Interview: Neshwin Rodrigues explains India's renewable energy challenges

In the face of a rapidly changing climate, nations around the world are grappling with the challenge of transitioning to renewable energy. India, a country with a burgeoning economy and growing energy needs, is at the forefront of this global shift. The country’s 14th National Electricity Plan (NEP14) outlines an ambitious goal to more than triple its renewable energy capacity by 2030. However, achieving this target requires not only a significant technological leap but also a substantial financial investment.

In the face of a changing climate, India stands at the forefront of the global shift towards renewable energy. Wahid Bhat, an environmental journalist for Ground Report, delves into the intricacies of India's renewable energy transition in an insightful interview with Neshwin Rodrigues, an India Electricity Policy analyst at Ember.

The conversation explores the financial challenges, government policies, and critical pathways for India to achieve its ambitious renewable energy targets outlined in the 14th National Electricity Plan (NEP14) by 2030.

Expert Interview:

Q: Can you elaborate on the specific financing challenges outlined in the report that India faces in achieving its renewable energy targets? What are the major hurdles, and how can they be addressed to attract the necessary investments?

Answer: India's pursuit of renewable energy targets, particularly for net-zero emissions, faces a substantial financing challenge. Ember’s analysis estimates a need for around $394 billion, with the last five years seeing only $75 billion (as per BNEF’s report) allocated to generation, storage, and transmission capacity. Bridging this gap requires scaling up financing capacity from $75 billion to nearly $400 billion. This challenge is more pronounced in developing countries like India, necessitating reliance on international financing. The capital-intensive nature of renewables, with no variable or fuel costs, demands significant upfront investments. To address this, fostering an environment conducive to international financing and resolving systemic issues contributing to investment risks is crucial.

Investment risks highlighted in the BNF Financing Renewable Report, such as non-payment to generators and power purchase agreement challenges, stem from systemic issues like the financial struggles of distribution utilities in India. While these financial positions are gradually improving, resolving systemic issues takes time. Despite risks, continued investment is essential, and mechanisms like tenders from the Solar Energy Corporation of India, assuming counterparty risk, have been introduced. However, their effectiveness requires ongoing investment. Achieving additional capacity, as outlined in the report (115 GW of solar and 9 GW of wind by 2030), necessitates careful planning. This involves addressing financial constraints, and systemic issues, and implementing supportive government policies, including regulatory frameworks and incentives. Creating a favourable environment for renewable projects is essential for a seamless transition towards ambitious net-zero targets in India's sustainable energy future.

Q: How can India address investment risks, like payment delays and regulatory challenges, to foster a favourable environment for renewable energy investors?

Answer: When we talk about investment risk, there are a lot of risks involved. The BNF Financing Renewable Report has categorized the different types of risks for investors who want to invest in renewables. Some of these risks, including non-payment to generators and risks related to renegotiating PPAs, stem from systemic issues. For example, non-payment of dues to generators is because of the poor financial position of distribution utilities in India. While the financial position of distribution utilities appears to be improving over time, being a systemic issue, this will take time to improve.

Despite these risks, investments should continue due to the pace at which we need to add renewable to meet the target. India has tried to address some of these risks, for example, by having the Solar Energy Corporation of India take on the counterparty risk. However, these mechanisms also require finance.

To meet the IEA net-zero scenario, India needs to build an additional capacity of 115 GW of solar and 9 GW of wind by 2030. This requires considerations like the availability of land for installations, the development of necessary transmission infrastructure, and the integration of these renewable sources into the grid.

The Indian government plays a crucial role in this scale-up by creating favourable policies for renewable energy development, providing incentives for investment in renewables, and addressing regulatory challenges. However, these mechanisms also require financing, emphasizing the need for effective design of these mechanisms.

Q: How can India efficiently achieve the recommended additional capacity of 115 GW solar and 9 GW wind by 2030 in line with the IEA net-zero scenario, considering planning, execution, and government policy roles?

Answer: Achieving the additional capacity of 115 GW solar and 9 GW wind by 2030 involves both government policies and other factors. The government’s recent announcement to tender 50 gigawatts of renewable capacity every year is a step in this direction.

However, it’s not just about government policies. Other factors, such as the ability of manufacturers to produce the target capacities in terms of solar panels and silicon, also play a crucial role.

India’s National Electricity Plan (NEP14) already plans for a significant increase in renewables, making the tripling of capacity by 2030 a feasible goal. But to align with the net-zero pathway suggested by the International Energy Agency (IEA), India may need to set higher targets than its current plan. This would necessitate India to generate approximately 32% of its energy from solar and 10% from wind by 2030.

