Given how each successive auction of either solar or wind energy seems to be throwing up a lower price, it is easy to believe renewables will soon replace conventional energy like coal and, in the bargain, also play a big role in helping India reduce its carbon footprint. While the 175 GW target for 2022 is an aspirational one, chief economic advisor Arvind Subramanian has done well to inject a healthy dose of reality into this idyllic picture. For starters, he points to something everyone knows, but rarely build into their projections, that the costs of renewables are not the same as the bids that get reported—and the costs go beyond the considerable subsidies the government is giving even today. Since no grid can work on the basis of just renewables but also needs back-up power that can come on stream very quickly, for instance, the costs of building gas-based power plants—and keeping them on standby—also need to be built in; there are then costs of land, etc … Subramanian cites studies comparing the cost of coal-based power and renewables and says that while renewables will become competitive, this is in the future, not right now—if emissions are valued at $50 per tonne of CO2, one study says, solar is marginally competitive relative to thermal power; the social costs of emissions in India, however, are closer to $2.25 per tonne and those in global markets is around $6.5 per tonne.
Subramanian then builds upon an idea expressed in the latest Economic Survey, that even right now, if existing power plants are viable at a plant load factor of around 60%, nearly half the existing capacity is unviable—even today, around 70% of capacity can be considered to be stressed with an interest cover of less than one, with an associated vulnerable debt of over `3.6 lakh crore. According to an analysis by the ministry of power that Subramanian cites, if renewables capacity rises to reach 175 gigawatts by 2022, median plant load factors decline from 63% to about 50% by 2022.
While this is something only terrified bankers have been looking at so far, both power minister Piyush Goyal and finance minister Arun Jaitley need to look at this additional cost due to renewables seriously. Subramanian has not, as yet, studied the impact of this on India’s Paris commitments—do the commitments need to be scaled back due to this higher cost, for instance. The immediate task, then, is to study this impact—and, after factoring in all costs including those of creating standby power, take a final call on renewable targets.