The GAIA Perspectives

The Renewable Story in India

Background:

The push for renewable generation capacity in India actually started around 2015. Prior to this, the capacity was being driven by the Jawaharlal Nehru National Solar Mission (JNNSM) which had a target of only 22GW by 2022.The impetus was actually provided when the government announced a target of having 175 GW of renewable generation capacity by 2022. This capacity included 100 GW of solar (out of which 40GW was rooftop solar), 60 GW of wind, the rest being biomass (10 GW) and small hydro (5 GW). This impetus led to the entry of independent power producers (IPPs) dealing with renewable generation. Apart from the government push towards renewable generation, the fact that coal-based generation would eventually be phased out was weighing heavy in the minds of central power generating companies, like NTPC, who have made concerted efforts to set up solar plants. The government did come up with various incentives to encourage renewable generation capacity, such as, the accelerated depreciation scheme, capital subsidy for solar units, tax holidays, feed-in tariffs, generation-based incentives, renewable purchase obligation etc. As a result of all this, the share of renewable capacity in India has gone up to almost 40% which accounts for about 10% of the yearly generation. We still have a lot of untapped potential as we have a solar capacity of about 45 GW, inclusive of roof top (out of a potential of about 750-1000 GW) and similarly, we have a wind-based capacity of around 40 GW (out of a potential of 700 GW at 120 metres height).

Why has the pace of renewable capacity addition slowed-down?

Though the growth in renewable capacity can be termed as phenomenal having grown from almost nothing in 2010 to about 100 GW today, it is clear that we would miss our target of 175 GW by 2022. One thing which has to be kept in mind is that the targets have been set up by the government whereas the lion’s share of the capacity addition is met by the private sector. The private sector will be motivated by the investor confidence and it is here that the problem lies. Some of the states have killed the investor confidence by reopening power purchase agreements (PPAs) and also by denying timely payments to the developers creating serious cash flow problems. In addition, there have been other issues of land acquisition, high interest rates (especially for rooftop solar projects), securing supply of balance of plant etc. The introduction of a safeguard duty of 25% in 2018 for only two years actually slowed down the pace of addition to solar capacity. Above all, one needs to have the capacity to absorb 175 GW along with other conventional capacities. If demand does not grow adequately, obviously targets will not be met. Keeping all the above in view, India will really have to struggle to meet its new renewable target of 500 GW by 2030. We would need to add about 45 GW of renewable capacity every year from now till 2030 in order to reach this target.

Problems of grid integration with increasing renewable generation:

One of the biggest problems with the increasing share of renewable generation is grid integration. Given that renewable generation (solar and wind) is intermittent in nature, one has to have a back-up for sudden outages. The best source for grid balancing is hydro generation which can be ramped up very quickly and the next best alternative is gas-based generation. Both hydro and gas-based generation are a problem in India. While addition to hydro capacity is hampered on account of litigation, law and order issues, environmental concerns, resettlement and rehabilitation problems, gas-based generation is not economical given the high cost of gas. In India, at present grid management is taking place by varying coal-based generation. However, this is not really the ideal way since it leads to continuous wear and tear of the machines. Another way to balance the grid is through battery storage technologies. The scope for doing this, however, is limited since battery storage is still quite expensive. The latest technology that is available for storage is through green hydrogen so that we do not add to emissions while producing the same. Hydrogen, however, is useful in the case of inter-seasonal storage i.e., long-term storage. For daily storage needs, batteries are the ideal option as they can be charged and discharged several times in a span of 24 hours.

