Exploring India's Renewable Energy Potential

- By Sowmya Suryanarayanan

August, 2009

Energy security is important for India, which is largely dependent on fossil fuel imports to foster its economic growth. According to the World Energy Outlook report, India will become the third largest net importer of oil before 2025 after the United States and China. This will not be sustainable in the long run given the high volatility of international crude oil prices. Coal imports are also likely to increase from 12 percent in 2005 to 28 percent in 2030. Hence, India’s energy planning must focus on harnessing renewable energy production in the long run to achieve energy security and also meet global climate change objectives.

In order to exploit the full potential of renewable energy India must ensure the following. First, the renewable energy sector is still developing and hence involves high upfront and operating costs. At present, the renewable energy market in India is growing at 15% per year. In order to increase the renewable power generation to 200 gigawatts in 2030 from the present capacity of 8 gigawatts, India will require an estimated US$200 billion capital investment. The burden of higher power generation costs will be transferred to the end users making it a less attractive alternative energy option. Large scale investments in technology and research and development are therefore required to lower energy generation costs and make it affordable in the long run.

Second, energy security cannot be achieved by just providing renewable energy at affordable costs. It will also require decentralisation of energy production to all parts of the country. This can be achieved by participation of local institutions in the production and distribution of energy supply. A decentralised supply of energy will ensure gradual increase in the number of energy consumers across all sectors in rural areas. Energy self sufficiency will result in greater economic development in the long run through increased employment opportunities and higher standards of living in rural areas.

Third, renewable energy can be profitably developed only with the help of private sector participation since there are limitations on how much the public sector can spend. The government must offer policy incentives in the initial stages of energy production to encourage large scale investments from the private sector. For instance, India has the fifth largest installed capacity of commercial wind power in the world. It generates 1.6 percent of the country’s power. This was primarily achieved by adoption of market oriented strategies and policy support provided by the government which encouraged private industry and investor participation. A progressive policy based on monetary and fiscal incentives must be initiated to attract not just domestic investors but also foreign players.

Having said this, it is important to note that any form of energy will be sustainable only if it is used in an efficient manner. Renewable energy sector is poised to expand in the long run. However, coal will continue to remain the dominant source of power in the next 20 to 30 years in spite of the contribution made by renewable forms of energy to India’s energy mix. Hence, it becomes imperative to scale up the performance of existing conventional sources of energy through cleaner and efficient technology.

India plans to develop at least nine coal-fired Ultra Mega Power Projects, which is aimed at providing electricity to all villages by 2012. These power plants are likely to emit large quantities of green house gases without the adoption of clean energy technologies. China, for instance, has built more efficient coal power plants that are not only less polluting but also have lesser output costs. India must exploit new avenues in emerging technologies that will reduce coal consumption, produce larger power output and enhance environmental sustainability. India also needs to strengthen its regulatory system, restructure its existing institutions and cut energy losses in order to bridge the existing gap between energy demand and supply.

The real challenge faced by India is to expand its renewable energy sector without slowing down the progress of its economic sectors. India will need to maximise the utilisation of renewable energy in order to insulate it from any future supply disruption and price shocks of fossil fuels. For this, India’s energy security policy must undertake a dominant shift towards diversification of renewable energy options.

At the basic level, development of any form of energy will be sustainable only if it is clean, affordable and accessible. Therefore, expanding different sources of renewable energy is definitely a viable energy security option for India in the long run. However, the key question is: how much further can India go in expanding renewable energy sectors given the geographical limitations, dependence on external sources for technology and financial constraints of renewable energy?