The march to 2030: Clearing the bottlenecks

India witnessed a substantial increase in power demand in the 12 months preceding June 2024. The demand was driven by a particularly severe Indian summer with a prolonged heatwave. Temperatures in India’s national capital, New Delhi, soared to 52 degrees Celsius, several degrees higher than “normal” – the highest in 60 years. Peak power demand in India surged to a record high of 250 gigawatts (GW) on 30 May 2024, closing in on the Central Electricity Authority’s projection of a peak demand of 260GW for this year.

India’s current projection of peak power demand touching 384GW by fiscal year (FY) 2031-32 could well be revised in the light of recent temperature anomalies. To meet that demand, India’s power generation capacity would have to increase to 900GW from nearly 445GW now, including both, thermal and renewable energy sources. As of July 2024, thermal constituted 54% of the total energy capacity and renewable energy (including large hydro), made up 44%. Nuclear constituted the remaining 2%.

Tracking peak power demand is important as India has set a target to achieve 500GW renewable energy by 2030 and has also set a net-zero emissions goal for 2070. In 2023, the growth of renewable energy in India slowed down. Total renewable energy capacity additions fell by 20.3% from 16GW in 2022 to 13GW in 2023. In 2024, in the first seven months itself, India managed to add about 16.4GW, which is quite promising. Based on this projection, India is likely to add 25GW this year. However, the need of the hour is 45GW per year, for which capacity addition needs to happen at a quicker pace.  

Public and private finance can both be used to make RE projects scalable

In terms of financing, achieving India’s net-zero goals require investments in the range of $7.2 trillion to $12.1 trillion by 2050. The Reserve Bank of India estimates that India should seek to deploy green financing equalling at least 2.5% of its GDP every year until 2030 to achieve its near-term goal. This financing has to come from both domestic and offshore sources, with a focus on the latter, given the other development priorities – infrastructure, health and education – that an emerging economy like India has.

Public finance can play a big role in helping India achieve its net zero target. However, most public sector banks have crossed their lending limit to the energy sector and are constrained in terms of lending to renewable energy plants. While renewable energy comes under priority sector lending, the limit for this sector needs to be increased.

Multilateral Development Banks reforms are already in the offing and philanthropic money is also being invested in pilot projects to improve their commercial viability and make them scalable.

Blended financing, co-lending facilities and government support through fiscal measures like subsidies or viability gap funding can also help unlock private capital. Blended finance provides a coordinated and structured model that can bridge the gap between private and public sector finance to help aggregate smaller-scale projects with potential economic, social and economic benefits for millions of people, including those without access to power.

Budget 2024 also has provisions to accelerate the transition to clean energy, such as reduced custom duty on solar panels and cells, the introduction of a credit guarantee scheme for MSMEs, and the development of a taxonomy to enhance the availability of climate finance. This year, the budget took on a strategic approach to securing critical minerals by focusing not just on the domestic supply chain but also on the overseas acquisition of critical mineral assets.

Carbon markets enhance the effectiveness of carbon reduction strategies

India is transitioning from the Perform, Achieve, and Trade (PAT) scheme to the Indian Carbon Market (ICM) framework, reflecting a significant shift in its approach to reducing greenhouse gas emissions. Carbon markets are carbon pricing mechanisms that enable governments and non-state actors to trade greenhouse gas emission credits.

The newly established Carbon Credit Trading Scheme (CCTS) under the ICM is aimed at creating a structured carbon market with both compliance and voluntary segments. CCTS will cover carbon dioxide and perfluorocarbons emissions from industries, such as cement, iron and steel, and aluminium. The ICM is designed to foster greenhouse gas reduction technologies within the industrial sector. It aims to reduce the emission intensity of the GDP by 45% by 2030 against 2005 levels.

The transition to the Indian carbon market is a crucial step towards achieving India’s climate goals, aligning with global standards, and enhancing the effectiveness of its carbon reduction strategies.

Energy efficiency measures can help consumers make informed decisions

Energy efficiency measures can play a significant role in reducing peak power demand in India. Government policies that encourage energy efficiency, renewable energy adoption and demand-side management are the need of the hour. Effective regulatory frameworks can ensure compliance with energy efficiency standards and incentivise peak demand reduction.

When it comes to electrical appliances, efficiency standards should be implemented for air conditioners, refrigerators and lighting. Items should be labelled appropriately to help consumers make an informed choice about energy-consuming appliances, which can lead to substantial energy savings. A good example of this is the Bureau of Energy Efficiency’s (BEE’s) star rating programme.

Grid modernisation, DRE can help in demand shift 

Smart grid technology can provide real-time data on energy consumption, enabling consumers to monitor and manage their usage more effectively. Encouraging rooftop solar panels and distributed renewable energy (DRE) systems can reduce the load on the grid during peak hours. Batteries and other storage technologies can store energy generated during off-peak hours and release it during periods of peak demand. Encouraging consumers to shift their energy usage to off-peak hours through differential pricing can also flatten the demand curve.

Given that extreme weather events are becoming increasingly common in India, boosting renewable energy has become all the more important. A growing population and urbanisation, coupled with increasing income levels, will continue to put pressure on electricity demand growth. A recent analysis by IEEFA states that the growing power demand cannot realistically be borne only or even primarily by thermal plants. Now operating much closer to peak capacity than in recent years, they have much less headroom to boost generation during heat emergencies.

The Centre and states must both accord higher priority to scaling up renewable energy infrastructure and implementing energy efficiency initiatives. India needs to adopt a pathway that is dotted with sustainable energy choices, which will reduce its reliance on imports and help build its energy security in a cost-effective manner.

This article was first published in SolarQuarter India: The CEO Spotlight (REI Special) Issue