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16 December 2021

India pushes falling GDP emission intensity over absolute cuts

Population: 1,400 million (+2.5% vs 2020)

 

GDP per Capita (PPP): $2,191 (-13.3% vs 2020)

 

Debt to GDP: 73.95% (+0.31% vs 2020)

 

Power Per Capita: 972 kWh each year

The persistent impression of India and energy is the one which left a sour taste in the mouth at COP26, when its told the conference it could reach net zero, but not before 2070. China had perhaps set a trend by pushing out beyond 2050 to 2060, but the pure scale of the project for China perhaps warrants that. India with far less developed industry, could surely beat the Chinese ambition, on the grounds that it hasn’t yet built that much infrastructure compared to China and especially on the back of Prime Minister Narendra Modi’s aggressive renewables campaign.

But in a way India has the greater problem to solve – it wants to mirror the Chinese rise as a manufacturing partner for the rest of the world, complete with the rising middle classes, and the consistent lift in GDP. India does not see why it should reduce its financial ambitions, at the expense of its climate ambition. It is essentially trying to do two things at once – growth ludicrously fast, AND decarbonize and it feels it hasn’t time to draw breath and re-think its renewables priorities.

Rethink Energy believes that whatever India says it will do right now, the continual falling price of renewables, coupled to the rising prices of coal and gas and oil will see it change that trajectory, dot due to political bullying, but simply due to pragmatism. That may make this the one target that India sets, which it actually exceeds – typically India will set an industrial target and miss it by four or five years, but it may find it can decarbonize sooner than 2070.

India’s Politics

It’s worth pausing a moment to understand India’s inability to quite get things done, and to do that we must look at how Indian politics works, somewhat like the US, with a central government and 28 states and 8 Union territories, as well as 17 autonomous areas. Each have different rules applying to them and the states have independent governments, some which have one house and others which have two.

Union governments handle defense, external affairs and collect customs duty, excise tax, income tax, while state government income comes from VAT to stamp duty.

So while it is clearly a democratic republic, it is layered and complex, and also suffers from the chronic corruption of anywhere where many of the people are poor, and getting things done from within central government can be tough – hence the inability to complete major central government plans on time, or sometimes at all. Elections are held every 5 years and it has been this way since 1951, since the end of British rule, and just after the partition from Pakistan and while initially single parties were strong enough to dominate politics there, since the 1990s, coalition politics is more common, adding another barrier to getting things done.

Each state runs its own power grid, and the connections between each state, and the state of preparedness to attached renewables to the state grid, varies all over the country.

The entirely separate Supreme Court often spends its time managing disputes between the various layers of government, a process which can introduce yet more delay.

What climate ambition has India promised?

Non fossil fuel energy capacity is supposed to reach 500 GW in India by 2030, and 50% of all energy should come from renewables at that point. It will also cut emissions by 1 billion tons by that date, as well as reduce carbon intensity (how much energy is required for each unit of GDP).

There are huge concerns that not only will India miss this 2070 target, but that it will also continue to grow its population and that this will mean more homes and more poverty.

If India is in any way let off the hook for reducing its emissions, there is every chance that single-handedly, its economic growth will mean that the world misses 1.5°C. It’s population grows by around 35 million a year – an additional country the size of the Ukraine – and while it hopes to cut poverty, unless it finds a way to cut its population, that will always be a pipe dream. Although the population growth may slow, it is expected by the UN that India will grow by an additional 273 million people between now and 2050, other forecasts, for instance by the world bank, says it will grow even faster and not turn down until 2048 when it will have 1.6 billon people, and regional political organizations are at least beginning to talk about how India can introduce a two child policy to prevent hospitals being overrun, food shortages and large scale unemployment.

If India argues that it needs more time to lift 100s of millions of people out of poverty, then perhaps it needs to forgo some of that population growth, to make things easier. It’s no good lifting 200 million out of poverty, if there are suddenly another 273 million people.

On a global basis, it makes more sense to have no single country going beyond the 2050 date for zero emissions, otherwise other countries with which are significantly behind the curve on industrialization, will want the same deadline.

India’s population is at high risk of climate change, because much of its year round water comes from rivers which are fed from glaciers, and the potential for those to disappear, and that precipitation to fall as rain, will lead to a cycle of floods and drought, which will damage the country’s food security, leading to even greater poverty.

This is perhaps why Prime Minister Modi has been so strident in his calls for increased renewables – but again this has been a series of targets significantly missed. He had aimed for India to have 175 GW of renewables by March 2022, but the country is only just reaching 100 GW now.

