Adopt a people-centric approach to reach net-zero emission target

For any futuristic decarbonisation-based procurement planning, all stakes must be balanced by ensuring that in the long term they could gain from decarbonisation even at the cost of short-term losses

Three years ago, at the COP26 summit in Glasgow, India declared a net-zero emissions pathway goal by 2070.

Reaching this objective will require phasing down coal-based power generation and increasing reliance on renewable, non-fossil energy sources by more than 20% above the current level.

With growing cooling loads exacerbated by climate change-led urban heating, renewable energy supply will be imperative to meet peak electricity demand. This means solar and wind energy must be backed up by energy storage options such as battery-operated energy systems to supply power.

Reality on the ground, however, is nowhere near this point.

Coal production and coal-based power generation have been increasing, and renewable energy-based supply has not caught up.

To meet these goals, India's power distribution companies (discoms), need to enhance renewable energy procurement and match short- and long-term renewable purchase obligations. Most discoms on average aim to procure at least 22% of their power from renewable energy sources. After 2035, that target gradually increases to 43%.

However, this can only happen when the cost of renewable energy purchase is substantially lower than coal-based thermal power, which is available at a lesser cost.

Pricing issues

Capacity constraints associated with the generation and transmission of renewable energy power through India's grid infrastructure must be considered.

Most of India's state-owned discoms are in poor financial health. In many cases, they are kept alive financially by state government subsidies, and frequently by Union government bailouts as well.

Thanks to these financial guarantees, state discoms have been able to enter long-term power purchase agreements (PPAs) with private generators.

These PPAs ensure a fixed long-term purchase price and provide a cushion for investors. This also lets capital flow into the system, creating energy generation capacities even in an unprofitable sector.

With increasing competition and rising investments in energy generation, generation prices from coal-based thermal power plants are gradually going down.

With more reverse bidding in the auctioning process of renewable energy generation projects, where the lowest bidder wins the auction and the next bidding price starts from the winning price of the last bid, the prices are pushed downwards.

Generating solutions

Discoms and the Indian Railways recently arrived at a competitive regulated tariff for renewable energy procurement, complemented through battery-operated energy storage systems and ‘round the clock’ agreements.

With battery-operated energy storage systems, generating solar power by day and coal-based thermal power by night can ensure that power is available 24/7.

Discoms may still require both thermal-based power and energy storage-complemented renewable energy to meet customer demands in the long run.

This will mean substantially adding to the total current generation capacity.

Using solar power in the day and storing thermal generation for nighttime can prevent the plant load factor of coal-based plants from going down and driving up the cost of thermal power.

An additional 500 GW renewable energy capacity by 2030 is a key milestone for India to achieve net zero by 2070.

The majority of this will come from solar and wind, complemented by other energy sources like hydro, biofuel and nuclear energy. The current solar capacity of around 89 GW will need to increase by more than five times.

This needs to be backed by sufficient storage capacity at a favourable regulated tariff.

In other words, to achieve net zero, discoms need a least cost-based procurement strategy.

As a part of that process, they will need to consider future scenarios involving procurement from power exchanges, offshore wind, battery energy storage solutions and interstate trading through smoother transmission networks.

Additionally, gas-based options need to be seen at state level as part of discoms' decarbonisation strategy.

A people-centric transition

People's welfare must be at the heart of this transition to renewables.

There are implications for employment, finances, assets and liabilities, as well as discoms' staff and government stakeholders.

Such a transition will mean building consensus among all those whose livelihoods are associated with the survival of the discoms.

Often, decarbonisation transitions can lead to regulatory challenges and tensions within central and state agencies.

For instance, decarbonisation might mean a short-run increase in power tariffs for consumers, which they can resist due to a legacy of cross-subsidies over a long period. Owing to political support, high electricity-consuming sectors like agriculture have been cross-subsidised by the industrial sector. A rise in power tariffs might lead to protests from beneficiaries such as farmers who have benefitted from such subsidies in the past.

Adam Smith suggested that markets would always allocate scarce resources efficiently and create the optimal distribution of resources through efficient pricing.

Contrary to Smith's postulate, markets in India's power sector do not have an invisible hand that ensures market equilibrium, but rather are determined by political and social stakes.

For the power sector, with its persistent subsidies functioning as a form of political patronage, market forces alone do not decide.

For any futuristic decarbonisation-based procurement planning, all stakes — including interests of various consumer segments, investors, policymakers, suppliers and agents of the political economy of the power sector — must be balanced by ensuring that in the long term they could gain from decarbonisation even at the cost of short-term losses.

Without a people-centric transition, a net zero pathway might not be attainable.

(Anandajit Goswami is a Professor and Research Director at Manav Rachna International Institute of Research and Studies, Faridabad, and Visiting Research Fellow, Ashoka Centre for a People-centric Energy Transition (ACPET).)

(This article was first published under Creative Commons by 360info.)

(Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.)