Decarbonising the power sector

The accent on renewable generation has definitely helped in decarbonisation of the power sector and has helped in achieving our NDC targets. As on date, share of non-fossil generation capacity has already reached 40% and we have reduced emissions intensity by 28% against the target of about 35% by 2030. India has recently announced that it will enhance its reduction in emissions intensity to 45% and also increase its renewable generation capacity to 500 GW by 2030. Above all, India plans to become net-zero by 2070 which presumably includes all GHGs and not just carbon dioxide. Judging by this, India will probably have to peak its emissions by 2040 because analysts feel that a gap of 30 years between peak emissions and net-zero is practical. Reaching net-zero emissions by a certain date is not what matters the most, instead what is more important is how does one reach it? Is it by front loading of emission reductions or back loading it? If it is back loaded, then one releases more emissions cumulatively till such time one reaches the net-zero stage. Therefore, it is important for all countries to give a year-to-year trajectory over and above announcing net-zero dates.

Is the growth in solar capacity fuelled domestically?

Unlike wind based generating capacity, the solar industry in India is largely dependent on imports, mainly China. India’s wind-based generation sector got a big boost because of feed-in tariffs which encouraged the entry of manufacturers of turbines. In contrast, India’s domestic manufacturing capacity of solar cells and modules is only about 3 GW and 10 GW, respectively and not large enough to take care of domestic demand. Moreover, the Chinese equipment is about 20 to 25% cheaper due to policies adopted by the Chinese government. To promote the solar industry, the Chinese government gave large subsidies in land acquisition and raw materials. In addition, the Chinese industry always dealt in huge quantities given their sizeable domestic demand that helped them reap benefits of economies of scale. In order to counteract dumping by Chinese manufacturers, the Indian government did impose a safeguard duty for a period of two years (25% in the first year, lowered to 20% and 15% for the subsequent period of 6 months each). This limited period of duty imposition actually retarded the pace of installation of solar projects as developers preferred to wait for two years and held on to their investments. The government now proposes to impose basic customs duty of 40%, beginning from April 2022. In addition, manufacture of solar cells and modules have been brought under the ambit of the production linked incentive scheme with an outlay of about Rs 4,500 crore.

Cost of generation- coal versus renewable:

Is renewable power really as competitive as coal? While there has been a huge decline in cost of solar power, coal-based power is becoming increasingly expensive on account of the increase in price of coal and railway freight. Though the cost of solar power may hover between Rs 2 to Rs 2.5 per unit depending upon the project site (as compared to coal-based generation at an average of Rs. 3.2 for NTPC plants), one must bear in mind that solar power is only available in the day time compared to a 24-hour supply from coal. So ideally, if we compare the two, we should include the cost of storage to the solar based generation. With the drastic fall in cost of batteries, cost of storage has also come down but is still around Rs 6 to Rs 7 per unit. So cost of solar power inclusive of storage exceeds that of coal-based generation. Further, the reduction in the cost of batteries seems to be tapering off and we may not see any appreciable decline in the same in the years to come. We also seem to ignore the cost of recycling the solar waste which will become a huge problem post 2040.

Do we need any more coal based plants:

Should India stop adding to coal-based capacity right now? There is a lot of debate going on regarding this but at the end of the day, it is a case of sheer numbers. The variables that we need to keep in mind include the demand for power in 2030, the shape of the load curve, the cost of storage, the cost of conventional generation etc. The Central Electricity Authority (CEA) has undertaken an exercise in this regard which says that India will not be able to meet its peak demand (which occurs at 8pm) unless it adds to about 34 GW of additional coal-based capacity from now till 2030. This is in addition to about 32 GW of capacity (mostly in the public sector) which is already under construction. Of course, there are several assumptions in this study and any change in the actual values in 2030 would necessitate a change in approach.

Social cost of transition:

The move away from coal-based generation will mean loss of livelihood for several thousand coal miners currently engaged. Coal India Limited had a total manpower of about 2.76 lakh in 2020. One will have to provide for an alternate livelihood for this large populace which would mean re-skilling them. Though there is good potential for employment in the solar industry, especially roof tops, the problem is the mismatch in the geography. While the coal mines are located in eastern India and the Deccan plateau, the potential for renewable generation lies in the coastal states and Rajasthan. This means that it entails migration to retain jobs. There will be additional effects such as the loss of revenue for the railways since transportation of coal is their major bread winner. The states will lose a lot of revenue on account of royalty, estimated at Rs. 13,000 crore during 2019-20.

