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Indian renewable energy is now a more lucrative investment than fossil fuels

May 18, 2018

Wind and solar are helping India’s economy, with potential to add up to 4.5 million Indian jobs over the next 25 years.

Despite this, India will need to take several steps to meet its renewable energy targets and must address a number of barriers.

Delhi, May 18 2018 — New analysis shows that Indian wind and solar energy are now outpacing fossil fuel energy as investment opportunities, providing, on average, 12% higher annual returns, 20% lower annual volatility, and 61% higher risk-adjusted returns than their coal and natural gas counterparts.

Investors also increasingly see renewable energy as less risky than fossil fuel energy, even though wind and solar are new entrants in the energy mix. This is predominantly because of shortcomings that impact profitability of the fossil fuel energy sector in India, such as sourcing issues, import dependency, long construction periods, environmental regulations, and more recently, low plant load factors and stranded coal and gas power plants.

These are some of the main findings from a new series of reports titled An Assessment of India’s Energy Choices, led by Climate Policy Initiative (CPI), Indian School of Business (ISB), Dr. Meeta Keswani Mehra from Jawaharlal Nehru University (JNU), and Dr. Saptarshi Mukherjee from Indian Institute of Technology (IIT Delhi). The series looks at the future of renewable energy in India along different economic dimensions.

From a broader macroeconomic perspective, the studies published under this initiative find that there is a close relationship between economic growth in India and renewable energy growth. For example, higher renewable energy generation corresponds to lower unemployment, fewer net energy imports, a lower fiscal deficit, and a higher GDP over the next 25 years. Econometric analysis of realistic renewable energy deployment out to 2042 shows that India could add between 2 million and 4.5 million jobs in wind and solar. Despite these strong economic signals, however, the studies indicate that to meet the official target of renewable energy capacity of 175 GW by 2022, we need to focus more on strong renewable energy policies, and also on strong macroeconomic policies.

Krishan Dhawan, CEO of Shakti Sustainable Energy Foundation said, “We are pleased to support this initiative on the request of the Ministry of New and Renewable Energy. Assessing the various direct, indirect, and external costs and benefits of all energy resources will reflect the significance of renewables for India’s energy future.” Shakti Sustainable Energy Foundation works to facilitate India’s transition to a cleaner energy future by aiding the design and implementation of policies that promote clean power, energy efficiency, sustainable transport, climate policy and clean energy finance, and has supported this initiative.

“Our work shows that meeting India’s renewable energy targets is clearly associated with positive impacts for India’s economy,” says Dr. Gireesh Shrimali, Director of Climate Policy Initiative, India. “Unfortunately, while it is likely that the sector will continue to grow, there are a range of barriers to it reaching its full potential.”

The studies indicate several paths forward for India:

First, India should prioritize policies that support a strong fiscal environment. Because renewable energy growth is so closely related to economic growth, and vice versa, India can take steps to meet both clean energy and growth goals by focusing not only on strong renewable energy policies, but also on strong fiscal policies.

Second, the authors recommend that policymakers work to address the main investment risk factors for renewable energy. The main factors driving the risk perception of both renewable energy and fossil fuels are counterparty, grid, and financial risks. These risks together account for 50% – 54% of the total risk premium. Accordingly, policy and market interventions targeting the mitigation of barriers associated with these risks have the highest potential for reducing the cost of capital for investments, by up to 4% of the cost of debt of renewable energy investments.

Finally, the study suggests a near-term path that transitions coal plants to flexibility assets. CPI’s research points out that as renewable penetration grows, overall economic risk of stranding existing fossil fuel assets also increases at the same time that there will be a greater need for flexibility to provide baseload power. Managing India’s Renewable Energy Integration through Flexibility makes a case for transitioning coal assets to a different business model that could provide significant emissions reduction and energy benefits, and outlines how to do this in a cost-effective manner.

Climate Policy Initiative works to improve the most important energy and land use policies around the world, with a particular focus on finance. An independent analytical and advisory organization, CPI has offices and programs in Brazil, China, Europe, India, Indonesia, and the United States.

CONTACT:

Angel Jacob – India
angel.jacob@cpidelhi.org

Maggie Young – United States
maggie.young@cpisf.org