“I’d put my money on the sun and solar energy. What a source of power! I hope we don't have to wait until oil and coal run out before we tackle that.” – Thomas A Edison
From Humble Beginnings to Lofty Goals
India’s energy transition
What may have escaped the notice of many is that 125 years ago, the municipal commissioners of Darjeeling decided to set up a small hydroelectric station for the town’s lighting needs using machines imported from Britain. India’s first hydroelectric power station at the foothills of the Arya Tea Estate near Darjeeling (Sidrapong) was commissioned on 10 November 1897, and has since been conferred “cultural heritage” status. Its original capacity was expanded in phases to a total of 1,000 kW in 1916 to meet increased demands. From these humble beginnings, India today is the third largest producer and second largest aggregate consumer of electricity in the world with an installed capacity of 384.11 GW as of June 2021. The wheel of development has come full circle with India now decisively fast-tracking the transition of its energy sources to renewables with a goal of 40% installed capacity (450 GW) in the form of sustainable power. This energy transition will bring with it various externalities which are discussed here.
The earliest legislation in India sought to regulate the use of electricity was the Electricity Act in 1887 (XIII of 1887) to protect the public (safety precautions and protection of consumer interest). The 1887act was repealed and replaced by the Indian Electricity Act, 1903, which dealt with the general principles but did not recognise the bulk sale of electricity and the dual control issue where the local government and the government of India both regulate electricity usage. This led to the enactment of the Indian Electricity Act, 1910.
The supply and use of electricity in India was regulated for nearly a century by the Electricity Act, 1910. To meet the growing demand and reorganise the electricity supply industry, the Electricity Supply Act, 1948 vested the development of the electricity sector with respective states through the creation of State Electricity Boards (SEBs). SEBs were expected to develop networks of transmission lines which, until then, had been quite underdeveloped, and to add generation capacity. As such, the power sector in the states came to be managed by one large, vertically integrated entity that generated, transmitted and distributed power.
The absence of competition led to poor quality services, suboptimal utilisation of resources, and little consideration for consumer interests and populism. The inability of state-owned enterprises to deliver services in an efficient and cost-effective manner led to reassessment of the policies relating to the provision of services, and there was a growing perception that corporatisation of the sectors could improve efficiencies, quality of service and the bottom line. Seeing the trend in some states enacting their reform laws since 1995, the Electricity Regulatory Commissions Act, 1998 was enacted to provide a national blueprint for setting up central/state electricity regulatory commissions to regulate the sector.
To consolidate the laws and provide broader reform, the Electricity Bill, 2001 was prepared to encourage private sector participation in generation, transmission and distribution; to distance the regulatory responsibilities from the government; and to rationalise the provisions of the Indian Electricity Act, 1910, the Electricity (Supply) Act, 1948 and the Electricity Regulatory Commissions Act, 1998. This was premised on nationwide consultations with the states and other stakeholders, and the Electricity Act, 2003 (the "Electricity Act") became law on 10 June 2003. The Electricity Act consolidated the laws relating to generation, transmission, distribution, trading and use of electricity and took measures conducive to the development of the electricity industry, introducing markets and open access, promoting competition and protecting the interests of consumers.
A slew of policies and regulations followed the Electricity Act to facilitate accelerated growth in the sector. The process started with the restructuring of power distribution utilities, with some states corporatising the functional entities for power generation, transmission and distribution. Another important aspect is to provide clean and convenient "lifeline" energy, critical for the well-being of the deprived. Meeting the energy demand remains of fundamental importance to India’s economic growth imperatives and its efforts to raise its level of human development. The National Electricity Policy and the Tariff Policy were issued by the government to steer the evolution of the power sector within the ambit of the Electricity Act. To put things in perspective, 139 GW of installed capacity and 141,000 circuit kilometres of transmission lines were added, and 28 million households were connected in the last six years in India. These achievements have been possible due to the ever-evolving dynamic nature of this sector, with India poised to position itself as a vibrant economy in the coming years.
Sustainable growth and climate change
India is expected to be an engine of global economic growth in the decades to come, despite a slowdown in recent months resulting from the black-swan event of the COVID-19 pandemic. Indeed, the World Bank expects that the economy will rebound, and that annual GDP growth will stabilise at around 6% to 6.5%. Buoyed by its past and projected performance, India has set its sights on becoming a USD5 trillion economy by FY 2024–25.
In keeping with present trends, a concomitant of this growth will be rapid urbanisation, increased industrialisation, a growing population, and greater energy consumption. Coupled with the clear and present threat of climate change, these factors create an imperative that such development does not come at the cost of the environment. In keeping with the laws of the land (including as upheld on numerous occasions by the Supreme Court), India’s development in the coming years will have to be premised on the principle of sustainability.