To achieve these generation levels from solar and wind, India would need to build an additional capacity of 115 GW of solar and 9 GW of wind by 2030, beyond the solar and wind target outlined in its NEP14 plan. This would elevate India’s total renewable capacity to 448 GW of solar and 122 GW of wind by 2030.

The Indian government plays a key role in facilitating this scale-up through favourable policies for renewable energy development, incentives for investment in renewables, and addressing regulatory challenges. However, these mechanisms also require financing, emphasizing the need for effective design of these mechanisms.

Q: How does the global call to triple renewable capacity by 2030 align with India's national plans, and what adjustments are needed for harmony?

Answer: The global target to triple renewable capacity by 2030 does not necessarily indicate a national-level target. It does not specify what each country’s contribution should be. India plans to more than triple its renewable capacity anyway. But countries like India that have a higher demand growth rate might have to more than triple.

The role of policy is really important when we discuss renewable energy capacity in India. Existing and future government policies will impact India’s ability to attract financing for renewable energy projects. Specific policy changes that are implemented would be necessary for investment in the renewable energy sector. For instance, the government recently announced that it would tender 50 gigawatts of renewable capacity every year. If most of this tendered capacity is commissioned, we are in a good position to achieve our national electricity plan for solar and wind. However, these mechanisms also require financing, which brings us back to the same problem of needing to invest money despite the risks. Therefore, it’s important to design these mechanisms in such a way that they are effective, but also keep in mind that they cost money.

Q: How do current and potential future government policies influence India's capacity to attract financing for renewable projects? Are there specific policy adjustments that could improve the investment climate?

Answer:   Financing for renewable projects is available, but the challenge lies in de-risking the investment. Investors often seek assurances that they will get a certain return on investment. The question for Indian policymakers is how to de-risk the investment in renewables. This includes managing risks such as currency devaluation. Policymakers should also estimate how much money it would take to de-risk the investment.

However, it’s important to remember that climate change is a serious problem and investors are aware that there is only a level to which you can de-risk investment. Therefore, investment should come in despite the risk. Government policies can play a crucial role in this regard by creating a favourable environment for investment in renewables. This includes providing incentives for investment in renewables, addressing regulatory challenges, and ensuring that the distribution utilities are financially healthy so that they can make timely payments to renewable energy generators. These measures can help to mitigate the investment risks and attract the necessary investments to meet the renewable energy targets. However, these mechanisms also require financing, emphasizing the need for effective design of these mechanisms.

Q: What are the implications and consequences of global climate change efforts if India falls short of meeting its renewable energy targets?

Answer: The consequences are quite significant. If you look at the scale of things, two of the biggest countries that play a role in whether the world successfully aligns to a net-zero pathway or not are India and China. They are expected to contribute the most to solar and wind energy production. If India falls short of meeting its National Electricity Plan (NEP) or increasing its NEP to align with a net-zero pathway, it’s going to be a big problem for global climate change targets. This is because the world’s success in combating climate change heavily relies on these two countries meeting their renewable energy targets.

Q: How crucial is financing for storage and transmission infrastructure, and what role do these components play in achieving a sustainable energy future for India?

Answer: Financing for storage and transmission infrastructure is indeed crucial. Without storage and transmission, you cannot increase renewables beyond a certain point. Renewables are intermittent - they generate when the sun is shining and when the wind is blowing. But you need to balance generation and demand at every instant, both temporally and spatially. If there is high generation in one state but no demand in that state, then you need to evacuate that generation to another state, for which you require transmission.

Similarly, if there is more generation than demand in the system, you need to store that electricity during the daytime and then supply it during the nighttime. So, for temporal and spatial balancing of generation and demand, you require both transmission for spatial balancing and storage for temporal balancing. These components play a crucial role in achieving a sustainable energy future for India.

Q: How critical is it for India to shift away from coal, and what role does renewable energy financing play in facilitating this transition?

Answer: Shifting away from coal is critical for India, especially in the context of renewable energy targets and climate change. When comparing the capital investment required for coal versus solar, the cost and availability of financing become significant factors. Solar requires a large upfront capital investment, making the cost at which you get that loan or money very important. If there’s no access to capital, adding coal would be easier than adding solar for the same amount of generation. Therefore, the availability and the cost of financing are going to be very important for a successful solar growth story.

Q: How crucial is India's immediate need for extra financing before COP28, and what are the risks if renewable capacity targets are delayed?

Answer: It's extremely urgent. The report outlines the required annual growth rate for solar, wind, and storage capacity. For instance, if we added 12.9 GW last year, we need to increase the additions to around 40 GW by 2027 to meet our targets. If financing capacity isn't available when needed, developers might struggle to add the necessary capacity, even with tenders in place.

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