- India has an ambitious target of installing 450-gigawatts (GW) of renewable energy by 2030.
- To ensure a smooth transition from coal-based power to renewables, the government of India needs to work closely with states rather than imposing changes and policies on them, argue Kaveri Iychettira and Sandeep Pai in this commentary.
- The central government and states need to deal with the contentious issue of jobs supported directly or indirectly by coal and consider creating ‘just transition’ mechanisms that many fossil fuel-dependent countries are already experimenting with.
India has set itself an ambitious target of installing 450-gigawatts (GW) of renewable energy capacity by 2030. It has already achieved an installed capacity of 88.7 GW of renewable energy through large scale deployments of solar and wind power, in the last few years. While the Rs. 90,000 crore (Rs. 900 billion) liquidity infusion announced for the power sector may be reassuring for some investors, it masks grander challenges to the rise of large-scale renewables in India.
The central government’s goal of 450 GW of renewable power in India, cannot be achieved without the support of the state governments. The state and central governments’ goals, however, are sometimes in conflict with each other and to achieve the ambitious goal, it is crucial to align the state-centre interests. For instance, the central government’s objective of incentivising renewable energy is not entirely aligned with certain state governments that have a socio-economic and political interest in sustaining the coal sector. Acknowledging and engaging early with these conflicting goals between the central and state governments will be key to unleashing the true potential of India’s energy transition.
National electricity dispatch mechanism for renewable integration
One such conflict is highlighted in a proposal by the Central Electricity Regulatory Authority for a country-wide market-based economic dispatch (MBED) mechanism. The sun doesn’t shine at night and the wind doesn’t blow all the time. Country-wide dispatch mechanisms such as the MBED scheme are seen as crucial to provide the flexibility needed to balance the uncertainty of solar and wind. For example, if Delhi experiences low sunshine and wind, and its renewable plants are not producing power, a country-wide dispatch will help the people of Delhi access cheap and uninterrupted renewable power from other states. Experience in other parts of the world such as Europe and the United States of America indicates that coordination of such physical dispatch with favourable economic signals over larger geographical areas is crucial to balance out the variability and uncertainty associated with increasing shares of renewables. This argument was also emphasised in a recent study by The Energy and Resources Institute (TERI) which modelled India’s 2030 power system.
However, depending on how such mechanisms are implemented, state governments could potentially lose the power to decide when to dispatch power plants they have long term contracts with. Furthermore, if their own state-owned coal plants are too expensive to be dispatched under the national market-based scheme, such plants may turn into stranded assets; in the worst case, even leading to plant closures and job losses.
In a strongly worded letter to PM Modi, Telangana’s CM, K. Chandrasekhar Rao argued that a national dispatch mechanism would “result in backing down of state thermal units, which cannot compete with central stations whose generation cost is less.” Yet, without such mechanisms, even as more renewable capacity is added, generation from renewable plants will not increase proportionally. Renewable energy-rich states like Tamil Nadu, Karnataka and Gujarat, will find it increasingly expensive to run renewable plants according to the must-run status, without curtailing them.
Loss of jobs in the coal sector can’t be ignored
Another major conflict of interests between the state and the centre is likely to arise over the loss of jobs and revenues if the coal sector declines. At a recent launch of the book Future of Coal in India: Smooth Transition or Bumpy Road Ahead?, the union coal secretary Anil Kumar Jain emphasised that the coal sector is a significant source of revenue for various state governments and is also a significant source of employment in certain states.
There are at least 6 or 7 states that are economically dependent on coal mining and power plants for jobs and revenues. It is estimated that over 500,000 people are directly employed in the coal mining industry alone, and at least 10-15 million people benefit from the coal industry spending. Moreover, there are nearly 500,000 coal mining pensioners in the country who depend on the continuation of the coal mining industry. These are concentrated in eastern and central Indian states. In states like Jharkhand, West Bengal, Orissa, Telangana and Chhattisgarh (currently run by opposition parties), coal mining royalties and taxes are an important source for state budgets. Thus, several states and local governments in central and eastern India have a lot to lose if the coal industry declines. This is problematic because most of the renewable energy projects and related benefits are currently going to the richer southern and western states.
This is not to say that the energy transition presents insurmountable challenges. However, the path to overcome these challenges would require bringing those along who would potentially lose as a result of this much-needed transition. Can we imagine a path where we take advantage of India’s strong, versatile grid while states retain control over their power systems? Can we plan ahead for strengthening economies that stand the most to lose?
For ‘just transition’, centre needs to stop pushing top-down targets
Given India’s federal structure, the only way to mitigate the challenges associated with energy transitions is through negotiation between representatives of these potentially conflicting interests of the centre and the state. Local opposition to potential plant closures arising from new dispatch mechanisms needs to be tackled bottom-up, in a manner that protects local livelihoods while keeping long-term power sector goals in mind.
The centre should facilitate and guide, rather than only legislate, administrate and push top-down targets. In a similar vein, the governments at both the central and state levels should consider creating ‘just transition’ mechanisms (that many fossil fuel-dependent countries are already experimenting with) to provide support to states that might face serious socio-economic challenges related to the transition.
The European Union (EU), which is arguably at the forefront of the energy transition, has acknowledged this issue and recently earmarked €40 billion (approximately Rs. 3.44 trillion) for supporting fossil fuel-dependent regions in the EU countries.
The clean energy revolution or rise of large-scale renewables has little hope of success merely through the central government policy or legislation and a top-down approach. Any hope of success lies in the central government proactively engaging with states to achieve their own visions of development, in a way that is concurrent with goals of climate change mitigation. At the very least, this calls for systematic identification of potential conflicts of interest, long-term planning, and engagement with states as equal partners.
Kaveri Iychettira is a researcher associated with the Harvard Kennedy School, and Sandeep Pai is a former journalist, currently researching global energy transitions at the University of British Columbia.
Banner image: India’s estimated potential of wind power is 302 GW. Photo by Thangaraj Kumaravel/Flickr.