Armin Rosencranz

India is on the threshold of achieving sustained economic growth and on the way to becoming the 3rd or 4th largest economy by 2030. To mitigate poverty and uplift its huge population, economic development at a fast pace (between 6% – 9%) is needed.

Prime Minister Modi is right that we have to follow an unswerving path i.e. achieve higher economic growth and also reduce India’s carbon footprint and greenhouse gas emissions. To achieve these contrasting goals, India has set for itself an ambitious target of renewable energy usage, both in the case of wind energy and solar energy.

Currently India depends on coal to supply 70% of its energy requirement and has set a target of 1.5 billion metric tons of coal production by 2020.

India is hugely energy deficient. Its vast expanse of villages require energy for their basic needs. As the demand continues to increase, dependence on fossil fuels will continue to affect the environment. At the same time, India intends to reduce the emissions intensity of its GDP by 33% by 2030, secure 40% of its energy requirements through renewables by 2030, and also create an additional carbon sink of 2.5 billion tonnes of CO2 equivalent through reforestation.

These are very ambitious targets which seem almost impossible to achieve. At present our renewable energy production is 37 GW, which is 8% of the total energy consumption. Another 185 GW is required to supplement this. This requires huge investments. Power Minister Piyush Goyal estimates that some 90 billion dollars are needed.

The demand for the energy is increasing at an unprecedented pace. The land mass vis-à-vis our population is small. As more land is required for urbanization, it is difficult to see how we are going to increase the forest cover to achieve the targeted carbon sink.

But at the same time, we do not have the luxury now of intensive economic development that disregards environmental concerns. At the COP 21 Paris summit, most nations agreed to keep global temperatures capped at 2 degrees Celsius above the pre-industrial levels, and even try to achieve the cap of 1.5 deg Celsius. India needs to play a key role in this ambitious target.

Maybe we can convert this crisis into an opportunity and achieve the twin aim of economic development and environment preservation.

If the initial trends in the solar energy cost and the installed capacity are maintained, the signs are very encouraging.

As the energy demand rises we have seen that the quoted price of per unit solar costs drop drastically, bringing them at par with conventional energy prices. As more and more solar parks are planned and implemented, this will bring further economies of scale and bring down the cost. The solar alliance of 121 of nations between the Tropic of Cancer and Tropic of Capricorn boost the solar energy sector. In the near future, one can hope that the renewable energy basket led by solar energy will form a great part of the broader energy spectrum. India would have done a great service to itself and also to the world, in heralding this change. It would also create huge job opportunities.

Energy is conserved in the new use of LED lighting.

In 2013-14 India accounted for merely 0.1% of global demand for LED lighting. By 2015-16, India accounts for 12%. To continue this trend, the central government must increase its promotion of LED, coordinate amongst the states, ensure that the SEB’s are freed of political interference from small business and ensure the SEBs’ financial health. This is a huge challenge, but one worth accepting and executing. The State Electricity Boards (SEB’S) are the ones which buy the power from the power generating companies like National Thermal Power Corporation Limited (NTPC) and, distribute the same to the consumers through power utilities. Because of the subsidized power being given to various sectors and sections, the SEB’s have been incurring huge losses and these are amounting year after year.

The solution lies in enhancing the tariffs to recover the costs and becoming more efficient and cut the distribution losses. Unless the SEB’s are reformed and unshackled from the political decision process, the power sector and power situation will not improve to the desired level.

GST Bill and Renewable Energy

The challenge to solar energy and its wider use is expected from the implementation of the Goods and Service Tax (GST) law. The GST proposes to replace and subsume all types of taxes, presently being levied by the Central and State Governments. Various taxes like Excise Tax, Value Added Tax (VAT), Service Tax, Central Sales Tax (CST), Entry Tax etc, will get replaced by one single tax i.e. GST, applicable to both goods and services.

This will make India a one market place and allow free movement of goods and services. This will bring transparency in the tax system, plug the loopholes, and  prevent tax evasion. This will be collected by the Central Government and then distributed amongst the states as per the decided formula. This piece of legislation which will greatly benefit the economy.

Though GST is a long awaited legislation and will benefit the economy and the growth in a very positive manner, its impact on the cost of solar energy is going to be negative. Renewable energy sector is currently a beneficiary of several indirect tax exemptions.

The GST bill proposes to revoke most of the exemptions. Though the Ministry of New and Renewable Energy (MNRE) is in dialogue with the Department of Revenue to ensure continuation of exemptions from the GST, costs are expected to go up by 12%-20%, if exemptions are withdrawn. As there is a strong focus of the Government on this sector and also to achieve the policy of energy access, energy security and climate change mitigation, these exemptions may continue. Also, the sector is relatively small and would not lead to significant loss of revenue in the short term.

