Achievement of renewable energy targets call for coordinated policy work to address challenges of Discoms, cross subsidy, investments, tariffs and grid management
When the British left India, the total electricity generation capacity was a meagre 1,362 MW and the per capita electricity consumption merely 16 kWh compared to around 400,000 MW of installed capacity and per capita electricity consumption of around 1200 kWh now. Thus the British left behind them a looted, partitioned, impoverished and a dark sub-continent, as stated in a report by the Central Electricity Authority, “Growth of electricity sector in India from 1947-2020”.
In comparison, the total installed capacity in the UK in 1949 was 12,845 MW1 and at that time its population was nearly 1/7th that of India, as noted in the UK Department of Energy and Climate Change Report.” Today, 75 years later, the total installed capacity in India is 400 GW and that in the UK is nearly 76 GW for a population that is 5% that of India (Worldometer). These statistics show the enormous challenge that the Indian power sector has had to face in its journey from 1947 till date and how it compares with the challenges in the developed countries like the UK.
In spite of the great uphill task accomplished so far, India’s per capita electricity consumption is a little less than the 1/3rd of the world average, which is 3,494 kWh and it is nearly 1/5th of that in China, according to Our World in Data. The well being and the lifestyle of the 1.4 billion people of India is almost entirely dependent upon per capita electricity consumption. The road network, railways, airports, industry, health, education – the growth of each and every sector depends on electricity.
The Indian electricity sector has always been at a cross roads facing multiple evolutionary challenges of supply, deficit, demand, policy, tariffs and the regulatory and institutional challenges. Even today, we stand at a point with new challenges of somewhat different kind such as climate change and energy security, technologies and operational approaches. It seems in near future, the electricity sector will also have to carry the burden, at least in part, of the transport sector. In this situation, the only way forward is to have more renewable energy connected to the system. In today’s environment, it is important to speedily add renewable energy capacity to the grid and this poses challenges of investments, institutions, off-take arrangements, etc.
In 2021, at COP 26, India announced that it will meet 50% of its energy requirements from renewable energy and will be net zero by 2070. The non-fossil target for 2030 has been set at 500 GW, which may include around 140 GW of wind, 70 GW hydro (large and small) and 300 GW of solar. Earlier a target of 175 GW by 2022 was announced, which has been partly met.
In early June 2022, the government announced, Green Open Access Rules 2022, meant to provide a new impetus to renewable energy sector. The decision to go for auctioning offshore blocks in tranches of 4 GW each from 2022 till 2024 has also been made. As of today, a little more than 40 GW of wind and 55 GW of solar capacity have been added to the grid. However, since 2017, 16.3 GW of onshore wind capacity has been auctioned, of which only 3.126 GW has been commissioned (accounted for in 40 GW).
According to reports, 3-4 GW capacity may get surrendered, allowing us commissioning of nearly 10 GW capacity over the next two years. With many additional auctions to come, by 2030, one can hope to have around 25 - 30 GW of wind energy capacity addition and a total installed capacity of onshore and offshore wind of around 65 - 70 GW. All this under the prevailing “business as usual scenario” and assuming that around 5 GW of wind power would have to be retired after completing their useful lifetime by 2030. Though very significant projected developments, it is clear that the projects in sight do not entirely add up to 500 GW by 2030.
Achieving targets by 2030 is one thing, but achieving net-zero by 2070 is altogether a different ball game. To achieve net-zero one must first of all have full understanding of GHG emissions in different sectors. Some of the sectors may not offer direct solutions to bring down emissions to zero. Aviation and defence are some of the examples. Bringing down emissions to net zero in power sector itself will be a challenge. Since the capacity utilization factor or the plant load factor of thermal plants is much higher than that of renewable energy plants, offsetting a given quantum of generation from thermal plants will require a much higher renewable energy capacity. Therefore, if today we wish to completely offset 236 GW of thermal capacity today, we would need something like 245 GW of wind capacity and 247 GW of solar capacity, assuming that wind because of a higher capacity utilization than solar offsets two times the capacity offset by solar (Table 1).
There are other scenarios possible. For example, wind offsets same or half that of solar, in which case we have a solar – wind combination of 435 GW and 144 GW of solar. If we look at 2040, thermal capacity to be replaced to achieve net zero is around 642 GW and we would need something like 571 GW of solar and 601 GW of wind (Table 2). These numbers are large and cannot be easily achieved. Bringing about the desired capacity by 2030 and net-zero by 2070 as announced by the government will immediately require intense policy and planning work.
The new Green Open Access Rules and the offshore auctions announcements are some such initiatives. The green energy open access policy will allow any electricity consumer access to green energy. While earlier this was possible only for consumers with minimum requirement of 1 MW, now this limit has been has been significantly dropped to 100 kW for green energy (only), which means a very large number of small consumers will be also to purchase renewable power through open access. For example, now most of the residential societies and small enterprises will be able purchase green power from the grid. As they say, the devil is in the detail, the cross subsidy surcharge in the tariffs will still be levied but may be capped. This brings us back to the chronic lacunae in the power sector and the challenges. One of the challenges is the financial state and functioning of Discoms, which is linked to the concept of the cross subsidy surcharge.
