In October 2015, India unveiled its climate action plan or Intended Nationally Determined Contribution. The country has committed to source 40 per cent of its installed capacity from non-fossil fuel sources by 2030, which is being viewed as one of the boldest renewable energy targets globally. In a recent interview, Dr Ajay Mathur, director general of think tank The Energy and Resources Institute, and a member of the Prime Minister’s Council on Climate Change, talks about the implications of India’s climate commitments on the power sector, the strategies needed to achieve these goals and the challenges involved in meeting them. Excerpts…
What is your assessment of the performance of the power sector during the past year?
Growth in power demand during the past year has been much less than what was expected. As a result, most of the generating plants had to operate at relatively low plant load factors (PLFs). At the same time, the distribution segment has seen some progress. The majority of states have signed agreements for the Ujwal Discom Assurance Yojana (UDAY). We hope that all states will sign up for UDAY and the programme will show more success.
On the renewables front, we have had a reasonably good year with the price at which competitive renewable energy is made available declining dramatically. There is a large amount of renewable generation capacity that is under construction, which will come online this year and I am hoping that we will be able to reach several gigawatts of solar per year, just as we have reached gigawatts of wind every year. On the energy efficiency side too, we have had a good year. We believe that a part of the reason for the low demand growth is the energy efficiency investments that consumers and the industry have made.
Going forward, do you see the overall power sector scenario changing, especially for the generation segment?
We have done some back-of-the-envelope calculations and they seem to indicate that the current generation capacity that we have and the new capacity that is at various stages of ordering and construction would be able to have reasonable PLFs (of the order of 75-80 per cent) only by 2022. The challenge, therefore, is how to make them economically viable between now and 2022.
What does the enforcement of the Paris climate agreement mean for India? What are the biggest challenges that you foresee in meeting the targets outlined?
In the technical sense, there is no enforcement inasmuch as if you do not achieve the goals that we have submitted, there are no penalties. The Paris Agreement pledges are pledges that we made ourselves; nobody forced us. And the challenge, therefore, is how to reach the emissions intensity target of a 33-35 per cent reduction by 2030 compared to 2005, and the minimum non-fossil fuel target of 40 per cent of the generating capacity. As far as emissions intensity target is concerned, this would largely be met by a decline in energy intensity. Renewables will also contribute, but target achievement will largely be through energy efficiency. On the large industry side, we have expanded the Perform, Achieve and Trade (PAT) scheme and actions are ongoing on the buildings and appliances side too. The two key areas where challenges remain are transport, and the small and medium enterprise sector. New initiatives are required in these two areas to meet the desired goals.
On the renewable side, a 40 per cent non-fossil fuel (including hydro, nuclear, solar and wind) capacity target would mean that solar and wind (the intermittent power) would account for more than 15 per cent of the energy generated. At that level, we will start having problems about how to meet the electricity demand when the sun is not shining or when the wind is not blowing. In other words, storage becomes important. So, we are looking at price and technology evolution on the storage side. Our view is that solar electricity plus storage costs should come into the Rs 5 per kWh range. If it comes into this range by 2025, then meeting this goal is possible. Otherwise, we can still meet the capacity target but we will not be able to absorb the energy. But, there is no point in meeting the target when it is not serving an economic purpose.
In your view, what should be the desired fuel mix for the country?
There is no doubt that coal is and will remain the dominant fuel in the foreseeable future. We are still looking at 60-70 per cent of the electricity coming from coal in 2030. Suppose by 2025, you have solar plus battery that is competitive with coal, it would mean that new investment capacity will be in renewables but the old investment will still be in coal. We look at renewables coming to about 20 per cent or so. Hydro will come to around 60,000 MW, which means it will probably contribute about 10 per cent towards electricity. The remaining will be nuclear and gas. What we foresee is that the gas that is available will probably go to the current stranded capacity that we have. PLFs will increase, but this completely depends on the gas price. While we see that the price of oil will fall, we do not think that the price of gas will fall.
What level of funds is required to achieve the targets for India? How can these be mobilised from domestic and international sources?
Till the point that renewable energy is able to meet the Rs 5 per kWh challenge, investors will come and invest based on the fact that they will get returns on their investments. The structure of that financing will remain more or less similar to what it is today. In other words, there is largely global equity and largely Indian debt. If we are able to find a mechanism to hedge the currency fluctuations between the dollar and the rupee, it would mean that you would be able to draw in large-scale international funds. This would allow us to be able to access lower cost money than what the Indian market is able to provide. Once it is competitive with the price of coal, of course there is no issue. So, between now and whenever the price of renewables plus storage becomes Rs 5 per kWh, the challenge is where to find that bridge financing, and getting a hedging mechanism in place. If that happens, the largest amount of funds both on the debt and the equity sides would come from international financial institutions.
What is your assessment of the government’s LED initiative, UJALA and the energy efficiency programme, PAT?
The Unnat Jyoti by Affordable LEDs for All (UJALA) scheme has worked extremely well. I think LED sales have now crossed the 190 million mark in terms of sales. There are about 770 million incandescent bulbs sold in the country every year. This means that already one-fourth of them are LED bulbs, which is very good. The procurement price has dropped to Rs 35 and the selling price is around Rs 70. The price of LEDs is more affordable. The challenge that remains is that non-Energy Efficiency Services Limited’s (EESL) retail market price of LEDs is still to come below Rs 100. Once that happens, the transformation is complete.
PAT had an energy efficiency target of 6.6 million of tonnes oil equivalent (mtoe) worth of savings every year, to be achieved in 2015-16. The achievement has been about 8.5 mtoe, which is well in excess of the target. So in that sense, it is a success. But it obviously raises the question that the target that was set was too low. Now the second cycle of PAT has already come into force, including railways, electricity distribution companies and refineries. So, there are many opportunities for energy savings in industries that need to be pushed.
How do you envisage the role of the private sector in achieving the climate change targets?
Whether it is on the energy efficiency side or the renewable energy side, all interventions will have to attract an increasing amount of private sector investments. Even today, almost 100 per cent of the investments in energy efficiency and renewable energy are ultimately made by the private sector. Even if you look at the LED programme where EESL is doing the intermediate financing, at the end of the day, you and I buy the LED bulbs and pay for that. So, it is a private sector investment ultimately. The challenge that remains in both energy efficiency and renewable energy is how to make the process certain enough and low risk enough for private sector investments to flow.