Attracting climate funding on affordable terms

By: |
November 04, 2021 5:45 AM

India can set an affordability limit, and commit to buying within that limit

Breaking this stalemate requires a mechanism that enables each side to back their principles with action.Breaking this stalemate requires a mechanism that enables each side to back their principles with action.

COP26 seems to be headed towards another stalemate on matters of principle. Rich countries would like developing ones to commit to serious reductions in fossil fuel use, because developing countries would be the largest emitters in the future. Developing countries want rich countries to pay for such transitions because (a) rich countries have already emitted their way to prosperity (remember, CO2 emitted over the centuries is still in the atmosphere), and (b) for developing countries, giving up cheap sources of energy implies slowing the pace of poverty reduction. Breaking this stalemate requires a mechanism that enables each side to back their principles with action.

The mechanism needs to recognise that for India (a) high share of renewable energy is sustainable only if there is adequate storage capacity; (b) in the absence of this, coal plants are being required to operate outside their technical limits (it is like asking a truck to behave like a motor bike); and (c) there are many claimants for India’s energy sector subsidies. Adding on the burden of expensive storage technologies will negatively impact other SDGs.

The mechanism to discourage coal, in the above context, could perhaps be as follows. India could announce the price at which it can afford to replace coal with storage or other similar solutions. At this price, India should be willing to contract with any energy storage provider (grid scale battery, or hydrogen, or other alternatives), and agree to remove similar sized coal plant. India should indeed also promise red carpet treatment to all storage projects that sign up for this scheme.

The affordable price is obviously lower than the current cost of any storage solution. Any projects under this scheme would be possible only if they are able to attract financing which does not expect commercial returns. Funding for such projects could come from ESG funds (who have raised record amounts of capital), directly from rich countries, or crowd sourced from citizens around the world.

Is it really that simple? No, it is not. As I tested this proposition on LinkedIn, several valid concerns came up in the discussion. Coal and storage are not as simply substitutable. Storage for half a day is relatively easy, but storage for a week is not (consider the weeks when cloud cover or fog makes solar generation impossible). Shutting down operating coal plants would mean stranded investments. Arriving at a single price to reflect the complexities of coal-based generation and energy storage is not realistic. Will the government honour such contract when storage prices fall below this contracted level? What about renewable energy based distributed generation, and doing away with the age-old utility model?

All of these are valid challenges, and reflect important technical and financial issues. But these are known-unknowns, and can be contractually addressed. In contrast, insisting that countries like India commit to phasing out of fossil fuels, irrespective of when (and whether) storage becomes affordable, is in the realm of unknown-unknowns.

The strongest counter to the proposition is that it would make India a reactive player in the area of emerging energy technologies. The argument is that India (and that means the government) should proactively invest in making emerging technologies viable, and aim to become a world leader in this area. I have no disagreement with this goal, and am not cynical about India’s limited track record in innovation. The PLI scheme for bringing large part of battery manufacturing value-add onto Indian shores has a good chance of success. The hydrogen mission is similarly aimed at global leadership in an emerging area. Leading Indian business houses and global electronics leaders are betting serious investments in India.

None of this is in conflict with the proposed mechanism. In fact, they could be seen as complimentary. The government sets out an affordability limit, and commits to buying within that limit; leaving it to market forces to reach that level by a combination of technology advancement and funding from sources that are committed to reversing climate change. The mechanism hence provides a clear opportunity for each side of the debate to put their commitments to action.

The author, an infrastructure specialist, is co-founder of AskHowIndia.org

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