India’s first-ever renewable energy summit—RE-Invest 2015—has secured $200 billion worth of investment commitments from foreign firms such as SunEdison and First Solar and Indian companies such as Suzlon, Reliance Power and NTPC. If those commitments are realised, they will be sufficient to meet ambitious targets set by the NDA government to ramp up solar energy generation capacity to 100,000 MW and wind energy to 60,000 MW by 2022. That would represent a 33-fold rise in solar and wind generation from today’s levels and might seem steep. But it responds to structural compulsions of India’s energy policy.
If there is one thing that marks out PM Narendra Modi’s Make-in-India strategy, it is a shift towards the East Asian model of growth. For a long time, there was glib talk of India leap-frogging stages and jumping straight into a post-industrial economy where the vast majority of jobs are in the services sector. This, however, takes no account of the fact that in the next 5 years, the country’s working age population (15-59 years) will rise from 804 million to 856 million. This requires 10 million new jobs every year to keep up with demographic expansion.
Given that highly-paid service sector jobs are skills-intensive and, at this point, the average level of skills and human capital of the Indian workforce is low, a purely services-oriented approach to grow the economy will be (indeed has been) felled by this fundamental mismatch. The East Asian model, however, happens to be an energy-intensive one. India will need to grow its energy infrastructure massively for Make-in-India to succeed.
India is already the world’s third-largest emitter of greenhouse gases and the Western pressure to cap these is growing. Apart from that, India is reaching its own internal limits of how much environmental degradation it can support. Chinese cities may be a byword for hazardous air pollution but New Delhi’s “airpocalypse” is now worse than Beijing’s. The latest WHO ranking of cities in terms of presence of particle PM2.5, one of the most dangerous air pollutants for human health, has 10 Indian cities but no Chinese city among the 20 worst-polluted in the world.
A shift towards renewables and cleaner energy sources is therefore unavoidable. And there is good news here. A 2011 report from the American Wind Energy Association said, “Wind’s costs have dropped over the past 2 years, in the range of 5 to 6 cents per kWh … about 2 cents cheaper than coal-fired electricity.” Meanwhile, prices of solar panels have fallen 75% over the past 5 years, a combined effect of technological improvements and economies of scale as production gets ramped up. Moreover, this is not the end of the process and renewable energy prices are slated to keep dropping, even according to conservative forecasters such as the International Energy Agency and Citi Research.
It is smart strategy, therefore, to bust the inertia in India’s energy system and step into renewables now, so as to be able to reap the benefits when the solar and wind renaissance hits. By that time, India should aim to build scale and technical capacity so that it becomes a competitive manufacturer of solar and wind turbine equipment. That is why renewable energy equipment has been identified as one of the 25 core sectors of Make-in-India. We can save the planet, push Make-in-India, clean our air and enrich ourselves all at the same time
The best thing about solar and wind is that the raw material is free and plentiful in India—unlike oil for which India has to repatriate a good part of its export earnings. But since investments have to be made now and returns accrue later, India will need to line up plenty of cheap and long-term financing.
One problem with solar plants is that they need a lot of land. But 35,000 sq km have been set aside in the Thar Desert for solar power projects, an area sufficient to produce 700 to 2,100 GW of power. The other problem is that you don’t get solar power at night. But storage technologies are improving while peak loads occur mostly during the day (which is what, realistically speaking, solar will be providing for a long time to come—even the 100,000 MW planned for 2022 will be less than 10% of India’s total power need).
Given that electricity from both solar and wind are slated to hit grid parity before this decade is out, the real hurdle to their adoption may be the problems bedevilling India’s energy sector as a whole: weak transmission networks, distorted pricing mechanisms, financial debility of electricity boards, inability to enforce legitimate revenue realisation. Unless those problems are fixed conceiving of India as a renewable energy superpower may be premature.
The author is associate professor at the International Management Institute