India has two choices to make. The first choice is: should it actively develop and follow an energy strategy? Or should it continue to sputter along in an ad-hoc manner, with inefficient private investments into back-up infrastructure and with power deficits that inhibit development? The second choice, if India opts for a strategy, is: what should the strategy be? Should it focus on the centralized, fossil fuel-based model or on a smart-grid, renewable-fueled model?
- India should build an energy infrastructure on fuel sources with a downward cost trajectory – that are locally available
- We are witnessing a period of transformational change in energy. India can leapfrog
- Optimism is more warranted with respect to overcoming the challenges of renewables than the challenges of fossil fuels.
To bet on coal, which is currently the mainstream consensus in India, is to accept a number of inevitable consequences. The first is a huge increase in energy imports. This will further corrode India’s energy security and make it dependent on a small number of coal exporting countries as well as the related sea trade routes. It will also put an enormous strain on the current account balance of India, which will in turn add pressure on the Rupee.
The second consequence is the corresponding environmental degradation. This relates to the destruction of habitats through mining as well as to the air pollution from power generation. Delhi has recently been named the most polluted city in the world (refer). A major share of that pollution is from coal-fired industrial production and power generation. While environmental concerns don’t seem to have a high priority by politicians, the example of China shows just how fast that can change. (In fact, as I am writing this, I have a splitting headache and pollution levels are at a record high.)
In addition, there is currently no global or Indian carbon regime in place. However, as the pressures of climate change will increase, so will the pressure on every nation to reduce emissions. If India were to choose a very carbon intensive growth, it will likely come under pressure later – at a point, when it will be much more expensive to change track.
And even if India were to choose to expose itself to these risks and costs and still go for a coal-driven growth model, there is still the question of whether it can actually do it. Over the last years, India’s coal infrastructure has failed to deliver: mining, railway heads and port facilities were inadequate. The resulting fuel shortages have led to under-investment and under-utilization of plants (see charts below).
An alternative to the coal scenario could be to go solar on a massive scale. This would have to be supported by investments into balancing power (gas, pumped hydro, later perhaps storage) and a “smartening” of the grid (metering, demand-side management, etc.). It would be possible. And it would also be better for India. India could build 1,000 GW of solar – enough to generate 1,500 TWh of power or 1.5 times India’s current power requirement – using half the land available in the desert district of Barmer in Rajasthan or 3.5% of India’s wasteland. This is just to illustrate the case. In reality, solar could be on every rooftop across the country as well (see chart below).
Solar might not be the cheaper than coal yet. And storage adds to the cost. However, it will become cheaper in the near future, if not in 5 years, then in 10. And the choices India makes today will have a relevance far beyond the next 10 years. Globally, the energy market is in a transformational stage. India can choose to be at the helm of this development. With its exposed energy supply situation, rising demand and high irradiation, it is ideally suited for solar. Therefore, it should invest its resources into building a new energy infrastructure that will bring long-term energy security, rather than tying itself to power plants that will be inadequate, cost more over time and require India open-endedly spend money on imports. This would not only give the country a great boost of innovation and employment in a new industry (with all the additional economic and social benefits), but would make its economy and its businesses much more resilient to deal with an energy future that will be very different from the current one.
I understand that this is asking for some optimism: will solar costs really come down? Can we manage the grid with high penetration levels of renewables? Can we develop the financing solutions necessary? There are challenges in this scenario. However, there are challenges in every alternative scenario, especially in a coal-dependent one. I see much more reason to be optimistic about solar than about coal. Moreover, success would be entirely in India’s own hands to achieve.
To read part 1 of the blog, click here
To read part 2 of the blog, click here
To read part 3 of the blog, click here
Tobias Engelmeier is the Managing Director at BRIDGE TO INDIA.