Both China and the UK have witnessed considerable slowdown in renewable energy capacity additions post phasing out of subsidies.
By Prachi Priya & Anuj Agarwal
The World Bank’s recently released report, the ‘Regulatory Indicators for Sustainable Energy (RISE)’, highlights that many of the world’s largest energy-consuming countries have significantly improved their renewable energy regulations since 2010. The push towards renewable sources of energy is not new, and moving away from carbon has been the buzzword for the last decade or so. A regulatory push towards renewable power has resulted in quadrupling of renewable power capacity in the last decade, to over 1,000 gigawatt (GW). China, the UK, Germany, Japan, India and the US are the largest producers of renewable energy, accounting for almost 70% of the installed capacity globally. India, in fact, has made remarkable progress in terms of renewable power capacity additions in the last four years, with solar energy capacity growing almost eight-fold and wind energy increasing 1.6 times.
The government targets to increase the renewable capacity to 175GW in FY22, and further to 275GW in FY27, from the current 72GW. In terms of electricity generation, this translates into a target of increasing the share of renewables in power generation from the current 8% to 19% in FY22, and to 23% in FY27. Today, India proudly sits in the league of top renewable power-generating countries, along with China, the US, Japan, Germany and the UK—which are the leading economics of the world. However, India’s GDP per capita is one-fourth that of China’s GDP, one-thirtieth that of the US’s and about one-twentieth that of Germany, the UK and Japan. In addition, the country’s per-capita electricity consumption is one-third of the global average, and its fiscal position significantly lags behind the other five economies. This makes it an outlier in the group.
While India’s renewable targets are admirable, we need to look at them more realistically. Renewable power has its own constraints. First, the intermittent and unreliable nature of renewable power makes it a complementary, and not a primary source of electricity. Renewables cannot serve the base-load demand. Given the erratic nature of power generation from solar and wind, many a times an equivalent fossil-based backup capacity also needs to be created. In June 2018, Britain went nine days without wind power due to calm weather conditions and low wind. Germany has one of the highest prices of electricity (partially due to the required backup with fossil fuels) in the world, with the renewable revolution paid for by the consumers. In fact, the average electricity prices for industry and consumers have jumped by over 80% in the last decade as a result of the renewable revolution—the Energiewende.
Second, in terms of power density, electricity generated per square metre by coal is much higher than that of solar. Roughly, for generating 1MW of coal-based power, 0.9-1.2 acre of land is required, while for generating 1MW of solar power, 4-5 acres of land is needed. Land acquisition in itself is a big issue. Further, given the lower plant load factor (PLF) of renewable power (11-31% as per government estimates) compared to coal, the producers have to set up at least 4-5 times bigger power plants to meet the requirement.
Third, the transmission of renewable power through grid and energy storage for peak hours are the two biggest roadblocks in renewable power availability in India. The ministry of power has also highlighted that cash-strapped distribution companies (discoms) are currently finding it uneconomical to lift renewable power, given their fixed cost under thermal power purchase agreements (PPAs). Our grids are not fully equipped to handle renewable power currently and need a massive overhaul. Western and southern India accounts for 90% of all of the country’s currently installed solar capacity, but only 40% of power demand—creating a demand-supply mismatch. In addition, the costs involved in transmission of power have not fallen as fast as the costs to build solar panels. Assuming `2.5 per kWh solar power cost in Rajasthan, additional charges like transmission cost, cross-subsidy charge and electricity duty increase the cost to `4-8 per kWh (depending on the state where it is being transmitted). Certain concessions on these charges are available to PSUs and discoms. Therefore, renewable power being cheaper than coal may be misleading at times.
Fourth, the problem is even more complex for an industrial sector that accounts for a majority 40% of power consumption in India. Heavy and energy-intensive industries like steel, chemical, aluminium and cement set up coal-based captive power plants because of unavailability of reliable power from the grid. The very nature of solar and wind power makes it difficult for the industrial user to use it, unlike coal-based power. Many a times, the site of the industry might not be suitable to set up renewable power capacity, and as mentioned earlier transmission of renewable power has its own issues and may not be cost-effective. Industrial users in India don’t even get the concession on transmission of renewable power as discoms do. Thus, these industries prefer coal over renewable power due to steady and stable power, ability to match load curve, better operational control, proximity to production units, high power density, lower curtailment and transmission & distribution (T&D) losses, and also lower cost. The industrial sector is already at a disadvantage in India due to a cross-subsidisation policy in place—the industrial consumer pays 83% more than the residential consumer for electricity tariffs. For other countries like the US, Japan, the UK, China and Germany, this is the other way round. Further, a mandatory Renewable Purchase Obligation burden (which is expected to increase further) continues to add to the cost of power.
All in all, as urbanisation, industrial activity, income levels and electrification rise, India will require more power. A recent ICICI Securities report has warned that India may be heading towards a power crisis. It concludes that without even factoring in incremental peak demand from revival in industrial activity, the existing capacity and pipeline can at best meet projected peak demand till FY23, post which India will be running peak deficit. This is in sharp contrast to the 13th National Electricity Plan (NEP), which mentions that no additional coal-based capacity is required to meet the peak demand until 2026-27, barring those already under implementation.
India’s renewable energy dreams need to be based on sound economics, rather than general rhetoric or the template followed by the West. Despite the emphasis on renewables, coal remains critical for electricity generation—60% of all captive power plants in India currently are coal-based. Also, coal-based capacities come to the rescue in times of peak demand, increase in demand for power from industrial users, or shortfall in supply from other sources. India can neither afford Germany’s high-cost renewable strategy nor China’s massive incentive-based subsidy programme.
Both China and the UK have witnessed considerable slowdown in renewable energy capacity additions post phasing out of subsidies. We have to be realistic—a developing country such as India will continue to need more power, and co-evolving different sources of electricity to get an optimal electricity mix based on usage, technical constraints, existing capacities, per-capita consumption, environment norms and economics is absolutely essential.