Another challenge to the cost of solar energy is that storage infrastructure is also required to be catered for uninterrupted and stable power supply. This will add up the cost quoted for various tenders and dampen the interest of the vendors. Warehousing power is considered crucial components for India’s green targets.

Budget 2016 and the Renewable Energy Sector

This year, the Ministry of New and Renewable Energy will receive Rs 5036 crores as opposed to 262 crores in 2015-2016. The clean energy cess on coal etc, has been raised from Rs 200 per tonne to Rs 400 per tonne and thus more funds will be available for renewable energy. The Government aims to achieve the target of 175 GW of clean energy by 2022. Of this, 100 GW is solar and 60 GW is wind power. In the Budget 2016, the Government has capped the Accelerated Depreciation Tax benefit at a max of 40% from April 2017. The sector had enjoyed accelerated depreciation of 80% till now. It is likely to get affected by this, but as the proposal is effective from April 2017, the industry will have time to adjust and hopefully a decision on GST would also come by then. Of the 25.18 GW wind energy in the country, 70% is built on accelerated depreciation. India is the 5th largest producer of the wind power in the world.

So, coming to the Indian scenario, India’s goal is to have 40% of the energy mix coming from the renewable sector. This is against 20% targets set by China for itself. In terms of percentage, the goal is larger than China’s, but in absolute figures, this will be much less as our total consumption is quite less. As of today, renewable energy in India installed is 37 GW which 8% of the total energy consumption, in comparison to 3% in China. The aim is to have 175 GW by 2022 of which 100 GW will be from solar and 60 GW from wind and other remaining from other sources. As on date, the installed solar capacity is 3 GW and this has been increasing in the last few years i.e. from 2002-14. This capacity addition of solar has been at the rate of 20% year on year compounded annually. As per a report, the installed capacity is likely to go up to 147 GW by 2020 and, during this year, we are likely to install 12 GW of solar in 2016, which is 3 times the current capacity. Considering this, the growth in India has been impressive and the targets are equally impressive. In terms of percentage, we are doing well.

However, if we were to compare with China, in absolute terms, it has a much bigger size of the economy. The size of the installed capacity, the demand and the total electricity consumption is much higher. So, their figures even though they are great in terms of the installed capacity, and the future projections of installed capacity of the renewable energy, look much greater.  Although Indian figures are lesser, but comparatively in terms of percentage, we are also doing well, though not as well as China. Probably, we have started focusing on this are much later. But now that the Government is focused, the targets set are likely to be achieved and hopefully will get surpassed.

The world is seeing a reverse trend. The coal consumption is likely to increase at a lesser pace and renewable energy will get more importance.

The hope is that, we will be able to achieve the targets set in COP and keep the global temperature increase well below 2%.

If we are to consider the comparison of development of renewable energy between India and China, the contrast is too great. China has been developing the renewable energy sector at a very fast pace and in a very large manner. China’s current solar power energy is 43GW and it plan to increase this capacity more than 3 times to 143 GW by 2020. The country will add 15 GW solar power annually in the next five years. It achieved more than 25% global solar power addition of 15 GW in 2015. China is held by the increased domestic demand that is helping it to develop solar energy. The installed capacity of solar energy has increased to almost 13 times since 2011. Moreover, solar energy accounted for 3% of the total energy mix last year in 2015.

Coming to the wind power, China plans to commission proximately 31 GW of wind power this year and added 33 GW last year in 2015. The wind energy installation in China has doubled since 2012 to 139 GW. Because of these initiatives, the coal consumption in China has come down by 3.7% in 2015 on an yearly basis. So, as it appears, it has reached a peak in the global coal demand. China has been setting up new global records and the increase in solar and wind energy capacity last year was to the tune of 74% and 34% respectively. China’s goal is to grow 20% of the total energy consumption by 2030 from the current level of 11%.

These figures look very huge because the total consumption and the base is very high. On the other hand, India’s installed capacity and total energy consumption is also very less. The figures that India has achieved so far appear minuscule. But, if we look at the figures of development of renewable energy in India by itself, they are quiet impressive.

Armin Rosencranz is a lawyer and political scientist. He is the founder of Pacific Environment, an international environmental NGO and has also co-authored a series of ten books on climate change, environmental law and policy in India.

Posted by The Indian Economist | For the Curious Mind