The big obstacle is electrical transmission

India has a target for 50% of energy to come from renewable sources. Currently, some 38% of India’s power generation capacity comes from wind, solar, and hydropower, but its renewable generation – due to capacity availability – remains at around 14%, and reaches 30% only if you include nuclear and hydro. The rest is either curtailed or built but not yet connected. In fact the lack of connectivity for both wind and solar has led to a number of Indian auctions being undersubscribed, due to concerns that the projects would be left in limbo, as many before have been, unconnected for up to 3 years after they are awarded, due to transmissions congestion.

At COP26 Modi and UK prime Minister Boris Johnson made much hoopla over launching the Green Grid Initiative, but this is more about connected countries all over the world sending energy to one another, through undersea grid connections, rather than connected grids within one country. It captured the approval of over 80 countries which said they would join in, and if this ever comes to fruition, it will likely mean that curtailed solar which IS connected, would be able to sell energy to other countries in different time zones. It was pitched by India under the mantra of “One Sun One World One Grid.”

This announcement however was very short on detail, and India really has to sort out its own grid before intervening on the global transmission stage. But it would be a great case study if it can take the disparate State Grids and connect them, almost as if they were different countries, then renewable power would have more possibilities of selling on one part of India, despite being located in another. So perhaps there is method in Modi’s madness here, and he plans something of a revolution among India’s grids, increasing the volume of energy traded between state utilities during periods of surplus power in one region so that it can compensate for deficits in others. Perhaps then at least the full capacity of renewables can be felt, easing the pressure to build more coal plants.

However it will be an act of political genius if Modi convinces each State to enter deep co-ordination with every other state over shipment of electricity over long distances, in order to maximize the overall grid of India. Technically it is feasible, financially it is affordable, politically it may not be possible.

Electricity Projections

India’s Central Electricity Authority (CEA) has done a projection for the country’s energy mix for 2030 which suggests that from a base of 134 GW in 2019 for non-fossil electricity generation — solar, wind, hydro and nuclear, this will grow to 522 GW by 2030. Which in turn will require solar energy installed capacity to reach 280 GW and wind to reach 140 GW.

Economy

India’s economy is being lifted by an increase in public investment and incentives which central government has put in place to boost manufacturing.

Under the “Aatma Nirbar” self-reliance policies of Prime minister Modi, solar manufacturing is rising and demand will increasingly

be met by domestic module supply.

For instance in June Reliance Industries, one of India’s biggest conglomerates, announced a $10 billion, three-year investment into Indian renewables taking in a 5,000 acre manufacturing complex in Jamnagar, Gujarat with four gigafactories – one each for solar, energy storage batteries, hydrogen electrolyzers, and fuel cells. Besides manufacturing, the company committed to projects such as 100 GW of solar projects to be developed by 2030. It has also acquired Norway’s REC Group and a 40% stake in the Indian EPC provider Sterling & Wilson, as well a $29 million purchase of NexWafe stock, which has invented a vapor deposition approach to silicon, cutting out polysilicon entirely.

REC Group makes modules, and the designs will be used in the India factories, and it makes its own polysilicon price

There is a mood of buying into IPO investments among private individuals across India and many more companies feel they can take public money to advance renewables, as well as many other technologies.

It is these types of policies which has the World Bank feeling it will see India’s economy grow by 8.3% in 2021, slightly down on prior projections because of the slowing influence of covid. That 8.3% reflects the fact that in 2020 the economy sank by 9.6%, and it will almost, but not quite see India back to where it was in 2019, but next year it expects more genuine growth.

But at the heart of India’s energy problem is the fact that in order to meet its energy requirements, despite having good coal deposits and good oil and gas reserves, it is a net importer of coal, oil and natural gas.

Fossil fuels

India’s main imports are minerals, fuels, oils and coal semi-precious stones electrical machinery; nuclear reactors, and machinery and mechanical appliances with China being its biggest supplier and the US below half of what China sells India.

India has 1.29 trillion cubic meters of gas reserves with most of that in the Krishna-Godavari basin and Western offshore gas fields. It produces 33 billion cubic meters of natural gas a year, but this is only about 55% of what it needs, so it imports 45% of its gas capacity. It is worse for oil, with even lower reserves and 82% of the oil it uses imported. India supplies close to 70% of the coal it uses, but still needs to import 30%.

