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An Assessment of India’s Energy Choices

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Published: May, 2018

India’s economy is growing rapidly, and with it, so is energy demand. The IEA-IEO (2015) estimates that India’s aggregate energy consumption will more than double by 2040. The Government of India plans to install 175 GW of renewable energy projects by 2022 and 275 GW by 2027. This means that renewable energy generation will contribute about 20.3% and 24.2% of the total electricity requirement in 2021-22 and 2026-27, respectively.

This four-report series, 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) and partially supported by Shakti Sustainable Energy Foundation, looks at paths to renewable energy penetration in India along different dimensions including the social costs, macroeconomic impacts, environmental impacts, financial risk, and flexibility considerations.

Financial Performance and Risk Perception
Vinit Atal and Dr. Gireesh Shrimali, Climate Policy Initiative

This report compares the historical and present-day financial performance and risk profile of the renewable energy and fossil fuel power sectors, in order to inform investors and policymakers.

Key findings include:

  • Renewable energy has been a more lucrative and a less risky investment than fossil fuel power in India.
  • Within the renewable energy power sector, solar power is perceived as less risky than wind power.
  • The main risk factors driving the risk perception of both renewable energy and fossil fuels are counterparty risk, grid risk, and financial risk.
  • Counterparty risk is the most significant risk by far, contributing 22-27% of the risk premium for both sectors.

What it Means for the Economy, Jobs, and Energy Security
Dr. Meeta Keswani Mehra, Jawaharlal Nehru University, and Dr. Saptarshi Mukherjee, Indian Institute of Technology

This report examines macroeconomic impacts of India’s renewable energy pathway. By establishing the relationship – negative, positive, or neutral – between key macroeconomic factors and renewable energy, the report examines the opportunities to meet economic and clean energy targets simultaneously.

Key findings include:

  • Renewable energy is clearly associated with positive impacts for India’s economy.
  • Renewable energy has potential to add up to 4.5 million domestic jobs over the next 25 years.
  • In order to meet India’s clean energy and growth goals, India needs to focus more on strong renewable energy policies, and also on strong macroeconomic policies.

Managing India’s Renewable Energy Integration through Flexibility
Vivek Sen, Saurabh Trivedi, and Dr. Gireesh Shrimali, Climate Policy Initiative

This report examines the challenge of managing India’s renewable energy growth with increased flexibility in the system. This component specifically tries to address the dual issue of flexibility and stranded assets and looks at the plausibility of using existing coal-based power plants as flexibility reserves.

Key findings include:

  • In the short-term, we find that transitioning existing coal power into flexible coal power is both a cost-effective and technically feasible solution for increasing renewable energy penetration and addressing potential stranded asset risk in the broader Indian energy system.
  • We emphasize that we are not recommending that flexible coal is a long-term solution. Transitioning away from coal is necessary to avoid the most dangerous effects of climate change. In fact, our analysis shows that it is important that the cost of cleaner flexibility options, such as batteries, come down as soon as possible so that India can transition to a low-carbon electricity system in an accelerated manner.
  • Assuming that this pathway is taken as short-term, our analysis reveals several important considerations for policy makers and investors to ensure it is implemented as cost-effectively as possible.
  • Converting existing coal plants into flexible plants will require compensation to owners of these assets to remain economically viable. The additional cost of converting a coal plant into a flexible plant is low to moderate.
  • Flexible coal should be procured cost-effectively using appropriate market mechanisms, such as capacity auctions.

Social Costs of Coal-Based Electricity in India: Estimates of Impact on Health and Agriculture (forthcoming)
Dr. Ashwini Chhatre, Indian School of Business