(The purpose of this blog is to apprise the uninitiated of the likely ramifications which may occur with an increase in renewable generation in the energy mix)

(Views expressed are the author’s own and don’t necessarily reflect those of ICRIER)

Can the Global South rally together for the upcoming COP26?

The United Nations Department of Economic and Social Affairs projects that the population of the global south is likely to grow by 3.7 billion and will comprise 88.2% of the global population. Most of these countries are vulnerable to the impact of climate change. While the Intergovernmental Panel on Climate Change (IPCC) has continuously raised a red flag for humanity regarding the threat posed to its existence, the governments now need to act. The ongoing COP26 in Glasgow is attracting the global leaders on one common stage to discuss one of the gravest problems that humanity has ever faced, i.e. climate change.

Climate negotiations are different in multiple ways from other negotiations. While the developed countries drive most international negotiations, the climate negotiations are often driven by the developing economies. The united fronts of the global south have shaped multiple negotiations starting from the Rio Summit to the Paris accords. Earlier, despite the turf wars and disagreements over several agendas, the global south stood united on a few aspects. However, whether the global south would echo as one voice at COP26 or not is still uncertain.

The Rising Power Asymmetries

The role of the global south countries in deciding the outcomes of multiple international negotiations in the past has been critical. The common need for finance, technology transfers, and others to grow at par with developed economies has united developing economies. However, in the initial phase, the agenda was driven by a set of particular countries, including Brazil, India and China. While things were panning out fine, there was a shift in the world dynamic when China, as a developing economy, replaced the United States as the world’s leading emitter. The emergence of China as a ‘deal wrecker’ affected the well-being of smaller countries in the group. Another reason for the rising power asymmetries is the independence of resources. Countries like China are independent regarding resource production and manufacturing, while on the other hand, countries like Brazil and Indonesia are rich in ecological resources. These countries often use the availability of resources as a bargaining chip and often dilute the coalition’s joint will. The joint will of the global south is critical for shaping COP26 negotiations, attracting finance, encouraging climate equity, and other crucial agendas. Amidst the chaos in terms of finding a common ground for the global south countries, it is difficult to predict what this common path will be; however, one thing is clear that China is no longer leading the way.

Forests: An asset for the Global South

The science of climate change is precise; anthropogenic emissions are increasing, their offsets are decreasing, and the need to balance emissions and offsetting is crucial now more than ever before. While the available options are limited, the way ahead for the global south seems uncertain. In the midst of all this uncertainty, one option still stands firm, i.e., the natural offsets of greenhouse gases. According to the International Union for Conservation of Nature (IUCN), one-third of the global emissions from burning fossil fuels is absorbed by forests. Apart from being an effective sink for greenhouse gas emissions, a quarter of the world’s population relies on forests for livelihood. The forest provides USD 75-100 billion per year in goods and services.

Forest resources have played a pivotal role in shaping climate negotiations from the very beginning. Thus, reducing deforestation, augmenting restoration and maintaining the forest resources is a need of today. Forest resources have also been a loose thread tying together the global south. The first attempt to unite these aforementioned loose threads was made during the COP11 in Papua New Guinea, where many countries reintroduced the idea of reducing emissions from deforestation (RED). Two years later, in Bali, the RED was transformed into REDD+ to include forest conservation and sustainable management. This was indeed a victory for several global south countries, including India, which had been historically conserving its forest. However, the REDD+ remained a hot topic only for a short period of time and slowly fizzled out like many other agendas raised by the global south.

