This guest post is co-authored by Joshua Busby, Associate Professor, and Sarang Shidore, Consultant and Visiting Scholar, at the LBJ School of Public Affairs at the University of Texas at Austin. For further analysis from the blog, see: “How India Could Achieve Its Audacious Solar Ambitions“
The Paris climate negotiations produced an agreement that was satisfactory to all the major parties, including India. While much has been made of its negotiating position during the climate negotiations, less analysis has been dedicated to the implementation challenges going forward for the ambitious targets in India’s Intended Nationally Determined Contribution (INDC), namely the commitments to improve emissions intensity and scaling up of non-fossil energy.
In addition to the generic challenge of affordable energy storage for intermittent renewable power, there are four India-specific challenges related to solar scale-up including (1) viability of the current bidding process, (2) the major challenges of grid integration, (3) the persistent financial crisis of distribution companies, and (4) multiple barriers to rooftop solar roll-out.
India’s Emissions Profile and Trajectory
Though its historic contribution to greenhouse gases is small, India is the fourth largest emitter of carbon dioxide, responsible for 7 percent of global emissions. However, India’s growth potential is enormous. India has more than 240 million people without access to electricity. Much of the rest of the country has intermittent power.
As a consequence, the country’s energy use (and emissions) per capita are the lowest of all major economies and will inevitably grow as the country gets richer and people acquire more access to energy.
According to the International Energy Agency, under current policies, India’s electricity generation will increase by 250 percent by 2040. In 2013, more than 70 percent of India’s electricity was generated by coal. Under business as usual policies, that would only reduce slightly by 2040, but in the post-INDC world the anticipated solar scale-up would reduce this number very substantially to about 50 percent of net generation.
In its INDC, India committed to reduce its emissions intensity by 33 to 35 percent below 2005 levels by 2030. India also announced its intent to increase the non-fossil share of the country’s electricity to 40 percent by 2030, with an explicit commitment to scale-up wind to 60 GW and solar power generation to 100 GW by 2022, split nearly evenly between large-scale solar parks (60GW) and rooftop solar (40GW).
With these more aggressive mitigation strategies, India could reduce that increase in carbon dioxide emissions by as much as 57 percent compared to the baseline. However, that would require India overcome many of the obstacles to implementation of its INDC targets.
Solar scale-up is the principal hope for non-fossil energy. A significant portion of the wind potential has been exploited, and nuclear energy and large hydropower have stalled in the face of high costs and public opposition. The partial good news is that land acquisition, which has historically been a major challenge for Indian infrastructure projects, may be less of an obstacle this time around with the concept of solar parks – such as Charanka in western India – taking off. But key obstacles remain.
Solar Bidding: How Low Can You Go?
The Indian government has adopted the lowest-bid model for solar bids. This is due to the drive for greater transparency in the wake of the major scandals on coal blocks and telecom bandwidths during the previous government. However, companies that are making these bids may not be able to generate power at the price they have offered on a sustainable basis.
There is precedent for problematic bids in India in the power sector. Nearly a decade back, India adopted a similar model for building large coal-power plants known as UMPPs (ultra mega power projects) of 4 GW capacity. The low bids these attracted made electricity rates unviable, especially when imported coal costs rose in the later part of the decade, and the contractual design had no allowance for passing on these costs to consumers. If the current solar bids result in electricity rates that cannot be profitable for the generators, then the anticipated solar scale up would fail. Fuel costs are zero for solar projects, but cost escalations routinely occur in Indian infrastructure projects.
Part of the blame also lies with the private sector which submitted unrealistically low bids, hoping for upward adjustments in due course, thus inviting accusations that it has acted in bad faith. Most infamously, Reliance Power won two UMPP projects with extraordinarily low bids of Rs. 1.77 and Rs. 1.196 (approximately $0.039 cents and $0.026 cents per kWhr respectively at the then-prevailing exchange rates) for its projects in Tilaiya and Sasan in central India.
The courts subsequently detected irregularities and invalidated a part of the contract terms for Sasan triggering a company lawsuit, while Reliance abandoned the Tilaiya project accusing the regional government of delays. Reliance has also halted construction for the third UMPP in Krishnapatnam in southern India while challenging the bid rates with the central regulator.
The final UMPP contract, won by Tata Power in Mundra in western India, is also mired in a legal dispute over the original bid rates, which Tata wants increased. With solar bids recently plunging below Rs. 5 per unit, a possible repeat of the UMPP failures looms on the horizon.
The DISCOM Crisis: Who’s going to buy all this power?
Tied to flaws in the contractual process is the financial ill-health of India’s mostly state-owned distribution companies, commonly known as DISCOMS, who are in debt to the tune of $66 billion. DISCOMS tend to under-buy power to reduce losses, a major barrier to large new additions of solar capacity. The Indian government has unveiled a rescue package for DISCOMS, but some analysts are still not convinced this will solve the problem.
The Grid: Will the power flow?
Another challenge is the inadequacy of the existing grid to be able to move renewable power from sites of generation to sites of consumption. This is already hampering scale-up in wind – for example, the southern state of Tamil Nadu wastes a substantial fraction of its generated wind power due to grid challenges. Moreover, the amount of electricity lost during transmission is still too high and needs to be reduced substantially.
Although the Indian government has announced spending of nearly $16 billion for this purpose, much more will be needed.
Rooftop Stall: Why can’t I generate my own power?
40 GW of the 100 GW solar target is slated for rooftop solutions. At one level, this is a no-brainer from the economic standpoint because commercial and industrial users pay electricity rates in India that are above costs of solar generation. However, net metering, the technological and policy framework that is required for rooftop solutions to work, has not yet been implemented in a majority of Indian states. The financing environment for rooftop installations is far from being in place.
Finally there is significant resistance from India’s largely state-owned distribution companies, many of which are deep in the red, towards widespread net metering – for the entirely legitimate reason that they will lose their best-paying customers. A win-win revenue model that does not penalize these companies is essential for net rooftop solar to be politically viable.
In sum, India is going to build significant solar generation capacity in the next few years, but unless these obstacles are overcome, that capacity may only be a fraction of the intended 100 GW target in the country’s INDC.