India is an active player at international forums in the fight against climate change. The country’s Nationally Determined Contributions (NDCs) under the Paris Agreement set targets to reduce the emissions intensity of its economy and increase the share of non-fossil fuels in its power generation capacity, while creating an additional carbon sink by increasing forest and tree cover. Although the emissions intensity of India’s GDP has decreased in line with targeted levels, progress towards a low-carbon electricity supply remains challenging.
India has taken significant steps to improve energy efficiency, and has avoided an additional 15% of annual energy demand and 300 million tonnes of CO2 emissions over the period 2000–18. The major programmes target industry and business, relying on large-scale public procurement of efficient products such as LEDs and the use of tradable energy efficiency certificates. The government’s LED programme has radically pushed down the price of these products in the global market and helped create local manufacturing jobs to meet the demand for energy-efficient lighting.
Pursuant to the Paris Agreement, India has submitted ambitious targets, including, inter alia, the following:
While India’s participation in global environmental protection efforts dates back to the Stockholm Declaration of 1972, the country had never bound itself to measurable domestic actions to protect the environment and address climate change. India’s economy-emission growth rate is consistent with its Paris Agreement targets, while it is estimated that India will achieve its larger 2030 target of 40% of its installed power capacity coming from non-fossil sources well before the target year.
India’s energy mix and the path ahead
With an estimated population of more than 1.2 billion (and counting) covering an area of 3,286,000 sq km, India has quite understandably an ever-increasing demand for energy. India is home to 18% of the world’s population but uses only 6% of the world’s primary energy. India’s energy consumption has almost doubled since 2000 and the potential for further rapid growth is enormous. According to the recent Energy Outlook Report issued by British Petroleum, India’s energy consumption will more than double by 2050.
Against this backdrop, a transition to a lower-carbon energy system is likely to lead to a fundamental restructuring of India’s entire energy system, with a more diverse energy mix, greater consumer choice, more localised energy markets, and increasing levels of integration and competition. Interestingly, the shift in focus from traditional fossil-based fuels to alternate sources of energy is evident from the energy mix prevalent in India today. As of June 2021, the installed capacity of energy in India stood at 384,115.94 MW, inter alia, comprised of:
The shift to alternative sources of energy is underpinned by the policy and decisions of the government of India to promote renewable generation and attract investments there, with the following results.
The National Infrastructure Pipeline
India today is faced with the uphill task of reviving the economy as well as maintaining investor confidence, while balancing its social and welfare objectives in the midst of the COVID-19 pandemic, which does not seem to have a sunset period as yet. Immediately prior to the onset of the pandemic in India, significant announcements were made by the central government about achieving its ambitious target of making India a USD5 trillion economy by 2024–25, first spoken about by the prime minister in his Independence Day speech of 15 August 2019. Upgrading infrastructure is key to India’s competitiveness, since infrastructure creation will boost short-term and potential GDP growth, as well as generate employment and income.
As per the National Infrastructure Pipeline, energy sector projects accounted for the highest share (24%) of the total expected capital expenditure of INR111 trillion (approximately USD1.4 trillion), besides roads (19%), urban (16%), and railways (13%), aggregating 70% of the projected capital expenditure on infrastructure.
The government proactively commenced to implement the strategies and blueprint of the pipeline. However, since the end of March 2020, the pandemic has thrown a spanner in the works, possibly calling for a relook at the ways and means to achieve the USD5 trillion economy target. COVID-19 has brought about disruptive changes in every aspect of the economy around the globe, and India is no exception. Lack of investor confidence, the liquidity crunch, and rapidly evolving policies and frameworks to maintain the socio-economic balance call for a well-thought-through and graded approach to overcome the challenges posed by the slowdown in the economy.
As per the Union Budget 2021–22, the government, inter alia, allocated:
The government also announced plans for the National Monetisation Pipeline (NMP), offering diverse stable brownfield infrastructure assets with attractive investment structures for private/PPP-based concessions. The current estimates put the value of these assets at around USD35 billion, which has elicited keen interest from global pension funds and sovereign wealth funds, among others.
Solar power and its steady growth
Of all the renewable sources of energy, solar power has seen significant growth over the past decade, propelled by the current government’s aspirational goal to set up 450 GW of installed capacity in India based on renewables by 2030, increased from the 175 GW target by 2022.
The government is making significant efforts to promote solar power, despite the effect of COVID-19 on the economy.Solar power has the potential to boost India’s position on a global scale as one of the leading renewable energy-dependent countries, which will tie in with India’s intended NDCs and the climate change negotiations in the upcoming COP 26 in Glasgow in November 2021.
India spear-headed the formation of the International Solar Alliance (ISA) initiative in 2015 alongside France. Since then, more than 121 countries have become part of the alliance to collectively address key common challenges to the scaling-up of solar energy in line with their needs.
