Credit: DH Illustration
Why should India aim to become a green superpower? As the world transitions to cleaner energy, India could emerge as one of the lowest-cost sources of green hydrogen. India needs renewable energy to reduce greenhouse gas emissions and air pollution, mitigate climate change, improve energy security, and contribute to global efforts to combat climate change. The demand for electricity is rising rapidly, necessitating India to build as much generating capacity in a decade as the entire European Union currently possesses, regardless of whether it is green or not.
Renewable power is growing rapidly in India. The country is implementing the world’s largest renewable energy expansion programme, with a goal of installing 500 GW of renewable energy capacity by 2030. This includes 50 solar parks with a total capacity of 37.49 GW and plans to produce 5 million tonnes of green hydrogen by 2030.
The scale of investment required for India to overcome green infrastructure challenges is immense. How India navigates resource mobilisation for its green structural transformation will not only shape its own future but also influence the fate of billions on our planet. Failure to meet climate goals by India would result in increased global GHG emissions, making it more challenging to achieve the global temperature goal of 1.5 degrees Celsius. India will need to mobilise financing from various sources to scale up its renewable energy investments.
The first source is local banks and non-banking financial companies, traditionally the largest contributors to renewable energy lending. They must increase their investments in low-carbon technologies. Establishing a “fund of funds” could support the participation of other financial institutions through the creation of “lines of credit." Multiple development agencies can contribute to the “parent fund” by providing support and concessional loans, encouraging public sector companies to invest in the green segment, thus boosting local investments. Ensuring policy certainty will be crucial for planning investments.
A second channel involves enforcing Renewable Purchase Obligations (RPO) and Energy Storage Obligations (ESO) to boost the demand for renewable energy and accelerate the development of energy storage technologies. RPOs require power distribution companies to purchase a minimum percentage of electricity from renewable sources, while ESOs require that at least 85% of energy procured and stored annually come from renewable sources. The RPO is mandated by the Electricity Act (2003). In July 2022, the Indian government introduced ESOs in conjunction with the existing RPO framework. ESOs specify that the percentage of total energy consumed from solar and/or wind should rise.
The third channel entails forging stronger public-private partnerships (PPPs) to develop low-carbon and efficient transport infrastructures, along with providing tax incentives for clean energy through comprehensive fiscal reforms to promote clean energy investment. India’s fiscal reforms can create opportunities to align government expenditures with environmental goals, including modernising the tax system and introducing an explicit carbon tax. Smart fiscal management can make development priorities more attractive to the private sector, while PPPs offer well-informed risk allocation between public and private stakeholders, long-term visibility and stability, and green growth. India can also promote community-based PPPs to promote local economic development and the social benefits associated with large-scale green storm water infrastructure investments.
The fourth channel involves strengthening institutions to scale up PPPs and promote green structural transformation. A robust institutional and regulatory framework will be essential to achieve this goal, strengthening ministries, regulators, sector planners, energy utilities, and creating a pipeline of bankable clean energy projects. Various institutions, including the Bureau of Energy Efficiency (BEE), the Indian Renewable Energy Development Agency (IREDA), a non-banking financial institution, the National Institute of Solar Energy (NISE), and the National Institute of Wind Energy (NIWE), will need to play more significant roles.
The fifth channel focuses on increasing the role of global multilateral institutions, such as the World Bank and IMF, in scaling up the renewable energy financing needs of India and other developing countries. Establishing multi-sovereign loan guarantees can be explored to improve the creditworthiness of climate-related infrastructure projects. Global risk pooling will lower the cost of finance, as pooling mechanisms can aggregate risks across a portfolio of projects, cities, and countries. Global risk pooling can dissect risk information and provide tools to identify and manage risks. This will diversify the investor base and bargaining power for the insured.
The World Bank is increasing its lending capacity by raising hybrid capital from shareholders and other development partners. With $1 billion of hybrid capital, the World Bank can increase its lending by up to $6 billion over 10 years. The World Bank is also increasing the power of guarantees by allowing shareholders to provide guarantees to boost lending. The IMF can temporarily increase access to funds and emergency financing and extend zero interest rates on concessional loans.
India must convince markets of its high potential in renewable energy and the higher rates of return on energy infrastructure investments. There are policies and regulations that can help convince markets about India’s commitment to renewable energy: the Energy Conservation Act, 2022, that regulates energy consumption in buildings, industries, appliances, and equipment and includes carbon trading, an energy conservation code for residential and commercial buildings, and standards for vessels and vehicles; the National Tariff Policy (2006), which promotes renewable energy technologies; and the TDIP policy released in 2017 to promote research, development, and demonstration (RD&D) in the renewable energy sector. India has Solar park schemes in place to encourage solar power generation. Reforms in industrial policies, including waiving inter-state power transmission charges for 25 years and providing priority connectivity to electric grids for green hydrogen and ammonia producers, are also necessary to attract renewable energy investments.
India is an attractive destination for renewable energy investments due to its strong government support, favourable incentives, and solar parks. Green infrastructure investments will have huge economic benefits, including boosting growth, creating jobs, and building resilience against climate shocks and other disruptions.
(The writer has worked for the World Bank and taught economics at Oxford University)