8 Aug 2022
India's clean energy transition

Policy roadmap to realizing India's green energy potential

By Rajnish Gupta

EY India Business Tax Advisory, Tax Policy and Controversy Associate Partner

Senior professional with major focus on strategic policy intervention and regulatory consulting. A thought leader who lays emphasis on building narratives. Golfer.

8 Aug 2022

The GE-EY whitepaper shares recommendations and initiatives to put India on its path to decarbonization.

In brief

  • The paper envisions India’s decarbonization journey by targeting diverse sources, enhancing storage solutions, and modernizing our grid infrastructure.
  • For large-scale decarbonization in India, the paper makes important policy recommendations to reduce import dependence; promote a combination of renewables, gas, storage, and smart grids; develop robust financing, and mobilize investment.

Recognizing the importance of combatting climate change, India has set itself the target of becoming net-zero by 2070. Besides the overall goal for 2070, the country has also set the following targets for 2030:

  • Meet 50% of energy requirements from renewable energy
  • Reach a non-fossil fuel capacity of 500GW
  • Reduce carbon emissions by 1 billion tons
  • Reduce carbon intensity by 45%

Key policy initiatives, like green hydrogen policy, offshore wind policy, promotion of electric vehicles, introduction of a green day-ahead market, and easing terms for open access to procure green energy, illustrate the Government's seriousness. However, despite the push, India's current energy reliance is primarily on coal and crude oil. It would take significant investments to replace these with clean energy sources.

India is projected to be among the fastest-growing economies globally. According to Central Electricity Authority (CEA) estimates, India would require 3.5 trillion units (TUs) of electricity by 2036-37 to support a 7.3% economic growth rate against 1.37 TUs in 2021-2024. The availability of reliable and competitively priced energy would be a fundamental prerequisite to ensuring high levels of economic growth for India.

To help the Indian energy sector chart the path toward 2030 goals, GE and EY have recently launched a whitepaper, Decarbonization of India's energy sector: Policy roadmap to achieve clean energy targets. It points out ways to decarbonize and suggests a strategic combination of renewables, gas and storage for an effective energy transition. It also recommends a combination of policies, technology innovations and finance solutions to help the sector achieve carbon reduction goals.

Policy considerations for decarbonization 

Achieving India's 2070 net-zero goal while also supporting strong economic growth is a challenge and there are multiple avenues to choose from. Given the variability and absence of round the clock energy in case of renewable sources such as wind and solar, these need to complemented with other sources like gas and supported by storage systems. Therefore, policy measures on decarbonization must adhere to the parameters of reliability, affordability and energy independence.

Energy independence: India mainly relies on fossil fuel imports for its primary energy requirements, making the economy susceptible to volatility in global energy prices. The government needs to consider creating domestic capabilities across the clean energy value chain through initiatives like production-linked incentives (PLI) in products besides solar panels and advanced chemistry cell (ACC) batteries.

Innovation: Achieving India's net-zero goal is a financial and technological challenge. Various possible pathways exist to help the country achieve its net-zero target based on technical choices. Large-scale commercial exploitation, however, depends on further innovations that can lower costs. Instead of predicting the future setting or narrowing down the technologies and power sources, policies should create the right incentives for innovations.

Creating markets: Having India-specific carbon markets will incentivize the adoption of clean energy and technologies. Currently, most businesses follow the open access strategy, i.e., they buy green energy directly. Widespread adoption of such measures may make the grid more complex. Therefore, in addition to policy initiatives such as green open access, there is a need for measures that incentivize decarbonization and address the complex needs of the energy system through market-based prices.

Mobilizing investment: India would need significant capital as it transitions toward net-zero. The current estimates point to a massive investment of about US$10.1 trillion by 2070. While the estimates may vary, policymakers must consider ways to mobilize the required capital.

Strategies to ensure large-scale decarbonization in India

Any decision should meet two demands. One, the strong need for government policy to be technology agnostic in energy delivery. Two, it has to continue supporting innovation, development and implementation of green energy projects.

The EY-GE whitepaper lists the following strategies for large-scale decarbonization in India:

  • Maximize renewable energy production, including offshore wind farms, underpinned by locally manufactured equipment under various production-linked schemes. While designing incentives, policies should target minimizing the use of embodied carbon in the equipment.
  • Create carbon capture technologies for using coal-based energy, which is the largest source of primary energy and is domestically sourced.
  • Facilitate use of renewable energy by promoting new and proven storage technologies. The Ministry of Power has provided guidance on the use of energy storage systems to be operated as part of generation, transmission and distribution or as standalone energy projects.
  • Provide faster environmental clearance for pumped-storage hydropower (PSH) projects to become viable. Separate guidance for PSH projects by the Ministry of Environment and Forest and Climate Change will be helpful.
  • Increase the utilization of existing natural gas-based power generation capacity and use of natural gas to leverage its flexibility in delivering energy and lower carbon footprint.
  • Promote green hydrogen through demand-side incentives and policies to bring down costs through policy support like production-linked incentives for electrolyzers while recognizing that the transition to green hydrogen may be through blue/grey hydrogen.
  • Support the rollout of smart grids by defining standards for them. Focus on discoms' capacity building and develop models that allow cost-sharing among consumers, power producers, discoms and state governments.
  • Take steps to transform the electricity grid from a centralized one-way carrier of electricity to a more decentralized grid capable of moving electricity in both directions.
  • Incentivize decarbonization initiatives of large commercial and industrial energy users by developing carbon markets and streamlining green open access.
  • Support green financing through development of a common green taxonomy and a framework to finance the investments.

Summary

While India is slowly and steadily decarbonizing its economy by promoting renewable energy, electrifying transportation systems and ensuring energy efficiency, there is a need to increase the pace of growth in the energy sector to support the overall economic expansion. Keeping the green objectives and economic targets in view, the country needs to build an effective clean energy system that has reliability, sustainability, independence and affordability as cornerstones.

About this article

By Rajnish Gupta

EY India Business Tax Advisory, Tax Policy and Controversy Associate Partner

Senior professional with major focus on strategic policy intervention and regulatory consulting. A thought leader who lays emphasis on building narratives. Golfer.