Analysis: Reboot Indian economy in clean mode after COVID-19 crisis

By Bhasker Tripathi 

India can turn the crisis precipitated by the coronavirus pandemic into an opportunity by resetting its energy spending to favour renewable power in all spheres of economic activity.

solarpark

Wider use of solar and wind power can transform India’s economy. Photo credit: Erich Westendarp.

In reviving its economy post-COVID-19, India could turn a crisis into an opportunity by resetting its energy spending to favour clean energy, enabling citizens to continue enjoying the unprecedented clean air and blue skies bestowed by the lockdown.

As a start, Prime Minister Narendra Modi could solarise over 39,000 unelectrified health sub-centres–the first point of contact between the primary healthcare system and the local community–serving 230 million people in rural India. That is the recommendation of 20 leaders from top think-tanks, renewable energy companies, industry groups, and healthcare services, who wrote to Prime Minister Modi on April 30, 2020, while there is still time to tilt policy.

Another way of shifting from fossil fuels to clean energy, say, experts, is for the government to transfer some of the massive subsidies currently given to fossil fuels to renewable energy.

Other recommendations on how to follow a green pathway to economic recovery are not only pouring in from India’s think-tanks (such as here and here) but some of the world’s biggest economic institutions (read here, here and here).

“With this restart, a window of hope and opportunity opens… an opportunity for nations to green their recovery packages and shape the 21st-century economy in ways that are clean, green, healthy, safe and more resilient,” United Nations climate body chief Patricia Espinosa said on April 22, 2020.

A new report that analysed India’s subsidy support to its energy sector, by think-tanks International Institute for Sustainable Development (IISD) and Council on Energy, Environment and Water (CEEW), made similar recommendations.

“There is a phenomenal opportunity for India in re-thinking if there is a better way of spending these [coal and oil and gas] subsidies to make them investment-worthy,” said Karthik Ganesan, a research fellow at CEEW and one of the authors of the report.

It is true that government subsidies for renewable power generation have grown threefold over the five years to 2018-19, from Rs 3,224 crore in 2014 to Rs 9,930 crore in 2019, largely driven by India’s climate promise of deploying 175 gigawatts (GW) by 2022, as per the report.

However, these are only a fraction of the subsidies given to carbon-emitting fossil fuels such as coal, oil and gas: India spent about Rs 83,134 crore in 2018-19 on subsidies to coal and oil and gas. That is seven times more than the subsidies for renewables, said the April 16, 2020, joint report by IISD-CEEW.

Currently, 56% of India’s electricity comes from coal, 36% comes from oil and gas and about 3% comes from renewables. India has made good progress in greening its power generation: Renewables now account for nearly one-fifth of India’s total installed power capacity, up from 13% in 2014.

The country’s energy demands have fallen by up to 30% during the first week of lockdown that began on March 25, 2020. Now, as economic activity revives, demand for coal and oil will increase, but the rate of growth will be low and this presents an opportunity, said Vibhuti Garg, a senior energy specialist at IISD and a co-author of the IISD-CEEW report. Any increase in demand can be met through more offtake of cheaper, renewable energy, she added.

Decisions taken now will determine climate change for a long time to come. “Money pumped into energy infrastructure across the world in the coming years will shape emissions trajectories for decades,” Aditya Valiathan Pillai, senior researcher, Centre for Policy Research, wrote in a newsletter on April 11, 2020.

Here’s what experts think India should do to chart a fresh course in energy.

Fossil fuels more volatile

For coal-based power, the last decade has been marked as a period of stressed and stranded assets. In the pre-COVID-19 economy, despite the subsidy support and high demand, investors have seen their holdings in key Indian coal mining and coal-based power companies underperform the Bombay Stock Exchange’s Sensex by an average of 10% a year since 2013, costing Rs 25,000 crore ($3.5 billion) in forgone returns, as per a December 2018 study by the non-governmental environmental organisation Greenpeace.

Why invest in coal when investing in renewables will yield multiple benefits? “Building new coal and propping up the existing fleet with stimulus money would be throwing good money after bad,” Matt Gray, co-head of power and utilities at the think-tank Carbon Tracker, said at the launch of an April 8, 2020, report that he co-authored. The report evaluates the economic viability of countries investing in coal to recover from the pandemic and warns India against it.

In India (a regulated market), 2% of the existing 222 GW coal fleet is running at an underlying loss; a further 66 GW is in the pipeline but 23% of this will enter the market with negative cash flow, said the Carbon Tracker report. “Already 51% of operating coal power costs more to run than building new renewables,” it said.

Distributed solar power 

In cities and industrial clusters, rooftop solar can avoid air pollution. In remote rural hospitals where electricity supply is erratic, solar power could be used to run ventilators and other medical equipment at a lower cost, said Ulka Kelkar, director, climate programme, World Resources Institute India.

