2 minute read 20 Jan 2021
Renewable energy attractiveness index

Has COVID-19 helped shift India’s power mix balance towards renewable energy?

By Somesh Kumar

EY India Power & Utilities Leader

Experienced energy leader with deep regulatory knowledge.

2 minute read 20 Jan 2021
Related topics Power and utilities

India has moved up in the Renewable Energy Country Attractiveness Index (RECAI) rankings based on the renewable energy investment and deployment opportunities in 2020.

EY’s Renewable Energy Country Attractiveness Index (RECAI) ranks the top 40 markets in the world based on the attractiveness of their renewable energy investment and deployment opportunities. The 2020 edition of RECAI has ranked India 4th among the top 40 markets based on investment in renewable energy, a key driver of the energy transition. India has jumped its position to 4th from 7th compared to the last edition of the rankings. US, China and Australia have been ranked 1st, 2nd and 3rd most attractive markets respectively in the latest edition. Strong resilience demonstrated by renewable energy markets in the US and China despite the pandemic-induced demand contractions helped those markets retain their top positions. In Australia, developers and investors successfully tapped the country’s sunshine, land and strong winds to propel strong growth in renewables capacity addition per capita, highest in the world despite policy issues.

In India, the COVID-19 lockdowns briefly shifted the power mix to renewables, but the industry at large now seeks solutions to a lasting net-zero future. A glimpse of what the energy industry might look like in the future was witnessed when COVID-19 lockdown measures resulted in the share of renewables used in the energy mix started soaring because of depressed electricity demand and running of Solar PV and Wind power plants combined with lower tariffs. Moreover, the recovery from the COVID-19 pandemic presents an opportunity to build back better. Certainly, there will be headwinds in the short term, but renewables have proven to be resilient and are well equipped to seize the opportunity and face the challenges ahead.

India’s renewable energy (RE) based power generation capacity has increased over 5 times since 2010, taking the cumulative installed capacity to ~90.39 GW (as of November 2020). Wind and solar photovoltaic (PV) constitute ~38 GW and ~37 GW of installed power generation capacity respectively in the current scenario. Together they dominate the overall RE based power generation capacity mix with over 80% contribution. The International Energy Agency (IEA), in its latest renewables market update (2020), forecasts India to be the largest contributor to the renewables upswing in 2021, with the country’s annual additions almost doubling from 2020. Rapid fall in the cost of power purchases from Solar PV and Wind generators is the key driver for clean energy transition across the globe including India. Increasing participation from overseas players backed by foreign institutional investors, sovereign wealth funds and multinational integrated power utilities has enabled competitive and efficient discovery of tariffs in the renewable energy auctions. Other key policy drivers include priority access to grid and waiver of inter-state transmission charges for Solar and Wind power generators, renewable purchase obligations etc. Moreover, India is witnessing a gradual transition from Solar PV and Wind power auctions towards hybrid RE auctions by blending solar PV, wind, storage and stranded thermal power generation assets. Round-the-clock (RTC) supply of hybrid renewable power is increasingly adopted in RE auctions to help DISCOMs manage the intermittency / variability, otherwise associated with Solar PV or wind power projects. Going forward, we will see distributed/decentralised renewable energy capacity addition gaining more traction in India. Rooftop solar and solarization of rural agriculture feeders is proving to be a promising solution for DISCOMs to optimise power procurement costs and the capital expenditure towards T&D infrastructure upgradation.

The Union Budget 2021 highlighted an enhanced outlay for the renewable energy sector through Solar Energy Corporation of India (SECI) and The Indian Renewable Energy Development Agency Limited (IREDA), which will enable larger focus on augmenting renewable energy. The Budget also announced a comprehensive National Hydrogen Mission to be launched to generate hydrogen from renewable sources, which is also a welcome move. Certain initiatives for overall infrastructure sector like setting up of a Development Financial Institution for debt financing and setting up of a central asset management company for taking over stressed assets will benefit the power and renewables sector in a big way.  

As we look at India’s renewables sector in 2021, one thing that policymakers should be mindful is that climate change risks pose a much bigger threat to India’s economic development goals than the shocks induced by the current pandemic. The current urgency to deal with the pandemic induced economic contractions contains a risk for ‘lock-ins’. Stimulus spending should therefore embed climate proofing instruments for economic recovery. A coordinated effort across all stakeholders will be needed and technological innovations must be leveraged. Specifically, an exponential increase in intermittent renewable energy will require technologies to be used to ensure a secure, reliable, and well-balanced grid.

Summary

A glimpse of what the energy industry might look like in the future was visible during the COVID-19 lockdown, when the share of renewables used in the energy mix started soaring due to depressed electricity demand, running of Solar PV and wind power plants, combined with lower tariffs.

About this article

By Somesh Kumar

EY India Power & Utilities Leader

Experienced energy leader with deep regulatory knowledge.

Related topics Power and utilities