PM’s renewable pitch ignores existing power capacity

During an interactive session at the Bloomberg Global Business Forum in September, Prime Minister Narendra Modi faced a dilemma on the issue of clean energy versus coal-based power.

Even as Modi reiterated his commitment to rapidly promote the use of renewable energy solar, wind, bio-mass, small hydro (India has more than doubled its original goal of having power capacity on renewable from 175 GW by 2022 to 450 GW by 2030)— he was confronted by the Bloomberg CEO Michael Bloomberg on what plans he had with regard to use of coal which has been the biggest polluter (India has the third-largest reserves of coal in the world and currently, about 54% of generation capacity is based on its use).

Fully conscious of the adverse implications of coal use for the environment in terms of emissions and carbon footprint, Modi wriggled out of the dilemma by stressing on the need to change processes for mining coal as also the use of environment-friendly technologies such as ‘coal gasification’ to develop clean energy. Indeed, the government has made policy initiatives and given incentives to entice global companies to bring this technology to India. But on ground zero, the dilemma continues to haunt us.

By 2014, when Modi took charge and catapulted renewable to the centre-stage, there had been a proliferation of power plants based mostly on coal, although gas — a much cleaner fuel – had also got some boost. As a consequence, the capacity already installed is far in excess of the demand for power. At present, only 50% of the total generation capacity of about 360 GW— including 63% based on fossil fuels, of which coal alone is 54%, and nearly 22% based on renewable energy — is utilized.

Beneath this low capacity utilization lies a gruesome situation wherein 34 projects accounting for 40 GW capacity with embedded investment of about Rs 2.5 lakh crore have become non-performing assets (NPA). While the contributing factors are many, including inability to sign fuel supply contracts, delayed payment by distribution companies (discoms), etc., these plants are affected to a considerable extent due to the availability of much cheaper power, at about Rs 2.4 per unit from renewables-based plants against Rs 5-6 per unit from coal-based units, prompting discoms not to buy power from the latter.

Out of the total 360 GW, some 80 GW capacity based on renewables has come up in the last four years. This is out of the original target of 175 GW, which was itself ambitious. It was fixed without fully accounting for the existing capacity. As a consequence, there is already excess supply. Now, if that target is more than doubled to 450 GW, it will lead to the demand-supply imbalance assuming catastrophic dimensions.

The current capacity based on renewables being about 80 GW, to reach the target of 450 GW by 2030, the country will need to add 370 GW. With that, plus an additional 50 GW from coal-based projects already under implementation and are likely to be commissioned by 2022, the total capacity will go up to 780 GW. Taking the projected demand for power by 2030 of about 320 GW (on the basis of an average 6% annual GDP growth), would mean a further decline in the utilization of installed capacity to 40%. And this does not even take into account capacity that might be added in the form of coal and gas projects beyond 2022 or nuclear power.

There can be no two opinions on the dire need to go for clean power to preserve the environment. One would even go along with Modi when he exhorts that “India is the least polluter and yet is committing more than others in terms of reining in emissions and reducing carbon footprint.” But this cannot be at the cost of under-utilizing or even scrapping assets already created, which will have ramifications impacting banks which are already struggling due to high NPAs.

Yet, in his enthusiasm to show to the world that India is a front-runner in embracing renewable energy, Modi has gone ahead and set an unrealistic target, ignoring existing capacity.

There is no justification whatsoever for any increase in renewable capacity beyond 175 GW. With 80 GW already installed, adding another 95 GW will take the total installed power capacity to 505 GW by 2030 – already much more than the projected demand of 320 GW at a use factor of about 63%. Though still short of a reasonable utilization rate of 70%, this is better than a dismal 40% utilisation -- a situation that would arise if capacity proliferates unchecked.

Keeping the renewable capacity at 175 GW, or 35% of the total, will also not be inconsistent with India’s commitment under the Paris Agreement on Climate Change.

Meanwhile, the government should adopt policies that offer a competitive environment to generators, discoms and consumers. Subsidies to certain users, such as farmers and poor households, should be given to them directly. The overarching focus should be to ensure optimum utilization of capacity, curbing inefficiencies in procurement, transmission and distribution, delivery of power at affordable rates, and the health of discoms.

The approach to policy formulation should be holistic, with all its crucial components neatly interwoven to serve a common objective. In other words, the left hand of government must know what its right hand is doing. This is an absolute must to prevent either excess or deficit of power generation capacity, neither of which is desirable

(The writer is a Delhi-based policy analyst)