Since it is the capital costs that deter adoption of solar power, the government’s recovery package for Micro, Small and Medium Enterprises (MSMEs) could infuse capital to enable low-cost energy efficiency upgrades restricted by lack of funds and information. “Such investments will pay for themselves and save costs for MSMEs,” Kelkar said.

The government or corporate social responsibility funds could cover the upfront costs of solar power for rural hospitals, or to support solar vendors to set up such systems in rural areas and sell the power to local hospitals, homes and shops, Kelkar said.

Distributed renewable energy (DRE) sources including solar pumps and rooftop solar provide huge opportunities for growth. India has announced massive schemes including KUSUM (to promote solar pumps) and the rooftop solar programme. Ganesan of CEEW said if India could channel some of the savings that would accrue from negative oil prices and additional taxes on diesel and petrol into these sources, India’s economic recovery would be on a better footing environmentally.

Prepare the grid

To be able to absorb variable and intermittent injections of renewable energy supply, electricity grids would have to be modernised across Indian states.

While further investment in new renewables capacity is important, it could take a few years for the projects to show economic impact. The intervening period could be used to prepare India’s grid, said Garg of IISD. “Any new investment should be in strengthening and modernisation of the grid. A modern grid can enable better absorption of variable renewable energy and for the adoption of sustainable transport,” she said.

In tandem, to prepare workers for jobs in the renewable sector, free training programmes such as the Ministry of New and Renewable Energy’s Suryamitra programme, which skills youths for solar energy, need to be expanded.

If carried out as part of an integrated new policy, these changes could help steer India on a new path that combines economic recovery with better public health, thanks to less air pollution, and the kind of clean air that locked-down citizens have experienced for the first time in decades.

Job losses caused by the lockdown could be offset by aggressively supporting the renewable energy sector, as it is faster to build and start a renewable energy plant than fossil fuel-based plants, said Sunil Dahiya, analyst, Centre for Research on Energy and Clean Air (CREA), a think-tank. For instance, the 648-MW Kamuthi solar plant in Tamil Nadu was completed in eight months. “Therefore, any relief package directed at the power sector has to keep this in mind and divert the majority of funds towards renewable energy.”

Lasting gains

Global coal use in electricity generation must fall 80% below the 2010 levels by 2030 to limit global warming to 1.5°C, according to an analysis of recent research from the UN’s Intergovernmental Panel on Climate Change.

After the global financial crisis of 2008, global CO2 emissions from fossil fuel combustion and cement production grew 5.9% in 2010, more than offsetting the 1.4% decrease in 2009, said Helen Mountford, vice president, Climate & Economics, World Resources Institute.

To avoid dissipating the clean air gains due to the economic slowdown caused by COVID-19 as countries lift restrictions, some of the world’s biggest economic institutions have issued calls to invest in low-carbon and “green” pathways (read here, here and here).

Investing in renewables is not only a necessary but a smart economic choice, experts believe.

“A mounting body of evidence demonstrates that pursuing low-carbon and climate-resilient growth is the best way to unlock lasting economic and social benefits,” Mountford said.

Bold climate action could deliver at least $26 trillion in net global economic benefits between now and 2030 compared with a business-as-usual approach, according to a 2018 report by the New Climate Economy, an independent body commissioned by the governments of seven nations.

“This includes creating more than 65 million new low-carbon jobs in 2030, equivalent to the combined workforces of the United Kingdom and Egypt today,” Mountford wrote, mentioning the report by the New Climate Economy.

Decarbonisation of the global energy system can grow the global economy and create up to 28 million jobs by 2050, according to the International Renewable Energy Agency.

The opportunity to rethink its approach towards fossil fuel provides India with a co-benefit: Reducing the social cost of fossil fuel usage through cleaner air. More than a million yearly deaths in India can be attributed to air pollution.

Air pollution levels in Indian cities–infamous for the worst level of pollution, specifically of dangerous particulates and nitrogen dioxide (NO2)–drastically reduced due to a fall in fossil fuel consumption in the industrial, power and transport sector, said an April 16, 2020, analysis by CREA.

This was first published in IndiaSpend.

3 responses to “Analysis: Reboot Indian economy in clean mode after COVID-19 crisis

  1. This is a really good analysis. Switching subsidies makes sense right now while oil prices remain cheap.
    Any information on whether renewables was mentioned in the PM’s recent stimulus package?

    Like

  2. Pingback: IEA: Plunging energy demand will benefit renewables | A greener life, a greener world·

  3. Pingback: Green Voices – Ep 2 – Daisy Narayanan: Cycling and walking must be a key part of a green recovery plan | A greener life, a greener world·

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