Bridge India

Draft National Energy Policy lacking in both vision and substance

NITI Aayog, India’s central planning agency, recently released the draft National Energy Policy (NEP). The document sets out national objectives and planning framework for the energy sector for the next 23 years (up to 2040). It comes at an opportune time when India is going through a critical energy transition period. Its main thrust is to let market-based mechanisms guide growth in various energy sources with minimal government intervention. And while a document of this nature is inevitably high-level in its scope, it comes across as simplistic and wishful due to lack of detail, reasoning or prioritization of different plans.

  • By envisioning the share of variable renewable energy (RE) in the electricity generation mix to increase from 5% in FY17 to 24-29% by 2040, the policy sets an optimistic tone for RE growth;
  • The policy suggests gradual withdrawal of all incentives including ‘must run’ status, renewable purchase obligation (RPO) and inter-state transmission charge waiver for the RE sector;
  • Emphasis on traditional large hydro as a source of balancing power and just a passing mention of storage, smart grids and electric vehicles doesn’t fit with the fast-changing technology landscape;

The policy envisions RE capacity (excluding large hydro) to grow from 58 GW at present to 597 GW by 2040 (solar 367 GW, wind 187 GW) at a CAGR of over 10% and RE share of total power output to increase from 5% at present to 24-29% by 2040. While the policy sets an optimistic vision for RE, it does not provide any specific measure to support this growth. It envisages gradual transition towards market-led growth in RE sector, which is desirable for efficient functioning of the energy market as well as long-term growth of RE. However, there needs to be greater clarity on the mechanism and time of withdrawal of incentives such as RPOs, must run status and tax benefits provided to the sector to avoid a negative impact on sector’s growth. For example, we believe that sudden withdrawal of must run status would dampen investor confidence in the market.

On RE integration issues, the draft policy proposes a combination of grid expansion, automation and smart grid based approaches. It also suggests shortening of scheduling and dispatch interval times from 15 minutes, at present, to 5 minutes and development of an ancillary services market. For grid balancing, it proposes reliance on large hydro power plants and gas-based generation.

There are two glaring deficiencies in the policy document. One, it fails to examine past problems and proposes new solutions. For example, it argues correctly that poor financial health of DISCOMs is caused due to tariff subsidies and high T&D losses but the proposed solution – entailing separation of content and carriage – has been mooted for many years without any success. Second, the document largely ignores critical role of new technologies. It vaguely suggests setting up of renewable energy management centers and roll out of smart grids across India but the most promising new technologies – electric vehicles (EVs) and energy storage – have not received the required attention. While the government is considering setting an ambitious target of 100% EVs by 2030, the draft policy’s only suggestion for EVs is to implement time-of-day tariffs.

Similarly, while other countries are already taking long strides in development of energy storage technologies through investments in R&D, incentives for manufacturing and installation of large scale storage facilities, the draft NEP merely mentions ‘the need to push development of storage technologies’.

Overall, the draft energy policy is a missed opportunity to achieve necessary transformation in the Indian energy sector.

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