Bridge India

What are India’s strategic energy options? Part 4: A game changing shift to solar

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).

strategic energy options (IV)- pic 1

india's strategic energy options (IV)- pic 2

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).

india's startegic energy options (IV)- pic 3

 

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.

2 comments

  • I was at a Workshop organised by UNIDO-MSME-GEF-FICCI on Cleantech program promotion, today at Vadodara.

    I did ask about the cost of finance which the major banks, SIDBI, Private banks and other FIs and large corporate cos through EXIM route are able to access the funds at 2 to 3% Foreign Currency funds. I was astonished to receive a reply that Hedging costs are in the range of 7 to 8%, which is highly ridiculous and not acceptable.

    Also be informed that with the New Banking Licenses (there is a concern that audit transparency will be like KG D6 CAPEX case, if no proper rules are in place), only Large Corporate cos will access the low cost funds due to their arm companies (read as Cronys) bidding in NSM or such barriers and again make huge tax loss through Accelerated Depreciation, is this Democracy?? Where SMEs will go ? and How and when we create new generation Entrepreneurs?? Each taluka can be annexed with many other growth oriented projects with this energy project…

    Today’s HIGH Inflation and hence the high interest rates and high Hedging costs are due to Mismanagement of the Economy / Fiscal Policy, low GDP, Policy Paralysis and poor governance with Corruption, hence, the New Generation Entrepreneurs or even the people of INDIA are not responsible, hence, i have mentioned 3% interest rate to provide relief to the Cost of borrowing. The Hedging costs are getting nullified with Interest subsidy. IREDA is getting funds at 1.5% and due to “ADMINISTRATION” expenses, it is costing high. Hence, my proposal is still valid and i reply the following way:

    a). The New PM and his / her team shall be a staunch believer in NATION FIRST and not CRONY FIRST with a firm Political Will to arrange the low cost funding with interest subsidy to offer low cost energy and to Create large number of entrepreneurs and jobs in Each Taluka.

    b). Central Government with Political Will could sanction Rs. 5400 Crore INTEREST FREE LOAN to two large corporate cos to set up Semiconductor manufacturing units in UP and Gujarat.

    http://www.energetica-india.net/news/government-approves-2-semiconductor-wafer-fabrication-manufacturing-facilities

    c). Government of Gujarat sanctioned a loan of Rs. 2100 Crore at 0.105% interest rate for 20 years to set up TATA NANO project to create jobs in Gujarat.

    http://www.financialexpress.com/news/tata-nano-gujarat-loan-amount-row-/991861

    Note: With the Rs. 7500 Cr funds, we could have developed over 100 talukas with 10 MW solar PV projects with THOUSANDS OF JOBS. So, “Where there is a will, there is a way”

    d). Am suggesting to pay 3% interest rate to recover the base cost of borrowing…. Time has to come to think about NATION FIRST and create large number of project opportunities with Mentoring by rearranging the wasteful Subsidies (read as Election Funding schemes which are not reaching poor nor there is a transparency).

    Thus, we can easily supply the Solar PV at Rs.5.8/kwh through Small / new generation Entrepreneurs (if INDIAN ADMINISTRATION believes in NATION FIRST with Young INDIA potential due to his more population as being claimed) and request you to add these statements in the justification for low cost while publishing my article.