India’s Clean Energy Goals May Widen Regional Disparities

India’s renewable energy targets could exacerbate regional disparities, with states rich in solar and wind resources benefiting more than those with lower renewable energy resources.
A recent working paper suggests that as the share of renewable energy increases, renewable poor states may need to curtail thermal power generation and import electricity from renewable rich states.
This could lead to budget deficits exceeding the Fiscal Responsibility and Budget Management (FRBM) Act limit in several states, including some of the most populous but energy-poor states of West Bengal, Uttar Pradesh, Bihar among others.

India’s ambitious clean energy goals, focusing on increasing renewables and reducing coal use, may heighten disparities between two regions of the country – one covering western and southern states and the other, northern and eastern states – finds a recent working paper. Since 2014, India has ramped up its efforts to transition to renewable energy sources, with a goal of 175 GW of renewable capacity by 2022 and, more recently, a 500 GW target by 2030.

The working paper by the National Institute of Public Finance and Policy (NIPFP), a public economics and policy research institution, notes that states in India’s western and southern regions have abundant variable renewable energy (VRE) sources, such as solar and wind, while states in the northern and eastern regions of the country, have fewer VRE sources but have more revenue-generating coal reserves.

The VRE-rich states in the west and south are more prosperous economies too and have a better Gross State Domestic Product (GSDP) growth in comparison to the VRE-poor states. Between 2012 and 2019, the eight VRE-rich state economies had an average growth rate of 7.75%, while the VRE-poor states had a growth rate of 6.5%. Not only did the VRE-rich states grow faster, but their economies are also more than 150% larger in absolute terms, says the study. As the use of renewable energy in electricity production increases, states with fewer sources end up spending more on renewable energy setups and earning less from them, says the paper. The NIPFP paper considers factors such as availability of VRE, power generation through VRE, coal reserve and production, optimal generation mix of different sources of energy in the transmission system and state-wise electricity import projections to determine the potential financial consequences of India’s decarbonising policies.

As per the paper, if the penetration of renewables in VRE-rich states keeps increasing, as is the current trend, inter-state transfers will have to be undertaken as a way to manage sustainable grid operations. In this scenario, the renewable poor states will have to curtail thermal power generation, even if the prices are competitive and import electricity from renewable rich states. “The VRE poor states will be committing vast quantities of budgetary resources to purchase power from VRE rich states,” says the paper, predicting that the VRE-poor states will import electricity worth Rs. 460 billion in 2030.

In certain states – West Bengal, Uttar Pradesh, Bihar, Jharkhand, Odisha, Chhattisgarh, Punjab and Haryana – this would lead to budget deficits higher than 5%, which is the limit set by the Fiscal Responsibility and Budget Management (FRBM) Act. In other states such as Kerala and Assam, they will experience the impact of importing electricity on their budget deficit, but it will be within the 5% limit.

“The impact is most severe on the three coal-rich states of Jharkhand, Odisha and Chhattisgarh, the report highlights. These states have 71% of the proven coal reserves and currently contribute about 60% to the total production of 730 MT,” says the working paper.

The working paper predicts that India’s total renewable capacity will reach 275 GW by 2027 and expand to 420 GW by 2030. However, a majority of this capacity is expected to be in more affluent states, with projections of 248 GW and 376 GW, while less prosperous states are anticipated to contribute just 17.5 GW and 28 GW, respectively.

Future Projections

India’s annual CO2 emissions were approximately 2.71 billion tonnes in 2021. The power sector contributes significantly to total CO2 emissions, accounting for more than one billion tonnes in 2020-21, nearly 40% of the total emissions for that period. Considering the energy sector’s contribution to carbon dioxide emissions, India is working towards decarbonising the sector.

India aims to reach its environmental targets by decreasing the emissions intensity of its GDP by 45% from 2005 levels by 2030, as per the updated Nationally Determined Contributions (NDCs). Additionally, the country plans to have around 50% of its total electric power capacity from non-fossil fuel-based sources by 2030.

