Strong Policies and investment required to accelerate India’s clean energy transition- IEA report

All roads to successful global clean energy transitions go via India, says Fatih Birol, executive director at the International Energy Agency

With India’s current policy settings, India exceeds the goals set out in its Nationally Determined Contribution (NDC) under the Paris Agreement. The emissions intensity of India’s economy improves by 40% from 2005 to 2030, above the 33‐35% set out in its existing NDC. And the share of non-fossil fuels in electricity generation capacity reaches almost 60%, well above the 40% that India pledged. On the flipside, nearly 60% of carbon dioxide (CO2) emissions in the late 2030s will be coming from infrastructure and machines that do not exist today, according to India Energy Outlook 2021. It notes that India’s energy future depends on buildings and factories that are yet to be built and vehicles and appliances that are yet to be bought.

The India Energy Outlook 2021 – a special report in the International Energy Agency’s (IEA) World Energy Outlook series, looks at the opportunities and challenges faced by the world’s third-largest consuming country as it recuperates from COVID-19 pandemic. Recently, the government of India and IEA members entered into a strategic partnership– less than four years after India joined the IEA family as an association country.

Energy trends in India

According to the report, over 900 million citizens have gained electrical connection in less than two decades. Since 2000, the energy consumption in India has more than doubled, it claims.

COVID-19 has hit India’s energy use resulting in an estimated fall of 5% in the energy demands and hitting the investment in the sector by 15%. The fall in the investment has led to financial strains among electricity distribution companies and their recovery depends upon the control of the virus, policy responses and recovery strategies that are put in place.

The report reveals that 600 million Indians have not fully switched to modern, clean cooking fuels or technologies even when policies required to expand LPG coverage are in place.

It notes that over 80% of India’s energy demands are met by coal, oil and solid biomass, with coal being the largest single fuel in the energy mix.

A majority of buildings have not been built yet

The report points out that most of the buildings that will exist in India in 2040 have not been built yet. The increase in the number of buildings owes to rapid urbanization. According to the report, more than 270 million people are likely to be added to India’s urban population by 2040.

In two decades, urbanization will result in residential floor space more than doubling from an estimated 20 billion square meters now to more than 50 billion square meters.

Urbanization is likely to be accompanied by a transition in household energy from solid biomass to electricity. The report also states that the electricity demand in India’s buildings sector will rise from a quarter now to around half by 2040.

Import bill of fossil fuel to triple over next two decades

Additional charges and tariffs on gas has created a hurdle in India’s ambition to become a “gas-based economy”. According to the report, the tariffs and additional charges nearly doubles the average end-user price of the gas. In 2019 the wholesale cost of gas was $6/MBtu while the estimated average end-user price was $12/MBtu.

Based on the current policy settings, India’s combined import bill for fossil fuels is projected to triple over the next two decades, with oil by far the largest component. Domestic production of oil and gas continues to fall behind consumption trends and a net dependence on imported oil rises above 90% by 2040, up from 75% today.

However, rapid expansion of solar power combined with smart policy-making are transforming India’s electricity sector. It has enabled India to provide clean, affordable and reliable power to a growing number of households and businesses, the report finds. Further, it also highlights that high gas prices and large low-cost PV potential means that India is well-placed to close the cost gap between hydrogen from electrolysis and natural gas more quickly than many other countries.

The way forward

Strong policies, technological leaps and more investment in clean energy is required to keep India out of the carbon-intensive path that is previously being followed by other countries. India’s ability to ensure affordable, clean and reliable energy for its growing population will be significant for the future development of its economy.

According to Fatih Birol, IEA Executive Director, “All roads to successful global clean energy transitions go via India.” India has done an exceptional job in bringing electricity connections to a plethora of people and increasing the use of renewable energy, especially solar.

“The energy policy successes of the Indian government to date make me very optimistic about its ability to meet the challenges ahead in terms of energy security and sustainability,” he adds.

Since the majority of India’s energy future depends on buildings and factories that are yet to be built, it requires policies which will push it towards a more secure and sustainable course.

To address the industrial sector challenge, India will have to put more efforts in widespread electrification process, greater material and energy efficiency, the use of technologies like carbon capture, and a switch to progressively lower-carbon fuels.

Additionally, for the transport sector, India needs to build more sustainable infrastructure and shift more freight onto India’s soon-to-be-electrified railways.

While these transformations require huge investments to keep India on a sustainable path, the benefits are huge including the reduction on oil import bills.

Under the Sustainable Development Scenario, included in the report, which prioritises low carbon development, India is on course to reach net-zero emissions by mid-2060s. In order to do so, India, like other emerging markets and developing economies, faces the twin challenge of avoiding emissions from its existing infrastructure, while limiting as much as possible the carbon footprint of new capital stock.

These double challenge calls for the deployment of a wide range of different technologies and policy approaches, say experts. “In 2010, India had less than 20 megawatts (MW) of solar. Today, India offers one of the largest renewable energy markets operating on market principles. Transitions in energy efficiency, sustainable mobility and sustainable cooling are also underway. India now needs to focus on reducing the cost of finance for clean energy projects, providing access to capital to finance distributed clean energy systems, driving capital to help small and medium industries become energy-efficient, and exploring innovative financing models for R&D for disruptive technologies like green hydrogen to further accelerate the energy transition,” says Arunabha Ghosh, CEO at the Council on Energy, Environment and Water (CEEW).

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