For a country of the size and complexity of India, there can be no easy solution to a problem as fundamental as giving the whole country access to steady power. With coal contributing about 60% to Indian power generation, with between 300-400 million without access to electricity, with frequent power cuts, and with the share of renewables increasing slowly, the government of new Prime Minister Narendra Modi is aiming to find a safe, long-term plan to fund India’s energy expansion. Amid calls for the world’s tenth-largest economy to commit to renewable energies, Modi has taken a middle road.
Piyush Goyal, the Minister of State for Power, Coal, New and Renewable Energy, laid out India’s energy policy at the Indian Economic Summit in New Delhi. Coal was the first to get a major boost. Goyal predicted that Coal India’s production would likely double in the next five years, from an expected 500 million tons in 2014 to 1 billion tons in 2019.
He then turned his attention to renewables, announcing a formal target of 100GW of solar power generation by 2022. This came in answer to the 20GW National Solar Mission, set out by the previous Congress government, and dismissed as being too weak by critics. However, Goyal sounded a note of caution on the future of nuclear in India. The country already has 21 reactors in operation, with seven more being built, but Goyal pointed out that New Delhi would take care to not be “saddled with something under the garb of clean energy or alternate energy…which the West has discarded and is sought to be brought to India.” However, he admitted that nuclear power, when properly thought out, could provide a potential solution to energy shortages.
But who will pay for these coal and solar expansions? India would seem ripe for private investment in its power sector, with its demand for electricity set to rise from around 1,110 terawatts (TWh) in 2013 to close to 3,500 TWh by 2032. Furthermore, Goyal has already said the government cannot shoulder this burden alone and will look to the private sector to help secure $250 billion by 2019. $100 billion of this will be dedicated to renewables and a further $50 billion to the national grid. Strengthening the latter has become a real priority since rolling blackouts in 2012 left more than 600 million people in the dark, sometimes for up to 48 hours.
However, while this seems like a dream scenario for foreign power companies, there remain worries about the exact returns on such investments. Bain & Company reported that developed economies see losses of around 15% from their grids, as compared to 30% losses for India’s power utilities. Such a staggering loss represents about 1.5% of the country’s GDP. The separation between generation and distribution companies also means that the latter can carry out “regular load shedding and intentional blackouts…to manage demand.”
On the same panel as Goyal was speaking Dong-Kwan Kim, Managing Director at Hanwha Group, who admitted that “India's high cost of capital was deterring investors from renewable projects because they could earn far better returns elsewhere.” Despite this bit of bad news, it does seem like India’s hopes for foreign private investment are beginning to come true.
In late October, Spanish renewables giant Gamesa announced it would invest 650 million euros in India over the next five years to build 75GW of wind and solar capacity. Gamesa’s Executive Chairman even stated the move to make India a new export hub was in part due to the “focus and orientation” that the company had felt from the Modi government.
Observers and designers of Indian energy policy have been coming up with radically different, solutions, as some call for a reform of institutions seen as corrupt and monopolistic at a time when the government is seeking to reassure doubters of its willingness to fight climate change. So far, it seems that Narendra Modi is doing well at playing to India’s strengths to one day bring power to all his citizens.
By Chris Dalby of OilPrice.com
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