As power demand goes up, India is faced with a tough choice between pursuing vigorous economic growth and meeting climate change targets
The summer of 2022 left several cities and villages across India sweating as they witnessed long power cuts over acute power shortage. In April, India’s power deficit peaked at 10.29 gigawatt (GW) with industries, big and small, being hit financially and seeing either a decline in production or costs going up. The shortfall also came at a time when the economy was limping back from the Covid-19 blow.
To meet its deficit, the country, whose prime minister has been batting aggressively for renewable energy, had to ultimately fall back on coal. The Ministry of Railways cancelled 1,110 passenger trains for 20 days to make way for goods trains carrying coal to deficit regions. The Government of India had to even lift its self-imposed ban on coal imports and asked Coal India and other power sector public sector undertakings (PSUs) as well as private players to source the non-renewable fuel from any possible source.
Over the years, the demand for power was growing at a slow pace due to subdued economic activity. The peak power deficit that used to stay well above 9% till 2012-13 came crashing down to just around 2.23% in 2020-21. But, with the Indian economy functioning at full throttle, the power deficit this year touched a historic high, denting the post-pandemic pace of India’s economic growth.
“[The power crisis] is going to have an impact on our output if such conditions continue through a large part of the year. But generally the extraordinary power shortage scenario is a two to three month affair. If it sustains over a longer period of time, naturally there will be an impact on output,” says Devendra Pant, chief economist, India Ratings and Research.
When one places the deficit of these summer months against Prime Minister Narendra Modi’s ambitious promise of India meeting 50% of its energy requirements from renewable energy by 2030, which was made at the 2021 United Nations Climate Change Conference (COP26) in Glasgow last year, the reality of India’s power struggle becomes clear.
Inevitability of Thermal Energy
A January 2022 report titled Electricity Market Report by the International Energy Agency underlined India’s reliance on coal as it revealed how the country’s electricity mix remains largely dominated by coal. In 2021, coal made up 74% of power generation, followed by renewables at 20%. The report said that by 2024, coal-fired generation is expected to account for 70% of the electricity mix and renewables for 22%.
India’s goals and demands with respect to power seem to be clashing. While Modi announced at COP26 that India would increase its non-fossil energy capacity to 500 GW—it stood at 166.7 GW on May 31—by 2030 and effect a massive shift to renewable energy, the ground reality poses a practical question: is it enough?
Alok Kumar, Union power secretary, gave a contrasting view when he recently said that coal would be the backbone of energy generation in India for the next 20 year.
In 2017, the Centre had asked PSUs to completely stop the use of imported coal in their power plants, suggesting that the move was taken to bring down the import bill of the country. Experts, however, suggest that the step was taken to support the solar and wind power players which were finding it difficult to sell power to Indian power distribution companies (DISCOMS) due to availability of affordable thermal power.
This summer, the government was forced to revoke the import ban to meet the growing power demand in the country. It has asked Coal India, which itself is the largest producer of coal in the world, to float tenders in the international market to import coal. Reports also suggest that the Union government is using its own relations with countries like Russia, Australia, Indonesia and South Africa to help Coal India import coal at discounted rates to avoid a power crisis during the monsoons when mines in the country get flooded.
A senior executive at a thermal power company says that if the government wants to ensure that Indian power plants are able to meet the rising demand for electricity, India will have to negotiate long-term contracts with international suppliers. Otherwise the cost of coal will make the final cost of electricity unaffordable for Indian power consumers. “It is up to the government to realise the importance of coal and imports to meet India’s growing power demand,” the official adds.
In addition to that, the government has also announced that it plans to reopen 100 coal mines previously considered financially unsustainable. With that, the realisation that India cannot ignore coal, if it wants to meet its energy needs in the coming year, has set in.
Banking on a Renewable Future
Being the third-largest contributor of greenhouse emissions, India was under pressure to show some commitment to mitigate effects of climate change. Modi’s panchamrit promises at Glasgow came as part of that commitment, as it set tall targets for India’s shift to renewable energy.
Economist Kandula Subramaniam, who specialises in sustainable development, points out the hurdles in that path: “Given its nature of being untamable, renewable energy can never be a substitute for conventional sources of energy, and, hence, the country's demand cannot be met through renewable energy. The more renewable energy dependent the grid becomes, the more gas/liquid fuel power generation will be needed for grid security.”
In 2015-16, the Modi government had committed to aggressive targets of installing 175 GW of renewable energy, excluding large hydro, by 2022. Out of this, the target solar energy capacity was set at 100 GW by March 2023, 40 GW of which being rooftop solar and 60 GW being ground mounted.
