Date : 27/10/2023

Relevance:GS Paper 3- Environment - Renewable Energy

Keywords: NTPC (National Thermal Power Corporation), Electricity Act of 2003, PSU, Net Zero - 2070

Context-

India is at a critical juncture in its energy transition, with a growing focus on renewable energy (RE) sources such as solar and wind power. While these efforts align with India's global commitments to decarbonization, it is imperative to examine the implications of this transition at the regional level. It highlights the need for a balanced approach that empowers states with limited renewable energy capacity and ensures their active participation in the transition.

The Past and Present of India's Energy Landscape:

India's journey in the power sector has witnessed distinct phases.

• First Phase: The first wave of power plant construction in the mid-1970s to the mid-1990s was driven by central Public Sector Undertakings (PSUs) aiming to address regional power imbalances. The creation of NTPC (National Thermal Power Corporation) and Coal India marked a central solution to a regional problem.
• Second Phase:The second wave from 2000 to 2015 saw private promoters constructing power plants after the Electricity Act of 2003. These plants were predominantly located in central, western, and southern India. Over time, India invested in a national power grid, simplifying the inter-state transmission of power. This infrastructure development led private investments to cluster around states with robust industrial demand and sound financial foundations.
• Third Phase: The next phase of power plant construction in India is anticipated to be marked by the mass construction of renewable energy assets. Projections from the Central Electricity Authority indicate a substantial increase in the share of solar and wind power in India's energy mix by 2030. India has the goal of achieving 50% non-fossil electricity generation capacity by 2030 and attaining net-zero emissions by 2070.

India's energy transition hinges on engaging states, as they play a vital role in the governance of energy production and usage.

Why States Hold Significance to Achieve RE Targets:

• Implementing National Goals: India's states are incredibly diverse, necessitating a tailored approach to the energy transition that considers their distinctive characteristics, available resources, and unique developmental paths. While the central government sets overarching national objectives, states are responsible for translating these policies and action plans into tangible actions at the grassroots level. Their active involvement is critical for turning national ambitions into practical outcomes.
• Addressing Historical Challenges: States play a pivotal role in tackling longstanding issues that have afflicted the electricity sector, such as reducing high distribution losses, enhancing power supply reliability, and improving service quality. These factors are pivotal for ensuring a seamless transition to cleaner energy sources.
• Championing Innovative Policies: States act as hubs for experimenting with novel policies and innovations. For instance, early initiatives by states like Gujarat and Rajasthan in solar power and Maharashtra and Tamil Nadu in wind energy have significantly contributed to the nationwide adoption of renewable energy. Likewise, the PM KUSUM initiative draws inspiration from successful state-level endeavors in scaling up solar energy in agriculture.
• Shaping National Policies: Effective state-level experiments and pioneering approaches to adopting renewable energy serve as influential models for crafting national policies and frameworks.
• Leveraging State Resources: Every state in India possesses a distinct mix of renewable energy resources, such as abundant sunlight, wind corridors, and biomass availability. States can harness these resources to promote renewable energy generation and shift away from fossil fuels.
• Encouraging Distributed Generation: States can promote decentralized renewable energy solutions, including rooftop solar installations and community-based projects, to effectively tap into their localized resources and stimulate community participation.
• Informed Policy Decisions: The framework supports well-informed decision-making by ensuring that policies and interventions are rooted in robust analyses of state-level readiness, interconnections, and potential challenges. This approach promotes informed choices and efficient resource allocation.
• Inclusive Stakeholder Engagement: A state-level framework encourages the active involvement of stakeholders, including local communities, industry players, and civil society. It fosters transparency, accountability, and stakeholder ownership in the energy transition journey.

The Regional Consequences of RE Growth:

• Despite the national push for renewable energy, the benefits of India's renewable energy build-out have been concentrated in the western and southern states. In 2023, over 90% of grid-connected RE generation was contributed by just eight states, mainly due to factors like higher insolation, wind density, financial stability, and investment environments.

The Regional Consequences of RE Growth:

As the renewable energy sector grows, states with limited RE capacity but abundant coal resources may face multifold fiscal challenges.

• First, coal royalties as a percentage of state revenue will diminish as coal production slows down.
• Second, the power procurement cost will increase as new RE contracts are added to existing firm power commitments.
• Third, the Adoption of grid-scale energy storage technologies remains limited and expensive, making it unlikely to offset these challenges significantly. Most coal-rich states, with limited grid-scale RE deployment, will need to import more power from other states, leading to higher inter-state financial transfers for power procurement.
• Fourth, Research indicates that the combined impact of declining coal royalties and escalating electricity imports could result in budget deficits for RE-poor, power-importing states. On average, these deficits could reach nearly 8.66%, surpassing the limits established by the Fiscal Responsibility and Budgetary Management Act of 2003.
• Fifth, the complex fiscal federalism in India is marked by friction between states and the central government over revenue sources. Disagreements over coal royalties and electricity procurement frequently arise. Several policy issues, including the establishment of a centralized electricity spot market, stringent payment discipline for state distribution companies (discoms), privatization of state discoms, and various Electricity Act amendments, have intensified these tensions. Of particular concern is the shifting of renewable energy integration costs to state transmission companies. By granting transmission waivers to new RE projects, these integration costs are shifted onto state PSU balance sheets, potentially without compensatory investments in transmission capacity capable of managing the variability of RE projects.

Addressing Emerging Frictions:

To facilitate a smooth energy transition, emerging frictions need to be addressed. To empower RE-poor states and avoid policy conflicts that could hinder the transition, several key measures can be taken:

• Preferential Lending for RE Projects: State lenders could provide preferential lending for RE projects in RE-poor states, promoting equitable access to financing for renewable energy initiatives.
• Greater Voice in Federal Power Negotiations: Reviving institutions like the Inter-State Council could grant RE-poor states a stronger voice in federal power negotiations, ensuring their concerns and needs are taken into account.
• Financial Transfers: The Finance Commission can play a pivotal role in explicitly transferring financial resources to RE-poor states, helping them cope with budget deficits resulting from the energy transition.
• Collaborative Industrial Policy:The concept of a just transition should guide industrial policy, ensuring that green industrial opportunities are not monopolized by historically well-endowed states. This approach promotes balanced regional development and shared prosperity.

Conclusion:

India's energy transition towards renewable energy is a critical step in achieving sustainability and reducing carbon emissions. However, to ensure its success, a balanced approach is essential. Empowering RE-poor states and involving them actively in the transition is a matter of fairness and a strategic necessity. Only by ensuring that all states benefit from the energy transition can India achieve its goals of sustainable and inclusive development. Balancing the interests of all regions in India will be a key determinant of the country's ability to navigate the complexities of the energy transition effectively.

In this regard, fostering cooperation, providing financial support, and ensuring a just transition will be vital to securing the nation's energy future while safeguarding the interests of all states in the country. As India continues to embrace renewable energy, it must address the regional disparities and fiscal implications to ensure a harmonious and prosperous energy transition for all.

Source - Indian Express