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Charting sustainable future for India’s electricity sector

LiveMint logoLiveMint 27-04-2017 Fatih Birol

You can’t talk about the future of global energy markets without talking about India, which is gradually turning into a major driving force in the world economy. The International Energy Agency (IEA) has long recognized India’s place in the global energy order, driven by a vibrant economy, and a young and expanding population.

At the end of March, I was delighted to be in New Delhi to welcome India into the IEA family. Together with my good friends ministers Piyush Goyal and Dhamendra Pradhan, I held a press conference to announce that India had joined IEA as an association member.

This is a major milestone in global energy governance, and an important step on the path to ensuring that the world’s second-most populous country achieves its energy and sustainability goals.

India’s big story is how to fuel its strong economic growth in a way that’s cost-effective, clean and sustainable. While coal continues to dominate its energy mix, the whole range of fuels and technologies are playing their part in India’s electricity sector. With rising income, a growing population and expanding urbanization, India’s power demand will more than triple in the next 25 years.

The stakes could not be higher. Unreliable electrical supplies can constrain economic growth and hinder development. At the same time, India is home to 11 of the world’s 20 most-polluted cities, leading to severe health effects for millions of people and curbing life expectancy. Furthermore, India’s growing dependence on fossil fuel imports, which account for around half of its energy consumption, is raising new energy security concerns.

Addressing these challenges will become increasingly urgent. India today is the world’s third largest consumer of energy after China and the US, yet it only uses about 6% of the world’s energy with a fifth of the world’s population.

This energy demand is growing fast. In the last two years alone, peak power demand has risen nearly 13% as the country’s growing middle class has plugged in air conditioners and taken advantage of other modern services.

Thankfully, the government of India is ready to tackle these challenges; for instance through its “24x7 Power for All” initiative, which aims to provide access to 245 million people without power by 2019. The challenge is to do so in a way that is both sustainable and affordable. Last month, minister Goyal announced that a remarkable milestone had been achieved with 13,000 villages electrified out of a total of 18,452 targeted for electrification in 2014. This is more than just energy policy—it represents a major social transformation for India.

India has historically turned to coal as a power source. This trend is continuing—since 2011, coal power plants have made up more than two-thirds of electricity capacity additions in India, and coal today represents around two-thirds of the country’s total power generation. Gas also has a role to play in flexibly expanding power supply, and India’s Hydrocarbon Exploration Licensing Policy is an important step to encourage necessary investment in energy exploration and production.

And yet, India was the fourth-largest cumulative wind market globally and the country’s progress is also particularly impressive in the solar sector, where it was the fourth-largest country in terms of new installed solar PV (photovoltaic) capacity last year. India is quickly closing in on its ambitious target to instal 100 gigawatts of solar power capacity by 2022. It is also leading the global effort, through the International Solar Alliance, to lower solar technology costs and attract $1 trillion investment in sunshine countries between the tropics, a goal that IEA strongly supports.

In comparison to coal, renewable energy technologies offer a way for India to improve its energy security by diversifying fuel sources while reducing environmental impacts.

Doing so on a bigger scale would require a massive shift in investment, driven by large-scale solar PV and wind, and supported by competitive auctions. In some cases, contracted prices for solar PV have already fallen to levels below that of pricing for some coal power plants.

For example, the very impressive tender in Madhya Pradesh for the massive 750 megawatts solar park—winning with a bid price at $55/megawatt hour—makes it the cheapest in India and among the best worldwide. In fact, the price of solar PV in India has fallen by half over the last three years. With nearly $10 billion spent, renewables represented over a third of power generation investment in 2015, up from a quarter the prior year.

This is all good news, and a positive sign for the future of India’s electricity sector. However, taking advantage of these new technologies will also require modernizing India’s power distribution and transmission networks, and improving policies. The government of India is recognizing and tackling the issue. Recent improvements to support the financial health of state-owned distribution companies that take off electricity from renewable producers have been made, supported by the central government’s Ujwal Discom Assurance Yojana programme.

Enhancing the enabling environment and providing incentives to invest in renewables will be critically important to meet the country’s energy strategy goals. In particular, reforming electricity tariffs to reflect the underlying cost of the system would be a significant step in putting utilities on a more sustainable financial path. Policies that help reduce the cost and enhance the availability of debt finance could also enhance the economic attractiveness of renewables.

As India continues on this path towards achieving its energy security and sustainability goals, it moves ever closer to centre stage in global energy markets. IEA looks forward to supporting India—the newest member of the IEA family—as it works towards sustainable, universal access and electrification for all of its people today and in the years to come.

Fatih Birol is executive director of the International Energy Agency.

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