To understand the aspect of cross subsidy surcharge, we need to delve deeper into the functioning of the electricity sector in which the Discoms are perhaps the most important institutional element. Electricity in India is supplied by the distribution companies, which are licensees and are either government owned or private but operate in complex socio-political and a highly regulated environment. In the supply chain from generation and transmission to supply at the consumer end, the distribution company is often considered to be the weakest link. These distribution companies are running into losses accumulated at around Rs 90,000 Crore or $12 billion (FY-2021), according to a report of NITI Aayog, “Turning Around the Power Distribution Sector: Learnings and Best Practice from Reforms”. These losses come in the way of the energy transition and renewable energy augmentation in the grid. The Green Open Access Rules 2022, if handled and implemented rightly, may enable stakeholders to partially bypass the Discom and its payment security issues.
Though the problem of the distribution companies comes in the way of energy transition planned today, interestingly it is not a new problem and is a legacy of the erstwhile electricity boards, which were unbundled at the time of the Electricity Act, 2003. One of the main reasons for the Electricity Act, 2003 had been the need to bring about a reform in the Indian electricity sector so that large investments from private sector in generation and transmission can happen. On certain aspects, the reforms did reasonably well such as the creation of a quasi-judicial regulatory institutional mechanism at federal and state levels and the unbundling of the boards. Private distribution companies emerged in some states, which was one of the objectives of the reforms process.
However, in most of the states, the Discoms remained in state government’s control. Given that electricity, its availability and its price are always on the political agenda, the state governments and the political organisations have not stopped using electricity as a tool to fulfil some of their electoral promises. This is not at all a new development and has been going on for the last 40 years.
Interestingly, while the Indian vote bank can be divided along the lines of caste, religion and ethnicity, yet another category is the type of consumer and “the agricultural consumers” happen to be the largest in numbers. More often than not, free or very low cost electricity, is the promise made by politicians. This would be fine, if the governments work out an arrangement to directly pay for this subsidy without adversely impacting the financial state and working of Discoms.
However, management of the resultant messy state of affairs with regard to the finances of Discoms is left to the Discom management. For Discoms, the only option is to charge a higher tariff from commercial and industrial consumers and thus they cross-subsidise domestic and agricultural consumers. Even this does not lead to full resolution of the problem and with the system providing part of the electricity at low tariffs and another part at high tariffs leads to the possibilities of misuse and inefficiencies. Since all payments in the entire power sector, be it for fuel, equipment or modernization come from consumers via Discoms, poor financial state of the Discoms has an adverse impact on the investments in generation and transmission.
The result is also a poor quality of electricity supply service. These losses come in the way of the bankability of new projects and investments. Massive as they are, the accumulated losses can also be termed as the elephant in the room. They impact all decisions and all policies including that of the auctions to bring down the cost of electricity. While bringing down the cost of electricity is very much in the public interest, the manner in which it is done should not hamper future investments and project development.
On the other hand, the attempts of industry and the private generators to by-pass the situation of Discoms by entering into direct contracts (known as “open access” in regulatory parlance) have often been thwarted by different kinds of rules and one of them being cross-subsidy surcharge, which is a surcharge levied on “open access” consumers and reduces the commercial attractiveness of such transactions. It must, however, be noted that the Electricity Act itself is robust and forward looking, encouraging greater efficiencies through open access mechanism.
While the financial state of the Discoms has come in the way of investments in general, not surprising that there has also been consistent and adverse impact on renewable energy. As a result, on the one hand there is an obsession to drive down tariffs for supply of electricity from wind and solar and on the other hand, we have not been able to meet the targets.
Over the last two-three decades, climate change remained a lingering issue, with one part of the government trying very actively to enhance renewable energy capacities through target setting and national commitments of the government and on the other hand, the other parts of the government (states and to some extent centre) have worked on frameworks and policies such as auctions and cross subsidies that inhibit rapid scale-up of renewable energy.
Over the last decade, in the floods, avalanches and heat waves (up to 50 deg in Delhi this year) from Kashmir to Kanyakumari, climate change has reared its ugly head again and again. As if this was not enough, the Russia-Ukraine conflict has once again reminded us of the precarious energy security situation. These along with national commitments towards climate change lead to new compelling reasons to pursue renewable energy on a very large scale.
Given the kind of scale-up and accelerated deployment of renewables required, intense and forward looking and well coordinated policy work on all the fronts is the need of the hour. The fronts are institutional (such as Discoms), mechanisms (cross subsidy), investments, tariffs and importantly grid management.
(The author is the Vice President of World Wind Energy Association)