The cause for this, according to many, was that the global south failed to present a firm united front during the climate negotiations regarding forest resources. The Latin American countries specifically failed to attract the benefits from initiatives under the REDD+ and often remained missing from the conversation. This absence has also affected several countries like Costa Rica and El Salvador that were genuinely interested in reaping the benefits from REDD+. Interestingly, within the Latin American countries, there emerged a dissenting voice. Brazil has often opposed offsetting greenhouse gases using carbon markets, including REDD+. While the country has remained an important player regarding ecological resources, it often has to act alone because of its views. India is another player who has played a prudent role in shaping climate negotiations. The REDD+ was a brainchild of India aimed towards the inclusion of conservation of carbon stocks already locked-in in the forest. India has stayed an active member in advocating for the sequestration benefits of both RED and REDD+. The opposing views of India and Brazil concerning REDD+ have over time led to a rift between the countries on this issue.

Way Forward

Humanity is already suffering from the impacts of climate change. The wrath of climate change is visible in Doha, Delhi or Durham, and we cannot keep shifting the goal post or propose a flawed temporary compromise. What we need is something concrete. As Sunita Narain, an environmentalist at the Centre for Science and Environment, mentioned, “A repeat of the complicated, convoluted and cheap Clean Development Mechanism (CDM) must not be allowed again”.

We definitely realise the importance of natural assets as critical resources globally, not only with regard to carbon sequestration but also in terms of providing ecosystem services. Sticking to this argument, the global south had placed a firm foot in the past. However, this certainly seems to have diluted over time. The global south lacks a strong joint will, as several actors are moving towards individual goals and the future course at COP26 seems indecisive.

All this then brings us to one of the last left lacunae of finance. While the developed countries failed in mobilising the promised finance, developing economies have been utilising their resources to facilitate climate action. The developed economies must recognise that the mobilisation of USD 100 billion is relatively small compared to the expenditure incurred in combating climate change. Apart from making the finance available, we need to make sure it is equitably distributed.

The previously designed solutions suffer from several bottlenecks. The past implementation of RED and REDD+ resulted in cutting the verdant forest only to be replaced by non-native, fast-growing species. This should be avoided at any cost. The earlier negotiations tried to capture the nuanced benefits of the ecological resources and failed to fulfil their promises.

With the recent advancements regarding nature-based solutions, the world stays optimistic about realising the full potential of the natural capital. More than 100 global leaders backed the optimism with a commitment to halt and reverse forest loss and degradation during the ongoing COP26. The countries committed to the pledge included several members of the global south, including Brazil, Indonesia, and others. Despite their ambitious goals of reducing its carbon emissions, India and a few others have been missing from being a part of the commitment. This different opinion within the global south countries clearly indicates that they no longer echo as a common voice.

(The author is a researcher at ICRIER. Views expressed are the author’s own and don’t necessarily reflect those of ICRIER )

Energy access and poverty: An African Perspective

(181221) — BEIJING, Dec. 21, 2018 (Xinhua) — Photo provided by Shandong Electric Power Construction Co., Ltd (SEPCO III)

Globally, 75% of people without access to electricity live in sub-Saharan Africa. From the climate equity and energy access perspective, this is a great injustice to the people of the region. If unaided, pushing their systems further for the sake of mitigation targets might just mean that the citizens from these countries would continue to remain in grim poverty and the eradication of poverty would be an unaccomplished dream. However, this dismal situation can have a turnaround with the push for green investments, decline in prices of renewable power along with the availability of critical metal reserves in Africa. All of these will help facilitate access to energy and would change the future of these nations. Perhaps the world leaders meeting for COP 26 at Glasgow should explore the avenues for low-cost access to energy.

Access to energy plays a pivotal role in the development of society. Various benchmarks for ensuring development of society like the Human Development Index show a direct relationship of access to energy with quality of life. Important points for defining energy access are affordability and continuity of supply. Both these points are critical for sustaining any transition as households might benefit from financial support for the initial investment into these technologies, but for ensuring long-term sustained use managing operational fuel costs are key. Therefore, there is a need to look into access to energy holistically.

