity, reliance on expensive imports and price variation may affect the viability of current projects under execution."

Changing the bidding system for wind energy could tap India's wind potential

India has a gross wind power potential of at least 302 GW, but so far has installed capacity of only 39 GW, nearly 65% of its 2022 target of 60 GW. This includes its vast offshore wind potential, which lies untapped.

India is mulling disbanding the reverse e-auctions for wind power that were intended to boost India's wind energy generation capability, but instead ended up slowing the sector down.

"In reverse e-auctions for wind energy, there was a huge gap in the auction volumes and execution because the economics did not work for the developer. The so-called discovered prices (per MW of power) were unsustainable," an official of the Indian Wind Power Association, who did not wish to be named, told IndiaSpend.

In other words, bidding low wins you contracts, but that same low bid ensures that the operation becomes unviable. The same policy also wiped out the sub-50 MW category, the IWPA official added.

Better grid infrastructure key to handling growing renewable energy capacity

The weak transmission grid of the country is a challenge to our RE goals especially when projects are set up in remote areas and away from large cities and consumption centres. For example, ambitious plans to build a large solar project of 7.5 GW in Leh were cancelled in 2021 citing weak transmission infrastructure. The government now aims to build that transmission infrastructure in the region within five years. The plan has been revised to 10 GW and the government is working with the Ladakh administration to implement it.

Grid infrastructure to support renewable energy distribution was also noted as a focus area in an analysis by BloombergNEF's (BNEF) report released in June 2022.

"The main factors driving grid investments are increase in generation capacity, replacement of ageing infrastructure and making grids smarter and reliable by adding sensors and software at nodes and end points," stated the report, which estimates India needs $175 billion from 2020 to 2029 towards its transmission and distribution grid to support new capacity additions and reinforcements of the existing network.

Subsidies for battery storage tech, grid infra

One way the government can give a boost to any sector is through subsidies. RE subsidies peaked in 2017, and have fallen every year until 2021, per a May 2022 assessment by the International Institute for Sustainable Development (IISD) and the Council on Energy, Environment and Water (CEEW), New Delhi.

By 2021, RE subsidies had reduced by 59% since 2017, while subsidies on fossil fuels remained virtually the same, which means that fossil fuel subsidies were nine times higher than for RE, the assessment said.

"The grid-scale solar photovoltaic and wind have achieved cost parity with coal-based generation," said Prateek Aggarwal, Programme Lead at CEEW and author of the assessment. "However, to manage the variable nature of RE power [since solar and wind energy generation varies based on time of the day and season], more subsidy support will be needed to scale up battery storage technology and to strengthen infrastructure for transmission and distribution."

DISCOMs need to change

In a welcome decision, India has now upgraded its targets for distribution companies (discoms) to purchase renewable energy. The government fixes a minimum percentage of the total consumption of electricity to be sourced from RE sources, taking into account availability of these resources and its impact on retail tariffs. The total renewable purchase obligation (RPO)--the target--for states for the year 2022-23 has been increased to 24.6%, from 21% in 2021-22.

This target will increase progressively, and by the year 2030, states will have to purchase 43.33% RE as part of these obligations. The Electricity Amendment Bill, 2002, introduced in the Lok Sabha on August 8, 2022 intends to amend the Electricity Act 2003 to introduce penal provisions on discoms that do not fulfil their RPOs. The Bill has been referred to the standing committee.

However, given the lack of capacity, only a few renewable energy resource-rich states have been able to meet the old targets every year while the rest are lagging behind, which leads to the question of how those states will catch up.

IndiaSpend reached out to MNRE on the concerns over new RPO targets, especially when states and discoms have struggled to meet earlier targets, and for comment on the other reforms suggested in this story. IndiaSpend also reached out to the CEA. This story will be updated when we get a response.

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