Energy transition in India .. “Finance” is a weapon to promote renewable sources and abandon coal - Energy

Read in this article

  • Finance..the most important tool during India’s energy transition
  • India needs to issue rupee green bonds to boost domestic finance
  • China’s solar import duties supported domestic industry
  • Renewable energy projects have attracted investments other than coal
  • India’s renewable energy capacity is 110 GW
  • 607 gigawatts of coal electricity has been eliminated over the past 12 years

India’s energy transition plans, both short and long-term, require funding to support preliminary steps towards achieving carbon neutrality by 2070.

Indian Prime Minister Narendra Modi pledged at the UN Climate Change Summit COP26 last November to support ambitious long-term plans to achieve carbon neutrality, through phased plans, including major targets for 2030.

It is expected that the South Asian country will need to provide the necessary financing for energy transition plans in India, especially as it has made important strides in the field of renewable energy and the phase-out of coal.

The obstacle to financing the energy transition collides with another reality that emerges from time to time, which is the possibility of directing funding allocations to meet basic needs in light of continuous power cuts, as a result of the gap between focusing on future production of renewable energy, in conjunction with the closure of coal plants.

Financing the energy transition in India

During the COP climate summit, India put forward 26 long-term climate commitments by 2070, but supported them with short-term interim targets by 2030, especially with regard to renewable energy, which made significant achievements.

Energy Transition in India
One of the solar projects supporting the energy transition in India – Photo courtesy of India Climate Deal

Because India’s energy transition plans cannot be implemented at the government level only, the demand for renewable electricity purchase agreements is expected to provide businesses and industries with clean supplies that allow for a lower carbon footprint.

In the meantime, decarbonization plans, especially from sectors with a heavy contribution to emissions, require a huge amount of funding with an expected demand for renewable energy with huge assets.

Renewable energy projects have expanded with attempts to provide foreign investment and loans to finance India’s energy transition plans, but ambitious carbon-neutral plans require the expansion of more sources of financing.

Given the currency risks of relying on green dollar bonds, India should make room for more domestic financing based on the strengthening of the rupee.

(1 Indian rupee = 0.013 US dollars)

double steps

To navigate India’s energy transition after years of involvement in the fossil fuel industries, the government has taken two parallel tracks, expanding renewable energy – especially solar energy – and reducing reliance on coal.

India has supported both tracks with measures and projects that may not bear fruit at the present time, or allow to overcome the crisis of power outages and plunge states into darkness, but they constitute a stone that can be built upon and whose returns can be measured by 2030.

The Corona pandemic has disrupted these paths, after the closures affected supply chains, shortages of raw materials and weak production.

The last fiscal year (in India starting in April and ending in March) saw record additions of renewable energy, as the contribution of coal decreased compared to previous years.

In contrast to the new additions in renewable energy, a number of coal-fired power plants went out of service, during the fiscal year 2021-2022, and retired after their operational life exceeded the permissible limit.

Below, we reveal the performance of India’s two energy transition paths (expansion of renewables and solar energy, reduction of coal business) as reported by the Indian economist, banker and energy finance analyst at the Institute of Energy Economics and Financial Analysis, Kashish Shah, in an article published in The Economic Times.

coal power generation in india

Renewable Energy Additives

After recovering from the Corona pandemic, India’s energy transition journey continued to achieve important achievements in the clean energy sector, and the fiscal year that ended last month witnessed the addition of 15.5 gigawatts of renewable resources, along with the installation of nearly 13.9 gigawatts of capacities.

The total renewable energy capacity in India is currently 110 GW, while the sector’s investments during the same fiscal year amounted to $15 billion, including green bonds worth $4.7 billion and loans worth 1.8 billion.

India’s energy transition plans include further development of renewable energy additives through projects under development, through tenders and auctions, with a capacity of up to 50 GW.

While the Indian credit rating and investment agency “ICRA” expected the capacity to reach 16 gigawatts during the current fiscal year, which ends in March 2023.

India has set interim targets to achieve carbon neutrality goals, including adding 450 gigawatts of renewable energy sources, by 2030, with operating rates between 35 and 40 gigawatts per year.

Solar energy and local manufacturing

The Indian government focused on boosting the trend towards local manufacturing, and introduced production incentive programs two months ago, and major Indian companies – including Reliance, Adani and Shardy Sai Electrics – expressed their willingness to work on manufacturing an integrated unit with a capacity of 12 GW.

According to data from the Institute for Energy Economics and Financial Analysis, projections indicate that the local cell manufacturing capacity will be 33 gigawatts and the unit capacity will be 51 gigawatts by 2025, paving the way for manufacturing imports to be dispensed with.

India is currently dependent, even as its domestic manufacturing capacity grows, on Chinese imports (either directly or through Chinese companies in Asian countries) for solar modules.

To try to protect the domestic market from so-called “trade dumping”, the government imposed duties on Chinese imports of 40% on solar modules and 25% on cells, proportionally affecting the slowdown in capacity growth.

Industry developers and suppliers have taken advantage of the short period of fee hiatus, from July last year until it resumed this month, to bolster competitiveness.

The gap between the periods of imposing fees on local developers, between August last year and March of this year, has also allowed for the support and development of the industry.

Gradual abandonment of coal

India’s energy transition cannot be completed successfully with coal consumption growing at previous rates, and New Delhi has begun phasing out coal, especially after the COP26 climate summit.

Energy Transition in India
India’s energy transition requires phase-out of coal projects – Image via BBC

Since 2010, India has canceled projects for coal-fired power plants with a capacity of approximately 607 gigawatts, and 2.5 gigawatts of coal power capacity has been discontinued over the past five years, according to Global Energy Monitor data.

The current scene indicates the abandonment of all proposed projects, while the South Asian country is satisfied with the available capacity of generating electricity using coal in the grid, estimated at 55 gigawatts, according to Monitor data last January.

The grid capacity includes coal electricity (31 GW for projects under construction, in addition to another 24 GW).

On the other hand, analysts expect a retirement capacity of 65 gigawatts during the next 10 years, divided between 42 gigawatts for plants that are 25 years old or more, in addition to plants with a life span of 2032, with a capacity of 23 gigawatts.

Renewable energy projects have succeeded in attracting the attention of investors; Due to its low cost and a safe, permanent and clean source of electricity, unlike coal projects.

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