Battery storage – preparing for the future
Preparing for future technological advancements and their resultant impact on the Indian economy, the government of India recently approved a INR181 billion production-linked incentive (PLI) scheme to incentivise battery makersto manufacture Advanced Chemistry Cell (ACC) battery storage locally, reducing import dependence while giving a boost to electric vehicle (EV) adoption.
ACCs are the new generation of advanced storage technologies that can store electrical energy either as electrochemical or as chemical energy and convert it back to electrical energy as and when required. Consumer electronics, electric vehicles, advanced electricity grids, solar rooftop, etc, which are major battery-consuming sectors, are expected to achieve robust growth in the coming years. It is predicted that the dominant battery technologies will control some of the world’s largest growth sectors.
Currently, the country’s ACC demand is being met through imports. The nodal ministry therefore proposed a national programme for ACC battery storage to achieve manufacturing capacity of 50 GWh of ACC and 5 GWh of “niche” ACC as follows.
The PLI scheme has been approved with a financial outlay of INR45 billion over a period of five years aimed at supporting about 21 GW of module supplies from domestic manufacturers. The PLI scheme has the stated objective to promote manufacturing of high-efficiency solar PV modules in India and reduce import dependence with the following aims.
Under the PLI scheme, beneficiaries will be selected through a bidding process, with evaluation based on the extent of integration and capacity. The criteria include minimum integration across cells and modules, a minimum manufacturing capacity requirement of 1 GW, and a certain minimum level of module performance. The PLI payable to manufacturers will be computed based on the volume of module sales, the base PLI rate subject to meeting the technical performance criteria, the tapering factor and the local value addition. The manufacturers are required to commission the units within one and a half to three years from the date of sanction.
To complement the introduction of the PLI, the government has taken measures such as BCD imposition on solar cells and anti-dumping and countervailing duties on other raw materials (eg, ethylene vinyl acetate sheets, glass, etc) on imports from various countries such as China, Malaysia, Thailand, etc. These measures will go a long way towards creating manufacturing capacities in India for the overall value chain for manufacturing solar modules and not just having assembly units importing raw materials.
Market mechanism: ancillary services and convergence – the answer to variability due to renewable energy
Another notable element emerging in the Indian power sector is the market framework which has been evolving in sync with the maturity of the sector, with a slew of recent developments that have the potential to usher in the next generation of electricity contracts and market structures.
The recent projects in the country exploring the convergence of the supply of renewable energy, energy storage and the provision of modern energy services are indeed a step in the right direction.
India’s nascent hydrogen story
As the fuel of the future, hydrogen is set to play a vital role in India’s growth story. There is a need to establish a supportive policy framework to attract investments in hydrogen-based industrial and commercial use. There is expected to be significant demand for and use of hydrogen in the country over the next decade, helping in our energy transition to further India’s global position as a low-carbon economy. Some of the developed economies, such as in the EU, Australia and Japan, have already drawn a hydrogen road map to achieve green economic growth. For this to come to fruition, we need, first of all, to move from fossil-based hydrogen to green hydrogen. In famously dirty industries, hydrogen is regarded as a promising alternative to fossil fuels. According to the International Energy Agency, global hydrogen production emitted 830 million tonnes of CO2 in 2017 – the equivalent of the combined emissions of Indonesia and the UK. Cleaner than wind or solar, hydrogen is expected to eventually play a major role in the global energy mix but is still in its infancy and requires a lot of investment before it becomes commercially viable. A hydrogen economy will improve air quality, mitigate carbon emissions and fulfil India’s Atmanirbhar Bharat vision.
There has been a growing appreciation that full electrification of our current energy systems will be prohibitively expensive and technologically challenging, given the important storage, flexibility, chemical, and heating attributes of current fossil fuels. The benefit of low-carbon hydrogen is that it has the same attributes, but without the associated emissions. The cost of transition from fossil fuels to hydrogen is not something that can be quantified in terms of a definitive number given that India’s hydrogen story is still in its nascent stage and a lot will depend on when, how and how much investment will be attracted for hydrogen-based industries.
Atmanirbhar Bharat and the recent National Hydrogen Energy Mission are clear indicators that India has immense potential to be self-reliant in terms of hydrogen production. For a green and sustainable future, hydrogen is the next big thing waiting to happen to Indian industries. Possibly the reason for its slow growth is attributable to the age-old dependence on fossil-based fuels which, in any case, cannot be completely done away with for the moment. The right balance has to be achieved between fossil fuels and hydrogen to result in a win-win situation for everyone across the value chain. India must set ambitious targets for green hydrogen and electrolyser capacity along similar lines as renewables to build investor confidence.
These recent initiatives by the government clearly indicate that India is conscious of, and is moving towards, reducing its carbon footprint and unleashing its tremendous growth potential.