India's green energy conundrum: ambitious targets but not enough incentives

The government criticised a report that says the country is unlikely to meet its 2022 renewables targets

Solar panels implemented by Amplus Solar stand on the roof of the Yamaha Motor Co. plant in Surajpur, Uttar Pradesh, India, on Wednesday, July 20, 2016. The Japanese motorcycle maker wants solar power to supply a quarter of energy needs at its northern Indian factories near Delhi, according to company executives. Photographer: Prashanth Vishwanathan/Bloomberg
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India’s renewable energy ministry is not happy and lashed out at Crisil last week when the research unit of Standard & Poor's put it on the spot, questioning the policy environment and the ministry’s ability to meet its clean energy targets.

In its Return to Uncertainty report, Crisil says India, the third largest Asian economy, is likely to dramatically miss its ambitious goals for energy generated through renewable sources, falling short of its 2022 target of 175 Gigawatts by at least 42 per cent.

The study's unflattering findings report did not go down well with India's ministry of new and renewable energy (MNRE) refuting the research and describing it as “lacking in credibility” and “ill-founded”.

There are significant challenges for India to overcome when transitioning to an entirely renewable energy system.

“The ministry is not only confident of meeting [the] target but exceeding it by 2022,” a statement from MNRE on Thursday said.

The government said it has already installed more that 82.5GW of renewable energy capacity and has more than 31GW under installation. With 39GW of renewable power capacity going through the bidding process, India is set to achieve 87 per cent of its targeted capacity by September 2021 and more capacity will be added over the next two years that will push it beyond its target.

Crisil's report, however, says "the unstable policy environment poses a big risk for the country’s renewable energy targets”.

Lower tariff caps imposed by central and state governments are also making renewable energy less attractive for developers, it says, because it “is constraining project viability”.

“The sector has witnessed a material waning of developer interest [in the] last fiscal [year],” according to Crisil. Slightly over a quarter of the projects that were "auctioned by the centre and states received no or lukewarm bids, and another 31 per cent faced delays in allocation after being tendered”, it says.

“Thus, despite the increase in tendering volume, not only has the allocation of projects slowed down, but both under-subscriptions and cancellations of awarded tenders have also increased.”

Increasing the size of the renewable energy in India's energy mix is critical for the country to control carbon emissions and reduce its dependence on costly oil imports. About 80 per cent of oil used in India is imported, which weighs on its trade deficit. India is also home to 13 of the world’s 20 most-polluted cities, according to the World Health Organisation.

Despite the picture not being not so rosy, India's energy needs are rapidly rising amid urbanisation meaning that the role renewables play in the energy-mix must grow very quickly.

By 2030, the government wants the country to generate 40 per cent of its energy from renewable sources. Solar power accounts for the majority of that mix with a target of 100GW, followed by wind power as the next largest source.

Although, the government did not like Crisil's report, it accepts it has faced headwinds in pursuit of its clean energy goals.

“The journey for expanding the share of renewables in the energy mix has not been without continuous challenges,” MNRE says. But it says it has worked “systematically to resolve various issues that arise from time to time, putting in place facilitative and ease of doing business policies and programmes for achieving the goal”.

While the renewable energy industry and developers may not be happy about tariff caps because of the impact on revenue and profitability, the MNRE consider lower prices on solar and wind energy positive because it makes power from these sources more affordable for distribution companies.

Wind power tariffs reduced to 2.43 rupees per unit last year from 4.18 rupees per unit in 2016, while solar tariffs have come down to 2.44 rupees per unit from 4.43 per unit, its data shows.

Analysts and industry insiders, however, generally agree that India’s renewable energy targets are a little ambitious.

“There are significant challenges for India to overcome when transitioning to an entirely renewable energy system,” says Neelam Gupta, the founder president of AROH Foundation, which works on clean energy projects in rural India. “A delay in commissioning projects due to execution challenges, investor sentiments, caps on tariffs are a few major challenges hindering the growth of renewable energy.”

These “roadblocks” have to go, adds Ms Gupta, who says there is no economic argument that justifies not taking advantage of what renewables have to offer.

“Not only would it help dramatically cut the emissions, but would also create a huge number of jobs and improve the health of the general population.”

Ms Gupta and many others say the targets are still achievable.

Imaan Javan, the director at Suntuity Renewable Energy India, a solar power solutions company, says the targets can be met if policy-makers address issues of "affordable funding for projects [and] availability of large areas of land".

The government should offer incentives for investments in this sector, she says.

Going green in India, however, is easier said than that done.

While the country  has some 150 million registered drivers, only 8,000 electric cars have been sold over the past six years, according to a report by Bloomberg published this month.

This is despite the fact the government has introduced incentives including subsidies to encourage electric vehicle ownership.

Car makers and analysts say the main problem affecting electric vehicle sales is affordability and the limited charging infrastructure in the country.

“In our opinion, the average annual growth in passenger vehicles is unlikely to exceed 3 per cent to 5 per cent over the medium term, the government incentives notwithstanding,” says Suman Chowdhury, president of ratings at Acuité Ratings and Research.

Working in India's favour, however, is the right combination of natural resources, which any country requires to pursue its clean energy ambitions.

“Geographically, India's favourably disposed to harness solar, wind and hydropower sources,” says Rahul Agarwal, director at Wealth Discovery, a financial services company based in New Delhi. “The challenges that India currently faces are in terms of the speed of execution that is needed to achieve the ambitious targets it has set for itself."

Mr Agarwal, however, says the renewable energy sector is not immune to the broader slowdown in the country's economy. India's gross domestic product slowed to a more than six-year low of 5 per cent in the April-to-June quarter, according to the government data.

There are also significant issues around securing the large tracts of land required for renewable energy projects, he adds.

However, despite all the skepticism, there are some success stories in India's green energy push.

Cochin International Airport in the south Indian state of Kerala is the world's first fully green energy-powered airport.

Indian prime minister, Narendra Modi, wants to see more such examples in the country. He took to the podium last month at the United Nations climate change summit in New York, underlining the country's commitment to keep pursuing its clean energy goals.

“India is here today not just to talk about this serious issue, but to present a roadmap,” Mr Modi told the conference. “In India we are going to increase renewable energy capacity.”

Mr Modi's policy statement at the global forum came on the back of growing pressure on India from the international community to clean up its act. India is the third-largest carbon emitter after the US and China and, under the Paris global climate agreement, has agreed to reduce its carbon footprint by boosting the use of renewable energy in the country.

Only time will tell if India will be able to meet its clean energy targets. For now one thing is clear, the country has the targets and there is a high-level push to power ahead with plans to boost the use of renewable energy in the country.