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Fall in coal demand, rise in foreign investment in RE: Is India on climate-friendly pathway?

While coal demand in India may have already witnessed its peak, a surge of foreign investor interest in India’s green energy could set the beat for energy transition in the country, find two new reports

India’s coal demand in the electricity sector may have peaked already in 2018 and it continued to decline in 2019 and 2020, according to a recent analysis by energy think-tank Ember. The study complements the findings of another new report, which pointed out to the fast-growing renewable energy sector in India, which received more than $42 billion in investment since 2014, but still requires more of a push to reach its target (450 GW) by 2030. 

Both studies depict a picture that puts India on a more climate-friendly pathway. While one study advocates the use of new solar and wind projects to decrease the dependency on coal-fired electricity in the future, the other study focuses on the huge pool of foreign investment pouring into renewable energy (RE) and grid projects in India.

5% decline in coal-fired electricity in 2020

The first study titled, ‘Peaking Coal?’ observed historical electricity generation data from the Central Electricity Authority (CEA) to understand the trends in power generation in 2020 and the previous years. It also took into consideration Indian government forecasts from Optimal Generation Capacity Mix for 2029-30, 13th National Electricity Plan and IEA’s India Energy Outlook 2021. 

The study put India on a more climate-friendly pathway by 2022 if the country doubles its wind and solar generation as seen in 2020. 

The analysis reported a 5% decline in coal-fired electricity in 2020 because of reduced annual electricity demand as a result of the COVID-19 lockdown. At the same time, it found a steady increase in solar generation.

The report concluded India’s coal-fired generation will continue to plateau this decade if electricity demand continues to be impacted by COVID-19. This conclusion is in accordance with the India Energy Outlook 2021.

According to the report, there will be a small increase (52 TWh) in coal-fired generation along with 4-5% electricity demand growth every year until 2030.

“It seems increasingly likely that coal power will plateau in the 2020s in India. But there is still a risk that India could be knocked off course,” said the study’s lead author Aditya Lolla, who is a senior electricity policy analyst at Ember. The steps taken by India in the coming decades as it recovers from COVID-19 will make or break its coal-to-clean electricity transition, he added.

More emphasis on building new solar and wind capacity

India being the second-largest coal generator, should put more focus on building new solar and wind capacity to meet the electricity demand, Lolla emphasised.

The report suggested removing barriers like land acquisition and delays in grid integration, to ensure wind and solar targets are met. It says that power-purchase agreements by economically struggling power distribution companies (DISCOMS) to buy cheaper wind and solar energy should be cancelled or renegotiated. 

The reluctance of DISCOMS to invest in rooftop solar installations has already resulted in India lagging behind its 2022 target of 40 GW. In January 2017, through the 13th National Electricity Plan (NEP13), the Indian government set forth a schedule until 2027 to retire on-grid coal-fired plants older than 25 years. However, India is yet to legislate it.

The report recommended a moratorium on the new coal mine auctions. With India’s current total mining capacity already exceeding the coal demand in 2030 by 15%-20%, the new coal mines, if operationalised, will run a risk of ending up as stranded assets, the report stated.

More investments in RE

Another report, by Institute for Energy Economics and Financial Analysis (IEEFA), suggested that with the reduction in the cost of solar tariffs, plummeting solar module costs and government-backed 25-year power purchase agreements (PPAs), a huge global capital pool is mobilising to invest in renewable energy (RE) and grid projects in India.

The report titled, ‘Capital Flows Underpinning India’s Energy Transformation’ identified the investments flowing into the renewables sector for new projects and infrastructure investment trust (InvIT) structures. It also highlighted capital recycling opportunities for the National Investment and Infrastructure Fund (NIIF) for operational projects.

More fund to reach 450 GW capacity

It noted that while the renewable energy sector in India has received more than $42 billion in investment since 2014, it will require a further $500 billion in order to reach 450 GW of capacity by 2030. 

“Domestic and global institutions across the financial, corporate, energy, utility and government sectors are primed to deploy a wall of capital that India needs to fund its ambitious renewable energy targets,” said the report’s co-author Tim Buckley, Director of Energy Finance Studies, South Asia, at IEEFA. 

Capital investment in India’s RE

In 2021, Total – a French renewable energy company – invested $2 billion in Adani Green, acquiring a 20% stake in the company, added Buckley. Other major foreign investors in the Indian renewable energy sector include Canada Pension Plan Investment Board (CPPIB) and KKR.  

In December 2020, CPPIB acquired an 80% equity stake in SB Energy India at a valuation of $525 million and KKR acquired major stakes in the IndiGrid InvIT in 2019.

The investments remain unaffected despite the economic slowdown of 2019 and then the COVID-19 disruptions of 2020, said Buckley. As electricity demand continues to recover through 2021, he expects more capital from global investors.

More competition in the market

India’s renewable sector is not only dominated by independent power producer (IPP) capacities like Adani Green and Tata Power, but also challenged by growing contenders like Vena Energy/Vector Green, O2 Power, Ayana Renewable Power. Even the government of India fossil fuel majors – NTPC and NLC – have started to rise to the decarbonisation challenge.

In the grid transmission sector, private sector challengers to Power Grid Corp, led by Adani Transmission, Sterlite Power and IndiGrid, are driving grid expansion and modernisation at lower costs.

India on track with Paris Agreement

Carbon emission per GDP has already fallen 14% below 2005 levels and energy capacity from renewables now make up to 37% of India’s total capacity, according to the IEEFA report. It found that the swift renewable energy capacity additions in the past four years have helped India inch closer to achieving the Paris Agreement targets.

As global momentum towards delivering on the Paris Agreement has propelled, India is well-positioned to deliver more than its fair share of the solutions, the report stated.

Need to recycle existing investments in RE projects

Saurabh Trivedi, co-author of the report, said India not only needs to get more investment into new RE projects, but also it needs to recycle existing investments.

Over the past two years, India’s renewable infrastructure has seen some prominent mergers and acquisition activities that have helped unlock and recycle the existing capital. This, in turn, has freed up project developer’s capital to pursue ever-larger tender opportunities, he added.

According to Trivedi, India needs more project developers with “even greater balance sheet strength” to
make use of the already existing potential, while providing more scope for pension investors.