Africa as a continent is one of the least developed when compared with other parts of the world, and it performs poorly on the energy access front as well. The International Energy Agency (IEA) has been monitoring the data for the electrification and access to modern fuels for almost two decades. The following table presents the data for access to clean energy for the world, developing countries and the African continent.

It is evident from the table that till 2018, 71% of the African population relied on non-clean sources of energy for cooking. The lack of cleaner fuels has drastically affected the health of African household members. The alternatives for traditional sources for cooking are the usage of electrical energy or gas-based cooking. Both of these require a massive investment in the infrastructure. Also, fuel switching will not be an easy task as the usage of non-clean fuels sources is deeply entrenched into cultural traditions. Massive education drives and campaigning are required to make the switch socially acceptable.

Another important parameter defining the access to energy is access to electricity. Apart from its household use, electricity access opens avenues for employment with the industrialization and mechanization of various processes crucial to economic development. The data maintained by IEA shows that between 2000 to 2015, in a span of 15 years, access to electricity in Africa increased from 36% to 49%, while in developing Asia it rose from 67% to 96%. While Africa has achieved urban electrification of 81% till 2019, a major amount of work is required to push for rural electrification as it stands at 37% till 2019. This is abysmal when compared against the global figure for rural electrification coverage of 85%.

The intent of this blog is not just to show the stark differences in energy access in Africa vis-à-vis the world and provide a call to action. But also, to highlight that Africa is a very resourceful continent. It has over 10 TW of solar potential, 350 GW of hydroelectric potential, 110 GW of wind potential and an additional 15 GW of geothermal potential, and large deposits of critical minerals (cobalt, platinum, etc.) that will help light up the globe for generations. The energy policy paradigm in Africa, therefore, needs to leverage this resource potential for achieving its own developmental goals. Additionally, it also needs to elevate itself from being a primary resource provider to the world, to being able to use its resources for driving its industrial and other value addition capabilities.

However, this transition to renewable energy needs to be smooth as a sudden shift from the traditional sources to renewable energy could be very devastating for economies. It seriously ignores the quickly deployable, efficient, economical and catalytic potential of coal and gas-based power for development in the medium-term. For example, countries like Ghana have invested in the Tema LNG regasification terminal, to address their developmental needs. The access to global gas market, will facilitate transition to a low carbon economy while addressing the economical requirements of fuel supply. It is also helping other countries in the region with a stable and cheap supply of gas, and Ghana with finances. The other west African countries have adopted the same model for empowering their economy. Kenya has also used the traditional path to provide universal access to its citizens. In its National Energy Strategy, it has targeted the production of 100,000 barrels of oil per day by 2022 and to balance the energy mix in the long run it targets for development of two 275 MW geothermal capacity plants. Ethiopia where the massive investments have been diverted towards hydro base power to achieve a capacity of 13.5 GW and also plans to expand solar and geothermal based energy to 45% by 2040. Rwanda in its Rwanda Energy Policy – 2015 used the policy framework as a tool and launched an incentive-based scheme where subsidies are provided on the installation of the solar water pumps, LED lamps, industries undertaking energy efficiency audits and incentives on the energy-efficient building.

Collaborative effort like New Deal on Energy in Africa by African Development Bank is the way forward for the development. This effort seeks to develop energy in the continent and to give all its residents the universal access to energy by mobilizing the domestic and international financiers. It also provides the much-needed help to its member countries for drafting their national energy policies and regulations Given the example of other African and also certain South Asian nations, countries should focus on the existing stocks of resources to empower the economy and with time make a shift to renewable based energy by utilizing the finances generated within the boundaries of the nation and various other international finance mechanism as in the case of Morocco and Algeria. Each country is different in itself with its fossil-fuel and renewable potential, strength of economy and development requirements. The experience with Rwanda has showed that the policy framework and incentive-based mechanism will increase the pace of electrification and mechanization of industries and better policies will also help secure energy efficiency.