India has a combined VRE potential of over 1050 gigawatts (GW) from solar (749 GW) and wind (302 GW) energy sources, states the NIPFP paper. It adds that the immediate, readily-available potential for utilisation is primarily concentrated in eight major states in the country’s western and southern regions – Rajasthan, Gujarat, Madhya Pradesh, Maharashtra, Karnataka, Tamil Nadu, Andhra Pradesh and Telangana, each with VRE potential greater than 5% of the total. Meanwhile, there are ten states in the eastern and northern parts of India that have less than 5% of the country’s renewable potential. Among them, three states, Uttar Pradesh, Bihar, and West Bengal, are some of India’s most populous. The paper states that in solar energy, the renewable-rich states have 54% potential while the poor states have only 17%. When considering wind power, the gap is even wider. The rich states have 98% of the wind power potential, while the poor states have merely 1.6%.

The growth of VRE-rich states in terms of renewable energy will become more pronounced because most of the upcoming VRE installations are expected to be carried out by private sector companies that are naturally inclined to sites with abundant sunlight and wind resources, which are primarily in the VRE-rich states, says the paper.

Explaining the regional disparity in renewable capacity, Rohit Chandra, an author of the working paper and Assistant Professor at the School of Public Policy, Indian Institute of Technology (IIT), Delhi, says, “Availability of natural resources such as wind and solar, financial incentives and the financial capacity of state governments to invest in these initiatives are some of the factors influencing the growth of renewables in states. If the private sector is not involved, the government needs to make the investment. However, many state governments, particularly in the renewable-poor states, face significant financial constraints, preventing them from making substantial capital investments in such projects.”

He explains that many state governments, are now being compelled to enter into new renewable energy contracts, in addition to their existing power purchase obligations, which will impact their state fiscal deficits significantly. This is particularly acute for coal-rich states, whose budgets will face the dual problems of declining coal royalties and increasing cost of power procurement. As his paper shows, this may push coal-rich, VRE-poor states to breach the Fiscal Responsibility and Budget Management (FRBM) and other budgetary deficit norms by 2030.The working paper says that the states abundant in renewable energy sources will encounter the challenge of grid stability. When the share of renewables increases in the grid (15% of total power generated for solar and 30% of total power generated for wind), it results in higher system maintenance costs. Power distribution companies (discoms) will have to deal with the unpredictability of VRE generation. To address this, there are two options: either reduce renewable generation, which will impact national climate goals, or increase exports to other states or countries, suggests the paper.

Energy And GDP

The working paper establishes that the VRE-rich states are more affluent and have a better GDP growth compared to the VRE-poor states.

However, Raj Pratap Singh, a former chairman of UP Electricity Regulatory Commission (UPERC), disagrees with the stance of the paper. He told Mongabay India, “The fact that renewable growth in one part of the country, will impact other states economically, as the paper states, is unreasonable.” GDP loss could happen in a situation where, for example, electricity supply is limited and is preventing industries from functioning effectively. However, he explains, this is not the case – power situations are not holding back industry and hence cannot be attributed for impacting GDP.

He gives the example of Uttar Pradesh, which has a distinct load profile compared to industrialised states, where peak energy demand typically occurs during the daytime. In Uttar Pradesh, which is less industrialised, the peak demand tends to be at night due to domestic consumers.

Singh also emphasises, “Renewable energy is location-specific and cost-effective. To promote its utilisation, the government has implemented Renewable Purchase Obligation (RPO) and has even waived transmission charges.”

However, Chandra from IIT, Delhi notes that the “existing waiver-based system shifts the burden of electricity system maintenance costs onto state entities, particularly state transmission companies, which are already grappling with financial challenges.” Instead of relying on a waiver-based approach for subsidising renewable energy, there is a range of other instruments that could be used, he suggests.

As Chandra’s paper shows, VRE-poor states have so far struggled to attract large-scale private-sector investment in renewable energy; over 95% of grid-scale RE power generation comes from six states. However, this can change if the states streamline their processes – offering financial incentives, tax-breaks, facilitating land pooling, ensuring easy access to transmission infrastructure and most importantly, providing financial security or a dispute resolution mechanism for international investors. These changes, though, will require a significant timeframe, likely around four to five years, Chandra concludes.

(Published under Creative Commons from Mongabay-India. Read the original article here)