India’s energy transition and power system: the good, the bad, the ugly

Autumn 2020 has seen a dramatic net-zero shift among the world’s industrial giants, with China and South Korea aiming for carbon-neutrality by 2060 and 2050, respectively, and Japan – for climate neutrality by 2050. East-Asian economies, along with the EU, are leading the global climate efforts in terms of long-term ambitions, but a closer look at energy transition progress and the climate policies reveals another potential global leader – India. Maria Pastukhova investigates.

While most electricity in India is still generated using coal, renewable are becoming more competitive. Coal is no longer the cheapest source of electricity in India.


Home to over 1.4 billion people, one of the fastest-growing economies, and currently the third-biggest global carbon emitter (IEA, 2020), India is indispensable to the success of the global energy transition and to a sustainable and climate-neutral global economy. This year, India’s climate and energy transition efforts will be in the spotlight, as the UK-India collaboration on climate change is discussed in the run-up to the COP-26, and India is being pushed to lead by example and consider introducing net-zero emissions targets.

The good news is that, despite not being in the net-zero club as of yet, India is one of the few countries actually on the path compatible with the 2C climate scenario. Though not fully consistent with the Paris Agreement long-term temperature goal of 1.5C, India has managed to put policies in place that neither China, nor Japan or Korea, not even the EU have been able to.

The bad news is that India’s power system, a centerpiece of the country’s energy transition efforts, is stretched between decarbonization efforts and growing renewable generation fleet and the infrastructural and regulatory inability to live up to its potential. For several years now, this fragile equilibrium is under additional strain due to India’s newly found geo-economic ambitions and its aspiration to become the regional connectivity hegemon.

The good: India’s bid for decarbonization

While 71 percent of power generation come from coal-based thermal power plants, the share of renewables in terms of installed capacity and generated electricity is among the highest worldwide and growing. India’s Nationally Determined Contribution (NDC) to have a 40 percent non-fossil share in total power generation capacity by 2030 has been nearly met. In 2019, 38 percent of the installed generation capacity was composed of low-carbon energy sources, such as modern renewables, large hydro and, to a lesser extent, nuclear, generating 24 percent of total electricity in the country. This progress is largely due the massive reforms across the Indian energy and power sectors in the last decade, including various incentives for renewable energy resources.

Since the Electricity Act 2003, and the introduction of the first national power exchange platform, a competitive national electricity market has taken shape. As the result of nation-wide electrification, access to electricity has risen dramatically from 67.6 percent in 2011 to over 95 percent in 2018. India’s effort to electrify rural areas has been tremendous, with Modi declaring in April 2018 that “all villages have now access to electricity”.

Statistics paint an impressive picture of India’s performance but it is tainted by a closer look at the quality of energy services.

The bad: energy poverty and power sector malfunctions

Compared to urban areas, the quality of access to electricity is lower in rural areas, and in some provinces (ex. Madhya Pradesh, Uttar Pradesh, Bihar, Jharkhand, West Bengal) is insufficient. According to the definition introduced by the Ministry of Power, a village already counts as “electrified” if public buildings and 10 percent of households have access to electricity, meaning that energy poverty remains a major issue for large population groups. Moreover, some households often prefer not to use the available service due to erratic electricity supply known for interruptions over several hours a day.

There are several systemic problems which the electrification program hasn’t addressed yet. One is the inefficiency of the power distribution companies – the notorious “discoms”, long known as the country’s debt holes, unable to cover their own costs due to an outdated and untransparent billing system, obsolete distribution infrastructure and power loss and theft. Mostly state-owned, the discoms are heavily dependent on state subsidies, and this dependency has been further exacerbated during COVID-19. Closure of commercial districts due to the lockdown on the one side and increased electricity demand from households on the other put additional strain on the weak power distribution infrastructure and add to the discoms’ financial The resulting power supply interruptions and high retail power prices (up to four times above the generation price) undermine trust of the poorer consumer groups in the government’s electrification measures. They also prevent the efficient integration of modern renewables into the national power system.

India’s fragile, insolvent power distribution sector is also one of the major hindrances to the further integration of renewable (particularly solar) electricity. Though India’s solar fleet is rapidly growing,  and the auctioned solar power price hit the record-low of US$0.0270 per kWh last November, this progress is barely felt by the consumers. Most (state-owned) discoms rely on long-term Power Purchase Agreements with coal-based thermal power generating projects, and are reluctant to buy more renewable power, fearing additional financial stress.

Another obstacle to the expansion of India’s solar capacity has become evident during the COVID-pandemic: the disruption of solar equipment supply chains. Exacerbated by the nationwide lockdown, it revealed another unpleasant truth: India’s energy transition is heavily dependent on China.

The ugly: supply vulnerabilities and geopolitical tensions

Trade deficit with China is a chronic issue for the Indian economy and is felt most acutely in the power sector. Chinese companies supply  percent of solar power modules and around  percent of rare earths to the Indian power market. Also about a third of imported power generation, transmission and distribution equipment come from China.

India has attempted to “break free” from this import dependency since 2018, when the first anti-dumping measures were introduced for Chinese solar panels. However, these didn’t work out as expected: though China’s imports have decreased, and so did the dependency (for solar modules from 90 percent to 80 percent since 2018), this didn’t provide the necessary stimulus for Indian manufacturers. Instead, the pace of installations has slowed down from 9.7 GW in 2017-18 to 6.5 GW in 2018-19, with mega-solar project developers waiting for import duty tariffs to become abolished, so that they can buy cheap Chinese modules to keep the projects profitable.

The “Make in India” campaign, pushed by the government since 2014 does not only aim to reduce India’s dependency on Chinese imports, but also to make it a global manufacturing center, providing a counterweight to the Chinese Belt and Road Initiative. Autonomy of strategic sectors (including the power sector) is given particular attention, especially in wake of the recent armed conflict in Ladakh, the disputed part of Kashmir in June 2020. Though the Indian government has not officially proclaimed a trade war against China yet, it considers introducing basic customs duty of 20-25 percent on imported solar panels, and intends to impose a ban on power equipment imports from China.

Renewable equipment is not the only sector relevant for the energy transition where the two countries’ interests clash. The race for geo-economic and geopolitical leadership is also reflected in both countries’ connectivity visions that include power grid connectivity. When it comes to the South-Asian power market, India acts as the central integration force through bilateral cooperation with the neighbor countries and the regional institutions such as SAARC and BIMSTEC. China, however, floods the very same countries with loans for infrastructure projects – focusing particularly on those less keen to see India at the heart of regional cooperation effort, such as Pakistan, or those where parts of the political elite are more open-minded with regards to China, like Nepal. India’s “One Sun One World One Grid (OSOWOG)” concept, officially adopted by President Modi in June 2020, is considered to be the Indian power grid connectivity strategy and a counterpart to China’s Global Energy Interconnection (GEI).

There are many other uncertainties that put India’s energy transition efforts to test. These include management of the COVID-crisis, post-COVID economic recovery and its ability to rely on its own manufacturing base amidst disruption of renewable supply chains. Other factors involve the reorientation of energy and climate policy in wake of international developments, such as the conclusion of the Regional Comprehensive Economic Partnership and the arrival of the new US-Administration.

However, taking into account India’s ongoing efforts to make its energy system more sustainable, there is scope to hope that India’s domestic performance will make it a leader on the global stage in the near future.

by

Maria Pastukhova

Maria Pastukhova is Fellow in the Global Issues Research Division at the German Institute for International and Security Affairs (SWP) in Berlin.

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