The Road to Decarbonizing India’s Power Sector

The rapid rise of technology interventions across the computing and telecommunications space has digitised our world and transformed our personal and professional lives significantly. We are now witnessing a revolution in global energy systems built on the foundation of fossil fuels similar to the Industrial Revolution.

The confluence of rising energy needs with a need for cleaner and cheaper energy resources to mitigate the consequences of a warming planet is enabling a rapid growth for the renewable energy sector worldwide. In this context, India stands at a critical juncture as it lays the groundwork for one of the world’s largest power systems.

India has largely built the infrastructure to provide electricity access to every citizen over the last seventy years. The country has done a commendable job of meeting its electricity demand with a fleet of robust power generation resources. Fossil fuel resources have been a critical contributor to this success story accounting for more than 75 percent of India’s power needs.

But due to a lack of indigenous fossil fuel resources, the country’s energy systems are heavily dependent on oil and coal imports. This not only contributes to India’s rising trade deficit but is also responsible for a growing subsidy burden for the Centre accounting for more than US$10 billion in FY 2019 alone. For a country with an energy demand that is projected to double in the next 20 years, with electricity demand potentially tripling as a result of increased appliance ownership and cooling needs, there is an urgent need to migrate the current energy systems towards indigenous and sustainable resources.

In this context, India has set the world’s boldest ambition for renewable energy addition—175 GW of renewables by 2022. If India realises this ambition, it will account for nearly 20 percent of renewable deployments worldwide and fossil fuels will account for just one-third of the country’s power generation capacity before 2030. The rapid decarbonizing of the power sector will also accelerate the country’s contribution in overachieving its “2o C compatible” rated Paris Agreement climate action targets.

India’s efforts towards this ambition have been successful so far; deployment of renewables has doubled over the last five years, already representing about 38 percent of the power generation capacity of the country. But the onset of recent events like policy uncertainty, tariff glitches, and the collapse in energy demand due to COVID-19 could result in the country falling short of this goal by almost 40 percent.

The recent push by the Centre towards “Atmanirbhar Bharat” (self-reliant India) shines light on maximizing the role of indigenous resources to meet the country’s growing energy needs. India should follow a three-pronged approach to realize this ambition.

Emphasise Policy Review and Compliance: There is a serious need for monitoring policy adoption, reviewing policy compliance periodically, and reworking policies as needed. For example, well-intentioned policies like Renewable Purchase Obligations (RPOs) have seen only four states meet or exceed their targets as of FY 2019–20. But the recent electricity act amendments mandated states to meet RPO targets or face penalties. This is a great example of reviewing and reworking policies that provide states an excellent opportunity to meet their RPO targets.

Prioritize Integrated Resource Planning: India’s power sector needs to maximize the benefits of renewables, which have rapidly become the cheapest source of electricity generation today. But to ensure a robust power grid, every state needs to design an Integrated Resource Plan with a long-term vision to provide clean and affordable electricity with indigenous resources for all consumers coupled with an action plan to realize this vision.

Strengthen and Expand Wholesale Power Markets: Most power distribution companies procure expensive power via long term power purchase agreements which minimizes their ability to procure cheaper wholesale power from the power exchange. Recent initiatives like Real Time Market and green term-ahead markets are steps in the right direction but migrating bilateral power contracts on the exchange will be a true game-changer. Activating power markets could revive much needed investments in the renewable energy sector and result in a more cost-effective and balanced power grid across the country.

By following this three-pronged approach, India can essentially create a blueprint of a carbon-free energy system for other nations at a similar stage of development to follow. In a world that is warming quickly, India has the opportunity to design energy systems that meet the needs of all citizens within an ambitious emissions budget that can contribute towards curbing global warming below 1.5 degree Celsius.