India Puts Energy Transition on Back Burner Amid Crisis

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Recent decisions by Indian Prime Minister Narendra Modi’s government are demonstrating that energy security, and not the energy transition, is the focus of national policy for now. To fight the surge in power demand amid a crippling heat wave, India has reversed an earlier policy to cut coal imports and instead asked states to step up imports for the next three years — motivated by a desire to ensure cheap fuels and keep voters happy. It also used an emergency law to push some idle imported coal-fired power plants, which had been shut due to high coal prices or financial stress, to start generation. Green laws have been diluted to permit some coal mines to raise production without seeking environmental approvals. The coal import duty, too, has been cut to zero from 2.5% to boost imports despite high prices.

State-owned diesel and gasoline fuel retailers, too, have not been able to revise prices since Apr. 7 and are selling products at losses. Last month, Modi’s government cut excise duties on diesel and gasoline to help further bring down transportation fuel prices from their near-historical peaks — a move that will likely boost demand and, in turn, vehicle pollution.

Reinforcing this at the annual meeting of the World Economic Forum in Davos, Indian Oil Minister Hardeep Puri reiterated that the world’s third-largest greenhouse gas emitter will need to burn more and more fossil fuels. That's because a fourth of the global growth in energy demand from 2020-40 will come from India and it cannot afford to disrupt supplies to 1.3 billion people.

Political — not economic — imperatives are driving Modi’s energy policy. His Bharatiya Janata Party faces regional government elections in seven states next year followed by general elections in 2024. Providing cheap fuels will be key to keeping voters happy.

Some have been surprised by India's lack of emphasis on the energy transition given the recent devastating heat wave in India and Pakistan — which killed at least 90, stoked an international food crisis with a dip in the wheat harvest, and triggered power shortages. This was due to human-induced climate change, one group of climate scientists argued in a report last month. This coupled with energy shocks due to sharp spikes in prices of coal, oil and LNG had been expected to push Modi’s government to double down on low-carbon investments. India is heavily dependent on fossil fuels — it is the world’s second-largest coal importer, third-largest oil importer and fourth-largest LNG importer.

India isn't alone. The US and countries in Europe are also investing in fossil fuel assets as the world scrambles for alternatives amid disruption due to the Russia-Ukraine conflict.

India’s coal-fired power generation is climbing. It rose 9.5% in the fiscal year ended Mar. 31 to 1,041 terawatt hours, its fastest pace of growth since Modi came to power in 2014. Surprisingly, despite Modi’s goal of raising the share of cleaner gas in the energy mix to 15% by 2030 from 6.7%, the government has not taken any measures to revive gas-based power plants. Gas-based generation contracted 29% on year in the fiscal year that ended Mar. 31.

Renewable Roadblocks

India’s increasing reliance on coal comes as it is trailing on its ambitious renewable power capacity addition goals. The South Asian nation missed an interim goal of raising solar and wind capacity to 175 gigawatts by March 2022 with the actual outcome hitting just 110 GW. Bengaluru-based think tank Climate Risk Horizons, in a May 20 report, noted that achieving the 2022 renewable targets would have averted India’s recent power crisis.

Modi’s key energy transition plank rests on eventually raising the solar and wind generation base to 450 GW by 2030, which would mean the addition of 42.5 GW of capacity every year, while the actual addition was just 15.4 GW in the year ended Mar. 31. His policies could however derail that pace too.

Most of India’s solar-fired generation has been helped by cheap imports of gear from China. However, to boost domestic manufacturing, the government imposed a 40% customs duty on solar photovoltaic imports and a 25% import duty on solar cells from Apr. 1. Surging commodity prices and the introduction of a new duty on solar modules are expected to push solar tariffs by more than one-fifth over the next year, a report by JMK Research and the Institute for Energy Economics and Financial Analysis noted last month.

The renewable capacity expansion is also being threatened by the Supreme Court’s order last year for ensuring high-tension power lines are built underground in the renewable-rich states of Gujarat and Rajasthan to preserve the endangered great Indian bustard bird, since some of the birds have been dying by getting entangled in the webs of wires.

Capital Flows

India's investments are largely flowing into fossil fuel projects. Capital expenditure of 14 state-owned energy firms are 11 times higher in fossil fuel-linked projects than clean energy, and disbursements by public finance institutions are three times higher for fossil fuel projects than renewable energy in the fiscal year ended March 2021, Swasti Raizada, policy adviser with Canada-based International Institute for Sustainable Development told a May 31 webinar.

Despite the recent tilt toward coal, the power ministry remains hopeful renewable capacity will catch up. Media reports say that the power ministry plans to reduce generation from at least 81 coal-fired power plants by March 2026 as more and more solar and wind capacity comes on stream. But it has no plans to shutter them, meaning there will always be scope to turn back to coal in the case of a future crisis.

CO2 Emissions, Coal, Low-Carbon Policy, Diesel/Gasoil
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