The development of most of the country has been carbon intensive, and given the status of the economy and living conditions in Africa, the responsible use of fossil-based energy will help improve living conditions and change the socio-economic conditions in the continent. The COP is the best platform for countries to express their concerns to the world regarding the popular narration scripted by a few developed countries. It is the time when the developing and under-developed countries come together and focus on their cumulative emissions and joint approach towards carbon budgeting to curb down the emissions.

In the run-up to the COP 26, every country was expected to submit its Net Zero targets. The target setting will be more of a challenge to the African countries as they have to strategize their decarbonization pathways without reaching their peak emission levels. Studies show the timeline between Net Zero and peak emissions is of three decades. Given the status of poverty, the immediate requirement of any government is to push for economic well-being of the region. This translates into a big dilemma for the African countries, on one hand they have to cater to their domestic needs, and on the other hand they have to be prepared for the upcoming catastrophe which will affect their life severely in future.

Views expressed are the author’s own and don’t necessarily reflect those of ICRIER.

CBAM: the trigger of shared climate responsibility?

Photo by Chris LeBoutillier on Pexels.com

With the current world struggling out of the pandemic, the urgency of climate action has taken precedence. The recently released Intergovernmental Panel on Climate Change (IPCC) report expounds that the world is in a state of emergency with respect to limiting global temperature rise to 1.5 degree celsius. Ambitious emission cuts are way more important now than it has ever been to save our planet from the imminent climate catastrophe. One globally widespread accepted method of reducing emissions takes the form of carbon pricing, with a newer iteration now being discussed, namely the carbon border tax adjustment mechanism or as the European Union (EU) calls it, the CBAM. The proposed CBAM structure is however already garnering some amount of criticism. With this, the ever- pertinent questions of climate justice and the efficiency of carbon taxes come back into the picture, particularly from the developing country perspective.

The Concerns

CBAM found its way in the climate agenda under the EU’s Fit for 55 plan, wherein European Commission adopted a package of proposals to make EU’s policies fit for reducing net greenhouse gas emissions by at least 55% by 2030, to achieve the ambitious climate-neutral continent target by 2050. CBAM in turn is essentially a means for EU to prevent ‘carbon leakage’. As the EU runs stringent climate policies with an emission trading system (ETS) in place already, there is a high risk of carbon emitting companies to move production abroad. This in turn not only raises the probability of domestic products being replaced by more carbon intensive imports in the EU, but also ultimately neutralises the whole agenda of working against climate change for the global well-being.

However, international forums and academia have been abuzz with concerns regarding the compliance of CBAM with World trade Organisation (WTO) rules and its very nature being against the globally accepted no preferential clauses of trade. While the BRICS nations have expressed concerns regarding the rise of trade barriers as a result of the CBAM measure, large emerging economies have also described the proposal as discriminatory and against the principles of equity and common but differentiated responsibilities and respective capabilities. In the past, developing countries have been expressing their reservations with the global carbon pricing system. The concerns have been focused on the inclusion of inevitable emissions like those arising out of electricity generation for consumption in poor households as on par with other categories of emissions, providing less breathing room for developing countries to pursue their economic growth. Further, energy intensive economies that are exposed to international competition are also troubled by the issue of competitive disadvantages in international markets, which in turn could result in domestic job losses, raising concern on the magnitude of welfare losses for the economy. On the same line, the CBAM proposal of the EU has been garnering negative feedback from the developing and emerging economies.

The main focus point of contention has however remained the impact of CBAM on trade equations and competitiveness. There is a growing fear that introduction of CBAM might trigger a trade war. The tax mechanism would put high carbon intensive process products at a strong disadvantage by raising their prices and thus shrinking demand in the EU in comparison to more carbon efficient domestic products. This loss of a huge market has the EU’s exporting partners in worry. EU forms a vital trading partner for a majority of countries. For instance, India is the third largest trade partner of EU. EU accounted for 11.1% of India’s total global trade in 2020, and is the second largest destination for Indian exports. Similarly, China produces half of the world’s steel and thus would see EU as a significant market. Furthermore, there is Russia which forms the fifth largest trading partner of EU and is also the fourth largest emitter of greenhouse gases. The trade equation of all these countries and many others would be significantly impacted by CBAM, perhaps then even leading to the introduction of countervailing measures.