The most recent rise in the price of coal has had India on its knees with half of its coal fleet having just 7 days of coal in storage, as the winter comes. It has turned to Indonesia, Australia and Mongolia for help.

India is on a six country list which is responsible for 80% of the world’s

plans for new coal power plants, along with China, Vietnam, Indonesia, and Turkey, but if tightness in coal supply continues – we doubt very much that India will add very much further coal capacity at all. Its official 2030 plan has it expecting to retire old coal units with 25 GW capacity and construct 8.6 GW up to 2030, but if any of these need international finance, we suspect India would be hard put to find it after the COP26 attempts to get coal financing strangled.

India has 18 public oil refineries and five private ones with the largest refineries owned by Reliance, and the Panipat refinery owned by Indian Oil and Rosneft’s Nayara Energy at Vadinar. India imports crude oil, refines it for both domestic consumption and for export to South East Asia, making refined oil one of its largest exports. It is economically tied to oil.

Trading with the rest of the world

India used to have a prolonged policy of not allowing foreign nationals to control more than 49% of any Indian company. Slowly over the past decade foreign direct investment has been encouraged in India and its markets have been progressively liberalized.

Companies in most sectors can now be 100% foreign owned with the exception of foreign nationals from countries which have a land border with India – think Pakistan, which requires extra checks. China does not have this difficulty either, despite having such a border, and China is one of its largest investors.

Renewables

We mentioned earlier the $10 billon that Reliance industries have put up for renewables and it is far from being the only one. Gautam Adani, primarily know as a coal billionaire, has built up a renewables arm Adani Green Energy and won 8,000 MW of auctions for solar development. And has already just sold much of that capacity on behalf of the Government run Solar Energy Corporation of India which it built it for, thought to be to an Indian state government.

The Adani Group plans to invest $50 billion to $70 billion in renewables and says it believes it can be the largest renewables player in the world by 2030. Meanwhile, Adani Green Energy has raised $750 million from a nearly five-times oversubscribed green bond offer, and claims it now has the debt and equity needed to develop 25 GW of renewable projects by 2025. India will impose a steep import duty on solar cells and modules from April 2022 and is simultaneously supporting its domestic manufacturing.

Coal India has also just issued a tender for partners to build a 4 GW vertically integrated photovoltaic factory covering ingots, wafers, cells and modules. Tata Power has announced it will develop a 4 GW vertically integrated solar factory in the Indian state of Tamil Nadu, with spending of around $403 million.

Indian salt manufacturer HSL just issued a tender for a 5 GW solar complex on abandoned land it owns in the states of Rajasthan and Gujarat, and plans to charge rent.

These are just examples of how the very large conglomerates with power, money and influence in India are gearing up for the ramp in renewables that the Modi government has spearheaded.

Solar in particular

Much of India has 5.0 to 5.4 kW per square meter of Global Horizontal Irradiance, well above the global average, hence its popularity there as a renewable resource.

India installed 8.8 GW in the first three quarters of 2021, and a further 1.4 GW in October – so 10.2 GW in ten months, a solid advance on the last normal year of 8.5 GW in 2019 and it may reach 12-13 GW by year end as

projects delayed from 2020 come online and turn 2021 into a record year.

India’s “home grown” policies will see it eventually supply most or all of the polysilicon for its domestic solar industry and market.

India is planning to dramatically increase its PLI (Production linked Incentive for solar manufacturing and the government is even eyeing the possibility of becoming an equipment exporter. Initial funding plans of $604 million have grown to $3.22 billion says Energy Minister RK Singh, who also observes that current manufacturing capacity is 8.8 GW for modules and 2.5 GW for cells, and rising.

Wind

Wind suffered badly in the pandemic, with factory shutdowns seen by Vestas, Siemens Gamesa, LM Windpower and Winergy. Transport restrictions have also prevented the movement of both project components and labor. But wind has recovered with Q3 installations of 384 MW of wind capacity up 30% on 2020 and up 60% over the immediate prior quarter. For the first 9 months in India new onshore wind installations totaled 1.24 GW, a 101.37% growth over 619 MW in the same period last year, which puts the cumulative capacity figure at a tad under 40 GW.

In October GE Renewable Energy received an 810 MW turbine order from JSW Energy for a suite of wind farms in Tamil Nadu, due to start deliveries by Q2 2022 and to be completed by Q1 2023 – so orders have also begun again.

Our forecast for India’s electricity mix to 2050 is in the diagram below.