India's shift towards renewable energy sources amplifies regional disparities, raising questions about the economic implications and sustainable grid management
As India aggressively pursues its clean energy ambitions, aiming to boost renewable energy capacity significantly, a recent working paper is shedding light on a growing concern: the deepening energy inequality between different regions of the country.
India's annual CO2 emissions reached approximately 2.71 billion tonnes in 2021, with the power sector responsible for over one billion tonnes of emissions in 2020–21, nearly 40% of the total for that period. To tackle this, India has been fervently focusing on reducing coal use and increasing its renewable energy capacity since 2014, setting ambitious targets of 175 GW by 2022 and a staggering 500 GW by 2030.
The working paper, authored by the National Institute of Public Finance and Policy (NIPFP), an institution specialising in public economics and policy research, warns that this green transition may inadvertently exacerbate inequalities between regions within India.
The paper highlights that western and southern states possess abundant variable renewable energy (VRE) sources, including solar and wind. In contrast, northern and eastern states have fewer VRE sources but rely heavily on revenue-generating coal reserves.
Intriguingly, the VRE-rich states in the west and south also boast more prosperous economies, marked by superior Gross State Domestic Product (GSDP) growth compared to their VRE-poor counterparts. Between 2012 and 2019, the economies of the VRE-rich states grew at an average rate of 7.75%, significantly outpacing the VRE-poor states, which had a growth rate of 6.5% during the same period.
The paper emphasises that as the adoption of renewable energy continues to rise, states with limited VRE sources end up spending more on renewable energy infrastructure while earning less from it. This financial imbalance is a cause for concern.
The NIPFP paper considers various factors, including VRE availability, power generation through VRE, coal reserves, and the optimal energy source mix in the transmission system. It also projects state-wise electricity imports to assess the potential financial consequences of India's decarbonisation policies.
The paper predicts that if the trend of increasing renewable penetration in VRE-rich states continues, inter-state transfers will become necessary to manage grid operations sustainably. This means that renewable-poor states may need to reduce thermal power generation, even if it's cost-competitive, and import electricity from their renewable-rich counterparts.
The paper estimates that by 2030, VRE-poor states may import electricity worth Rs. 460 billion, potentially leading to budget deficits exceeding 5% in certain conditions. This threshold is set by the Fiscal Responsibility and Budget Management (FRBM) Act.
"The impact is most severe on the three coal-rich states of Jharkhand, Odisha, and Chhattisgarh," the report highlights, as these states contribute significantly to coal production and royalties.
Despite the challenges posed by regional disparities, India's total renewable capacity is expected to soar, reaching 275 GW by 2027 and expanding to 420 GW by 2030. However, a majority of this capacity is anticipated to be concentrated in more prosperous states, while less affluent conditions are expected to contribute significantly less.
This issue highlights the ongoing debate about achieving a sustainable energy transition while managing the economic implications and ensuring equitable access to renewable resources across India's diverse regions.