Only a few months ago, the news coming from a mega event in Gujarat assured us that India is not only going to achieve but surpass the 500 GW from non-fossil fuel capacity target set for 2030. The general mood has turned quite the opposite after the UN Climate Change Conference (COP29) fiasco on climate finance targets committed for transfer from the developed countries. The media reports of 55GW of awarded renewable energy (RE) capacity awaiting the signing of Power Sale Agreements (PSA) by distribution companies (discoms) has only added to the confusion. The questions being asked are: why should developing countries aggressively undertake mitigation actions? What would be the likely achievement by 2030 against the 500 GW goal?
What should be done? Let us be clear about the objectives for the power sector decarbonization. It should be pursued with all possible efforts if it meets the overarching criteria of meeting the continuously growing demand reliably in an affordable manner. There is no doubt that increased funding for viability gap funding (VGF)/capital subsidies are required to cover the additional costs of integrating clean energy production technologies into the power system. The lack of adequate availability of such funding may slow down the current pace of decarbonization. But it is high time for policy makers to have clarity on ‘no regrets actions’ that should be pursued now so that we are future ready to reap the full benefits of more cost-effective technologies or increased climate finance flow as and when these materialise.
Faster implementation of Resource Adequacy planning tops this list which would enable us to absorb renewable energy to the extent it reduces the overall system costs and also fulfilling the renewable purchase obligations (RPOs) to that level. This is a new framework and requires mission mode assistance to states from the Centre. Presently, there are misconceptions in many Discom planners that any further RE addition is difficult and costly to handle. Next comes the full fungibility of RPOs to enable the states to choose their least cost solution. If RPO compliance beyond a point raises costs significantly, states have a legitimate right to ask for additional VGF support from the Centre. The 60% subsidy in the new rooftop scheme is a step in the right direction.
Next priority should be a timebound action plan by the Central Electricity Regulatory Commission (CERC) to further reform the electricity markets for making these ready for very high RE penetration scenario. Such markets need appropriate products to facilitate flexibility in procurement and dispatch of capacities. There is a broad consensus that capacity markets and strengthened ancillary markets should be quickly introduced as present form of rigid 25-year long power purchase agreements (PPAs) are not appropriate for discoms facing increasing uncertainties in demand forecasting and variability of RE generation. For example, abrupt seasonal changes and load surge from data centers pose such risks. Price caps in exchanges should be immediately reviewed to give a boost to addition of larger storage capacities.
Building on the momentum created by the Revamped Distribution Sector Scheme (RDSS), Late Payment Surcharge (LPSC) rules and the smart metering programme, restoring full viability of discoms is other such high priority action. Provisionally reported increase of aggregate technical and commercial (AT&C) losses in FY 24 by 2% indicates loosening of the strings. India cannot afford this if we have to continue to attract investments in generation – whether conventional or renewable- and transmission segments.
Other immediate priority is addressing the supply chain constraints in critical materials like cold-rolled grain-oriented steel (CRGO) needed for manufacturing of transformers, and high-voltage direct current (HVDC) terminals which have potential of seriously impacting the expansion of RE capacity even where it is fully affordable.
The list can be long. But we can’t complete this discussion without mentioning the need of better targeting of available funds for VGF. We will have better results if we focus on few areas having more relevance in short to medium term and seem to more doable. Green hydrogen or offshore wind may have good potential in long term, perhaps it will be prudent to channelise most of the available budgetary resources towards supporting faster development of local manufacturing of storage- both for electric mobility and grid scale applications, and expansion of nuclear capacity.
About the author: Alok Kumar is the former Union Power Secretary of India, where he played a key role in shaping the country’s energy policies. He currently serves as a Director with The Lantau Group, an international consulting firm specializing in the energy sector.