Hosting a second largest population of the world and being just a third-world developing country, India has managed to lead world’s renewable energy initiative.
It created and consolidated International Solar Alliance (ISA) and is swiftly moving towards alternative green forms of energy.
India even made a voluntary commitment to install 175 gigawatts (GW) of renewable capacity by 2022 although the current installed capacity stands a little more than half the target i.e. 95 GW.
Nothing in the world be it strongest of health systems or economies could survive the Pandemic, except renewable energy that flourished during one of the world’s most difficult time periods.
But as India aims to push harder for enhancing the use of renewable energy, it is equally distressing and embarrassing to know that subsidies and investments to the sector have both reduced.
Has the Government rhetoric matched the subsidy facts we have for 2021?
Energy subsidies are a sort of government payments to keep the price of energy under check and intentionally lower than market rate for consumers (poverty is still significantly high in India) or higher than market rate for producers.
The International Institute for Sustainable Development and the Council on Energy, Environment and Water gave a report by the name “Mapping India’s Energy Subsidies 2021: Time for renewed support to clean energy”.
It has highlighted a changed stance for renewables in the country, i.e., renewable energy subsidies have fallen from Rs 15,470 crore in the fiscal year 2017 to Rs 8,577 crore in FY 2020.
The stated decline has been stated by almost 45% sticking around INR 8,000 crore in 2020, since their peak registered in FY 2017.
This conservativeness has been more prominent from FY 2019 to FY 2020, thereby going from significant enough 7 times to a staggering 7.3 times the size of subsidies to renewables.
The study also has advocated the need for such considerable support for sustenance, survival of the sector and smooth transition towards it.
It has comprehensively covered India’s subsidies from years 2014-2020 to fossil fuels, electricity transmission and distribution, renewable energy and electric vehicles.
There has been collusion of various factors those have caused the subsidies to decrease like lower deployment levels of renewable energy forms besides existing ones and especially, approaching end-term of the subsidy schemes.
A specialist from the energy sector explains: “The first big wave of the subsidy support under the country’s solar mission has come to an end”.
“Moreover, policy uncertainties such as the renegotiation of tariff in the renewable energy projects and introduction of safeguard duty on the modules being imported have led to a decrease in investments.”
What is with the ongoing dearth of public investment in Renewables?
The report has highlighted the fact that since last 6 years or so (2014 to 2020), India’s public sector units (PSUs) invest in massive amounts annually in the energy sector.
It cited the examples of seven energy-related units those invested around Rs. 2.5 lakh crore in 183 projects. But how many of these go to the green energy forms?
The study clarifies: “Overall, this is still heavily skewed toward fossil fuels, which were the focus of 11 times more investment than clean energy in the fiscal year 2020”.
These Indian PSUs spent nearly INR 22,261 crore (USD 3.1 billion) alone on fossil fuel projects (has hit Rs 70,578 crore in 2020), equivalent to 11 times money spent on the renewables.
“An assessment of these seven PSUs found relatively low ambition on clean energy and no planning on how to manage the stranded asset risk of fossil-intensive asset portfolios.”
In 2020, the total expenditure of money by the energy public sector undertakings in India stood at INR 1.5 lakh crore (USD 22.4 billion). Therefore, to inculcate their interest and favour to clean energy projects is crucial.
Even the new emerging clean energy technologies such as power grid integration and subsequent storage, green hydrogen, decentralized renewable energy, and offshore wind, face difficulty in attracting investments in the long run.
But money isn’t everything. An analysis of expenditure patterns by the Government reveals a lot about it’s priorities as these subsidies further affect energy prices, driving investment and consumption decisions.
Has everything clean declined? What about subsidies on Electric vehicles?
The subsidies given to favor the electric vehicles have risen more than 2.3 times to Rs 1,141 crore in FY 2020 from FY2019, growth is primarily driven by rising sales.
“Various states and union territories also support the adoption of the EVs through subsidies for manufacturers, consumers, and charging infrastructure or through government procurement,” as per the report.
Although an increase is seen in sales of certain EVs, yet the four-wheelers have seen a dropped demand by 200 units.
This also calls the government for additional infrastructure and manufacturing units to spur its growth. Even “production of cheaper and more efficient EVs” can be undertaken to increase the demand ambit.
“An estimated investment of Rs 20,580 crore will be required toward charging infrastructure development alone. The government is also actively working to support the EV manufacturing industry by framing favorable industrial policies.”
But as Government tries hard to increase demand, it shall ensure it must be inclusive and environmentally sustainable.
“As EV subsidies grow, all efforts must be made to ensure that sustainability remains at the helm of this transition to EVs on all fronts: clean energy supply, prioritizing a sustainable supply chain for manufacturing, choosing battery components, and designing a recycling plan”.
But that is okay if there is a fall seen in the fossil-fuel sector too?
Surprisingly, no!
The study also revealed that oil and gas subsidies jumped by about 16% in 2020 and reached Rs 55,347 crore compared to 2019 due to financial support for household consumption of liquefied petroleum gas.
LPG policies constitute about 28 per cent of all energy subsidies and approximately 64 per cent of all oil and gas subsidies.
But since the 2021 oil price crash, these LPG subsidies have been revoked and have not yet been reintroduced. So, according to experts of the sector, oil and gas subsidies in total may face a decline in upcoming time.
Distressing signs have also been visible apart from the matters concerning the subsidies: “Concessional tax benefits continue to be the largest subsidy for the (coal) sector, at Rs 13,154 crore, 87% of all coal support”.
The report explained its case: “While coal makes significant contributions to government revenue and rail cross-subsidies, its full social cost is much higher than its net contributions”.
“There are falling prices of grid-scale solar and a drop in demand during Covid-19 have created economic challenges for coal power”.
It proves the time is crucial how India can reform its fossil fuel subsidies to generate valued additional resources required for the economic revival from impacts of the Pandemic and investments in clean energy.
“Such decisions will simply exacerbate pollution-related health problems in a context where major Indian cities have already topped global charts on air pollution, pushing costs onto citizens and the health system.”
“In 2021, several non-subsidy measures were implemented to incentivize domestic coal production, such as withdrawing or pushing back environmental regulations, despite health impacts for citizens.”
How shall India correct this unnoticed inequality?
India’s PM Narendra Modi has aimed to enhance the installed capacity of renewable energy to 450 GW by 2030.
But according to experts, in order to reach 450 GW by 2030, India needs to deploy the “historic levels of about 39 GW every year”. And is that happening?
Definitely, not without the right policies formulated and implemented in right time.
“For India to go near the 2030 target of 450 GW, the sector needs a strong push not just in terms of subsidies but also through ramping up of ambition by state-owned companies and an increase in the electric mobility infrastructure, battery storage and grid storage, and other emerging clean technologies.”
In order to achieve big is less time, India has to work harder as it lies within the vulnerability of Nature’s worst disasters.
The co-author of the study explains: “The government should encourage public sector undertakings, which are currently investing more in fossil fuels, to set ambitious targets for high levels of investment in clean energy and establish national capacity in manufacturing.”
‘Make in India’ and ‘Atmanirbhar Bharat’ can provide the required impetus to Green-Clean Energy generation through:
Creating a significant demand-side certainty considered by Domestic manufacturers to trigger expansion and integration.
States can help develop healthy manufacturing and transitioning ecosystems.
Finally, the government can target its fiscal incentives together with research and development to analyze and divert money as needed most.
“Develop more nuanced subsidies as part of a broader strategy for a green industrial policy that considers both the central and state levels and prioritises integrated solar PV manufacturing, electric vehicles, and storage solutions”.