New urgency needed for faster energy transition

31 October 2020 |

India’s economy and power sector continue to reel under effects of COVID-19. IMF has projected FY 2021 GDP to contract by 10.3% over the previous year. As the vaccine is not likely to be widely available until mid-2021, a long period of uncertainty looms. The economic slowdown poses critical concerns for the renewable power sector:

  • Power demand has gradually recovered to last year’s (subdued) levels but there are concerns that long-term growth prospects may have been dimmed.
  • DISCOM financial position has grown even more perilous due to unfavourable shift in demand away from the lucrative C&I consumers and, lower billing and collection efficiency. Payment delays to power producers continue to soar despite injection of INR 310 billion (USD 4.1 billion) liquidity support by PFC and REC.
  • Banks are even more shy of new lending particularly to smaller consumers, contractors and project developers.

Figure: Power consumption and DISCOM dues

Source: CEA, PRAAPTI portal, BRIDGE TO INDIA research

The troubling part is that renewable power capacity addition has anyway been slowing down considerably recently due to strong headwinds on multiple fronts. We estimate total capacity to reach 121 GW by 2022, significantly behind the 175 GW target. The government has announced a new bold target of 450 GW for 2030 – entailing capacity addition of 36 GW every year – but the pathway for doing so is not clear.

Figure: Renewable power capacity addition

Source: BRIDGE TO INDIA research

In the economic recovery measures announced so far, renewable power has received scant attention. The government has agreed to provide concessional liquidity support of INR 900 billion, now increased to INR 1,200 billion (USD 16 billion), to DISCOMs for clearance of outstanding dues and commitment to future reforms. Battery cell and solar PV manufacturing have been identified as ‘champion sectors’ as part of the atma-nirbhar policy but any concrete measures are yet to be announced.

As uneconomic uncertainty still persists, there is pressure on the government to provide greater stimulus and undertake new measures to boost growth. We believe that there is a unique opportunity to kill two birds with one stone – support the economy and pave way for faster energy transition through a ‘green recovery’ package. Such a package would have considerable benefits in the form of accelerating flight against climate change, improvement in air quality (Indian cities are amongst the most polluted in the world), greater energy security, fostering economic and technological innovation as well as improving long-term competitiveness of domestic businesses.

Strong merits of ‘green recovery’ process have already led many countries to pursue this path. The European Union, Japan and South Korea have committed to achieving carbon neutrality by 2050. Many countries have announced dedicated R&D funds, new technology initiatives and scale-up programmes.

  • Germany is building R&D capability with a focus on digitalisation and coupling of electricity, transport and heating sectors.
  • France plans to spend EUR 32 billion in development of the renewable energy and energy-efficiency sectors. The French government has also released a National Hydrogen Strategy, providing for an investment of EUR 7.2 billion by 2030.
  • South Korea and Italy have ramped up subsidy support for rooftop solar PV projects. The Italian government has increased subsidies for households installing solar and storage systems.
  • Singapore is developing a solar PV roadmap to potentially meet 43% of the city-state’s power demand by 2050.
  • Nigeria has earmarked USD 620 million for installation of solar home systems by 5 million households, thereby creating 250,000 jobs.
  • In Australia, plans are afoot to develop a hydrogen-based industry.

There are many urgent priorities for the sector in India: develop technology and manufacturing competence, digitalisation, improve system resilience through storage and demand-supply flexibility, and greater provision of land and transmission capacity besides long-overdue reform of the distribution business. If the government can grasp this opportunity by taking effective steps, it can pave way for a wonderful and long-term transformation of the economy.


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