Carbon Tax: Friend or Foe?

While there has been a lot of debate regarding the possible negative effects of a carbon tax, there are also positive possibilities for the developing set of countries. In fact, implicit carbon taxes have been adopted by developing countries like India in the form of several schemes and mechanisms. The main concern of developing countries is for carbon taxes to be inclusive and supporting of economic development. Research studies have in fact revealed that carbon pricing can outweigh the economic efficiency costs of pricing with domestic environmental benefits (read further on this in ICRIER’s previous COP26 blog).

EU plans to roll out CBAM gradually, in phases with the initial implementation being restricted to five high risk sectors of iron and steel, cement, fertiliser, aluminium, and electricity generation. An emission reporting mechanism will apply from 2023, with the financial adjustment coming into the picture only in 2026. Even with respect to the loss of exports, research has indicated otherwise. While developed countries are expected to not suffer export declines, the loss for developing countries is only marginal. Again, the impact will be higher for carbon intensive productions. In fact, a BCG analysis found countries like Turkey and India to gain attractiveness due to existing low carbon production processes and countries like China and Russia to lose out due to high carbon intensity.

The Way Forward

The introduction of CBAM is a sign that climate policy is expanding and will entwine with other policy areas, like with trade policy in the current situation. However, this does not imply taking a complete protectionist stance. For a solution towards climate crisis, the stance and focus will have to change. CBAM needs to be looked upon as a measure that is encouraging carbon efficient means of production and not as a favouring agent of certain countries. The initial period of implementation can be used to learn more about the measure and its implementation mechanism, instead of opposition. Developed countries with existing low carbon technologies can impart the knowledge to the developing and emerging countries through clean technology partnerships to provide similar benefits as well as the exposure to industries. This will provide the twin objective of preparation of the domestic sectors as well as imparting the required knowledge and skill set for a smoother transition. Further, countries can play on their strengths and invest in ‘greener’ areas that are their natural strong points to promote a sustainable low carbon economy. In addition, there needs to be greater incentivisation for the adoption of low carbon alternatives. This would form the part of better planning for future strategy, with strict pollution norms, provision of technological aid as well as government schemes and assurance of financial support to the industries till the end of the initial nascent stage.

While the EU wants to retain its competitiveness and at the same time contribute to the global good by promoting climate action, it is obvious that it will not find support in all. It however remains to be seen whether the CBAM turns out to be as protectionist a measure as it is made appear to be right now. Nevertheless, as the world looks at moving towards recovering from Covid-19 pandemic, it is also the time to pay keen attention to climate change and acknowledge climate responsibility to take some firm and bold decisions.

Views expressed are the author’s own and don’t necessarily reflect those of ICRIER.

How can India support its ambitious renewables target?

With India announcing its intention to achieve net-zero carbon emission by 2070 at COP26, more than 90% of the global economy will now be covered by a net-zero target. This means that economies around the world will soon shift drastically from a paradigm of oil and gas domination to renewable energy. Climate relevant technologies are and will continue be at the heart of this transition. With increasing renewable energy (especially solar and wind) deployment across the world, the need for battery storage systems is becoming critically important given the intermittent nature of renewables. With larger deployments and concomitantly lowered costs, battery storage technologies are becoming more technically and financially feasible. However, for this transition to continue, supply of storage systems needs to keep pace with the demand. Critical raw materials such as lithium and cobalt which form the basis of lithium-ion batteries, will be at the center of the new global clean energy order and would largely dictate the supply momentum.

