Is India set for big shift in its energy mix?

If recent plans of India’s energy minister, Piyush Goyal, were to materialise, India is set to witness a paradigm shift in its energy policy. Speaking at the sidelines of the World Economic Forum last week, Goyal announced plans for $250 billion investment in India’s power sector to meet the prime minister’s goal of 24/7 electricity for all by 2019.

Encouraging global and domestic investors to participate in the India’s new growth story, the minister for power and coal laid out his broad plans for the growth of the sector, with $60-70 billion investment in power generation and $20-25 billion in replacement of outdated equipments. Renewable energy was set to take a much larger role with $100 billion investments.

Although the overall target of $250 billion may seem ambitious, India’s 12th Five-Year Plan, in fact, had already envisioned an investment of Rs13 lakh crore (approx. $ 222 billion) towards the development of the power sector. Therefore, the key development in the minister’s announcement was not the magnitude of investments but rather the planned distribution of funds across the various options.

The new announcements may drastically reduce the capacity additions of thermal power while significantly scaling up renewable energy and energy efficiency projects. While the 12th Plan projected around 68 GW of thermal power capacity addition with a fund requirement of around Rs 4 lakh crore, the minister’s new goals could lead to significant reduction in thermal power capacity addition targets (see tables below).

Investment projections as per the 12th Plan Generation and other power infrastructure Allocation of cost (Rs. crore) Capacity in GW (1) Thermal 413,322 69 Hydro 90,119 11 Nuclear 123,400 12 Sub-total 626,841 92 Transmission & Distribution 486,235 - R&M 31,887 - Energy Efficiency 7,482   Renewable energy 135,100 19 Total 1,372,580   Source: Planning Commission Report of the Group on Power for Twelfth Five Year Plan Calculated based on cost per MW data from the planning commission Total allocation cost includes additional elements (not given in the table) towards the power sector infrastructure

Investment Projections as per new announcements Generation and other power infrastructure Proposed funds US $ (billion) Proposed funds Rs. (crore) Capacity in GW Generation capacity 60-70 369,960 -431,620 62-72 Transmission & Distribution 50 308,300   R&M 25 154,150   Renewable energy 100 616,600 75 DSM & EE 6 36,996 - Total 250 1,547,666   Note: Conversion rate considered 1 US $ = Rs. 61.66

Per MW cost of power projects Type of power generation option Cost per MW (Rs. crore) Thermal 6 Hydro 8 Nuclear 10 Captive 5 Solar 13 Wind 6 Other renewables 5 Source: Planning Commission Report of the Group on Power for Twelfth Five Year Plan

Capacity additions of conventional sources of power (thermal, hydro and nuclear combined) could reduce from 92 GW to between 62 and 72 GW as per the new plans. While an investment of $70 billion would imply a 21 per cent reduction in conventional capacity, a $60 billion outlay would lead to a substantial 32 per cent reduction in conventional capacity addition as compared with the 12th Plan projections.

On the flip side, compared to fund allocations in the 12th Plan, renewables will more than quadruple. Considering an even distribution of investments between solar and wind energy, renewable energy capacity could increase from around 18 GW to over 75 GW as per the minister’s announcements.

Uphill task

Notwithstanding the promise of the above announcement, India’s energy planning has a dubious reputation of consistently overestimating capacity additions. The last few planning periods met just around half of their targets with the 11th Plan doing slightly better at around 70 per cent of its target additions. Additionally, India has one of the lowest per-capita consumption of electricity globally at one-fifth the world average (in 2011, as per World Bank). In order to meet the target of electricity for all and further provide this power at the basic levels comparable to the global average consumption, India would need to at least treble its power generation by 2022, a challenging task considering that power availability increased by only 28 per cent between 2010 and 2014. Therefore, though increasing renewable energy capacity is much desired, seeing the scale of improvements needed, the government needs to be pragmatic about its options towards meeting the very fundamental goals of electricity access in the country. 

A second wind for India’s energy market: financing mechanisms to support India’s National Wind Energy Mission

RE‐energising India: policy, regulatory and financial initiatives to augment renewable energy deployment in India: policy brief

India energy subsidy review: a biannual survey of energy subsidy policies

Web edition Web edition News News News World Economic Forum Thermal energy Renewable Energy Renewable Energy Piyush Goyal Down to earth Davos