As of January 2022, India’s total installed renewable energy capacity stood at 157 GW. Of the 50 GW installed solar capacity, 42 GW is derived from ground-mounted solar photovoltaic (PV) systems, whereas only 6.48 GW comes from rooftop solar. And, 1.48 GW comes from off-grid solar PV.
Subramaniam questions how the government sets such targets. “Are they based on power demand forecasts? Given the fact that on an average (yearly generation) renewable energy like solar has less than 24% plant load factor (average capacity utilisation), one should not get carried away with large renewable energy capacity additions. If anything, such figures are misleading because of the low plant load factor from renewable energy on an average annual basis,” he says.
The economist also says that complexity of renewable energy integration increases when one takes demand-supply calibration on a minute-to-minute basis. “Sudden fall in solar output from a solar farm needs to be immediately compensated through other sources, failing which, there will be demand-supply mismatch, leading to frequency imbalance and possible power outages,” Subramaniam explains.
The dependence on imports for solar equipment is also a matter of concern for many. In a written reply to the Lok Sabha in March 2022, new and renewable energy minister R.K. Singh had said that solar cell imports rose to $3.4 billion (around Rs 26,000 crore) in April–January 2021–22 as compared to $572 million in the previous financial year.
Talking about the 500 GW renewable energy target set at COP26, A.K. Saxena, senior fellow and senior director, electricity and fuels division, The Energy and Resources Institute, says that India will have to add approximately 40 GW of renewable energy capacity every year to reach 450 GW of renewable energy capacity by 2030. “This is a huge number to achieve and poses many challenges. We are majorly dependent on import of solar equipment. Production-linked incentives for domestic manufacturing are being given by the government, but in order to scale up to the required level, we need some time,” says a wary Saxena.
Expectation vs Reality
Even with one of the lowest per capita power consumptions in the world, India is under pressure to improve the availability of power to retail consumers as well as industries. The latest power crisis suggested that India cannot grow at the desired 7-8% rate year on year by being excessively focused on clean energy.
The Central Electricity Authority’s Optimum Energy Mix report has projected India’s power demand to touch 817 GW in 2029-30. Of this, 522 GW is estimated to come from renewable sources, including 140 GW of wind energy and 280 GW of solar energy.
For a country that is still energy hungry, there is likely to be a dependence on coal for the next decade, says Naveen Unni, partner, McKinsey & Company. But, he also says that careful planning and support of renewable energy sources can drive a new pathway that will go a long way in supporting India’s net zero goals. “If we make a shift towards a significantly higher mix of renewable energy in the next five to 10 years, a large part of our coal fleet will reach its natural end of life between 2030 and 2040 and be retired, to be replaced by cleaner and more renewable energy sources,” he says.
In its effort to push the manufacturing sector in the country, India has been wooing global manufacturers to set up their supply chains in India. Over the last two decades, one of the biggest letdowns for global supply chains has been the erratic power supply in the country. India’s economic ambitions stand to take a severe beating if renewable energy fails to meet India’s growing power demand in the coming years.
Martand Shardul, policy director of the Global Wind Energy Council India, says that the current pace of capacity addition does not seem to be enough given the relatively low capacity utilisation factor of renewable energy solutions, such as stand-alone wind and solar.
Pointing out how wind power capacity addition has slowed during the past few years, Shardul says, “Within this decade, we need at least eight to 10 GW of annual wind tender capacity. Annual tender volumes will have to be raised and operational challenges addressed to meet targets for this decade.”
The slow pace of capacity addition by renewable power players has given the coal-based power producers a bargaining power that they can use to ensure that the government does not force them to run their plants at lower capacities as was the case in the last few years.
“If the government does not ensure good returns to coal power producers in the coming years, they may not invest in improving efficiency of their power plants, which also includes getting into long-term fuel purchasing contracts in the international market,” says thermal power company executive quoted above.
Karthik Ganesan, fellow and director, research coordination, Council on Energy, Environment and Water, says that India is playing catch-up when it comes to energy use, and the economy will see a rise in coal use, domestic or imported, over this decade. “The fact is that our additional electricity supply cannot all be met by renewable energy alone in the next seven to eight years. Our requirements for cooling and even sustenance, given the number of newly connected households, will only go up,” he says.
At Glasgow, Modi had also promised that India would reduce the total projected carbon emissions by one billion tonnes between 2021 and 2030, reduce the carbon intensity of its economy by less than 45% by 2030 and achieve the target of net zero by 2070. Ganesan says that to allay global concerns about India’s commitment to net zero and reduction targets, it is important for the country to articulate the trajectory it will pursue to reach the stated targets.
With that, India finds itself at a crossroads, left to make a choice between economic growth and the tall promises it made at COP26.