As a component of net-zero pledge, India has increased the target of non-fossil-based generation even higher, from previous 450 GW to 500 GW, and making renewables 50% of the total energy mix by 2030. To support the integration of high-capacity renewables, battery storage will be a critical component. According to IEA, India will have battery energy storage capacity of up to 200 GW by 2040.

India is in the process of formulating policy frameworks and roadmaps for scaling up battery storage through comprehensive policy framework to promote energy storage in power sector. Battery manufacturing in India is also picking up the pace but the country still imports majority of its demand of lithium batteries, in 2019-20 it imported 450 million units of lithium-ion batteries valued at INR 6,600 crore (US$ 929.26 million). Indigenously manufacturing batteries will be a critical if India wants to become self-reliant and wants to reduce billions of dollars on imports. India has also announced a production linked incentive (PLI) scheme for manufacturing of advanced batteries with a provision of 50 GWh. However, it is also understandable that India’s resources are constrained as it doesn’t have any reserves of battery raw materials nor does it have the refining capacity to produce battery grade materials. India will continue to be dependent on foreign nations. Further, India does not spend a significant amount of its GDP on research and development of new generation batteries as compared to its counterparts. While the EU, Japan, China and the US spend the most on energy R&D, in India, public spending was just 0.02% of GDP between 2012-19. Thus, until India adopts a holistic long-term strategy to secure critical materials and strengthen its domestic manufacturing value chain, deployment of battery storage systems in the country will remain prohibitive.

While battery storage is still a nascent industry in India, it would be perhaps beneficial to draw both technical and policy lessons from the projects in developed countries. India may simultaneously design its strategy while developers, utilities and asset owners implement pilot projects. The US is the world’s largest battery storage market and has installed 712 MW in 2019. These projects have often faced many challenges and failures and present us with valuable lessons both for the government as well as developers.

First, battery storage is highly dependent on the national policy environments and absence of regulations for its deployment can remain a roadblock in the growth of battery storage. US state California has adopted aggressive policies and has set the target of carbon-free electrical grid by 2045, which has resulted in creation of several storage projects. Lack of market rules and regulations creates uncertainty leading to burden on the projects. Second, rules governing ownership have long been a point of contention in electricity markets. Energy storage has a range of owners such as power plants, generation companies, distribution and transmission companies. The presence of such a wide range of owners adds to the complexity of defining the role of each of them in order to decide how different costs (market entry fee, license fee, cost of grid integration) will be distributed, and how revenue will be shared. Many US states continue to review their storage ownership rules. Third, controls and monitoring are essential to ensure safety. For large-scale grid energy storage, the battery system architecture is quite different. Large scale storage grids typically have long battery strings which contain thousands of cells making it difficult for the controls and data acquisition. In the absence of proper monitoring, the string of cells can result in poor performance which can lead to premature degradation, adding additional cost to the project. Grid energy storage project is also not safe from the fire incidents as lithium batteries can catch fire. Tesla, a leading company in battery storage, has experienced cases of fire breakouts at its storage site in Australia. Monitoring systems can identify and warn of potential safety issues in order to prevent any danger to life or property. Fourth, utility scale battery storage is almost entirely dependent on the growth of lithium-ion battery technologies. As lithium-ion technology is relatively new, there is a need for continued R&D and innovation. Tesla thrives on innovation to produce batteries with high energy density, based on least cobalt-based lithium batteries. Further, Tesla has introduced a specific utility scale battery storage system called ‘megapack’ that significantly reduces the complexity of large-scale battery storage, providing an easy installation and connection process. Megapacks deliver significant cost and time savings compared to other battery systems and traditional fossil fuel power plants.

The lack of a proper regulatory framework in India prevents development of battery storage. To remedy this, the regulatory bodies need to establish regulatory measures that clarify the commercial contract framework, long-term roadmap, inclusion of battery storage in power and network planning, etc. Finance is yet another barrier as investments in R&D and innovation are critically low. This highlights the need for higher spending on innovation and R&D.

“Views expressed are the author’s own and don’t necessarily reflect those of ICRIER.“