The right sequencing of India's Energy Transition

India has made substantial efforts towards energy transition, aiming to achieve a sustainable and low-carbon economy. However, the adequacy, sequencing, and coherence of these measures remain key areas of concern. Here's a critical analysis of India's energy transition steps:

1. Renewable Energy Expansion

India has set a bold target of achieving 500 GW of non-fossil fuel capacity by 2030. By September 2024, installed capacities for variable renewable energy (VRE) like solar and wind reached 137.5 GW, while total non-fossil capacities reached approximately 200 GW Rapid growth in solar power capacity with competitive tariffs achieved through auctions.

Challenges:

1.1 Intermittency of renewables, limited deployment of battery storage, and insufficient transmission infrastructure hinder the integration of renewables into the grid. Achieving the target requires installing 60 GW annually until 2030 against 20GW at present.

1.2 Grid Bottlenecks: Transmission inadequacy for RE evacuation, Delays in grid upgrades impede progress.

1.3 Sequencing Issue: While renewable capacity expansion is progressing, grid stability, energy storage, and flexible generation resources are not advancing at the same pace, creating a mismatch in the system's readiness.

2. Electric Vehicles (EVs)

Introduction of the FAME (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles) schemes, EV subsidies, charging infrastructure development, and domestic manufacturing incentives (PLI for batteries). EVs can reduce oil imports and urban air pollution.

2.1 Concerns: With a grid heavily reliant on coal (~75% of electricity generation), EVs could indirectly lead to increased emissions unless the grid is decarbonized, lack of inadequate charging infrastructure and continued range anxiety.

-2.2 Sequencing Issue: Focusing on EV adoption without first ensuring a cleaner grid undermines the climate benefits of electrification as Co2 emission factor of grid is as high as 0.75 Kg CO2e/KWh almost equal to oil.

3. Green Hydrogen (GH2)

National Hydrogen Mission to promote green hydrogen production and usage in hard to abate industries like steel, cement, and fertilizers, Incentives for electrolyzer manufacturing and renewable-powered hydrogen plants. GH2 is critical for hard-to-abate sectors, offering a pathway for deep decarbonization.

3.1 Challenges: High production costs and inadequate RE capacity to produce 5 MT Green H2 annually and the heavy reliance on a coal-powered grid mean that the hydrogen produced today is less "green."

3.2 Sequencing Issue: Prioritizing GH2 while the grid remains carbon-intensive could delay meaningful emissions reductions.

4. Offshore Wind

India has set a target of 30 GW by 2030 and has offered VGF but lags in implementation due to regulatory delays, lack of investor confidence, and absence of necessary infrastructure like high-voltage direct current (HVDC) transmission systems. Offshore wind offers significant untapped potential, particularly along the Gujarat and Tamil Nadu coasts. Successful offshore projects could power GH2 production and decarbonize industrial clusters.

Challenges:

4.1 High capital costs and absence of supportive policies e.g., Capacity Market or Contract for Differences (CfDs).

4.2 Lack of necessary infrastructure like ports, HVDC networks, and skilled labor.

5. Carbon Trading and Markets

Energy Conservation Act amendment (2022) introduced a domestic carbon market framework. Implementation of Perform, Achieve, and Trade (PAT) and Renewable Energy Certificates (RECs) have been implemented.

5.1 Sectoral Caps: Lack of sectoral emission caps undermines the credibility of carbon trading mechanisms.

5.2 Inadequate Monitoring, Reporting, and Verification (MRV): Weak MRV systems risk market inefficiency and greenwashing.

-5.3 Sequencing Issue: Without clear caps and strong MRV, the market might fail to deliver real emissions reductions, risking greenwashing.

6. Power Market Development

Efforts to liberalize the power market through initiatives like Real-Time Market (RTM) and Green Day-Ahead Market (GDAM).

Challenges:

6.1 Absence of Long-Term Forward Markets: India lacks robust long-term power trading mechanisms, critical for renewable energy projects that require long-term price certainty to attract investment.

6.2 Capacity Markets: The absence of a capacity market leaves the system vulnerable to reliability issues, as there are no mechanisms to incentivize the availability of peaking or standby capacity during demand surges.

6.3 Contracts for Differences: CfDs could stabilize renewable energy project revenues, reducing investor risk. Their absence in India limits financial innovation in renewable energy financing.

6.4 Derivatives and Hedging Instruments: A lack of financial derivatives for electricity trading, such as futures and options, limits market liquidity and the ability of stakeholders to hedge against price volatility.

7. Coal Phase-Out and Just Transition

Commitments to reduce emissions intensity of GDP by 45% by 2030 & Push for more efficient coal plants.

7.1 Concerns: Continues to invest in new coal capacity, citing energy security.

7.2 Just Transition: Lack of a clear plan to address social and economic impacts on coal-dependent regions.

7.3 Coal-dependent states like Jharkhand, Odisha, and Chhattisgarh lack targeted transition plans.

7.4 Coal, a large source of tax and non-tax revenue for central and state governments main reason for delay in just transition.

7.5 Sequencing Issue: A lack of systematic coal phase-down planning delays grid decarbonization, undermining other initiatives.

8. Nuclear Power

A modest 6.8 GW of installed nuclear capacity. Nuclear offers reliable, low land requiring and low-carbon baseload power, crucial for grid stability amidst high renewable penetration.

Challenges:

8.1 High capital costs, regulatory delays, and limited public acceptance hinder expansion.

9. Energy Efficiency Measures

Promotion of energy efficiency through initiatives like the PAT scheme and energy-efficient appliances (e.g., UJALA for LED distribution), Standards and labeling for buildings and industries. Significant energy savings in targeted sectors.

Challenges:

9.1 Limited penetration of efficiency measures in informal and small-scale industries.

9.2 Alignment: While beneficial, these measures must complement structural changes in energy supply.

10. Policy Coherence and Institutional Mechanisms

10.1 Fragmented governance with overlapping responsibilities between ministries and state governments.

10.2 Limited long-term planning and coordination between energy transition components.

11. Mediocre rating in WEF Energy Transition Index (ETI)

India’s Standing: - India’s ranks at 63rd position amongst 120 nations on the ETI highlights gaps in energy access, system resilience, and transition readiness.

11.  Policy Misalignments: Weak linkages between decarbonization efforts and socio-economic factors, such as job creation in coal-dependent regions, further hinder progress.

Way Forward for Transition

India’s energy transition initiatives demonstrate a strong intent and ambition. However, certain gaps in strategy and sequencing are apparent:

1. Address Sequencing Challenges:

1.1 Decarbonizing the grid should precede or occur in parallel with EV and GH2 deployment to maximize their climate benefits. Prioritize Grid Decarbonization: Accelerate renewable energy deployment and storage, phase out inefficient coal plants, and promote flexible grid resources.

1.2 Carbon trading without robust emission caps and MRV risks inefficacy. Sectoral Caps and Carbon Trading: Establish clear caps to ensure a credible and effective carbon market.

2. Address Implementation Gaps:

2.1 Infrastructure for grid modernization and renewable energy storage is insufficient.

2.2 Develop implementation plan for coal power phase-out.

3. Interdependencies: Energy transition initiatives need better alignment. For example, EVs, GH2, and renewables should be coordinated to ensure that the power they rely on is genuinely clean.

4. Global Dynamics: As a developing economy, India balances growth and sustainability, which complicates aggressive decarbonization. However, external funding, technology transfer, and global collaboration can help bridge gaps.

5.  Expand Power Market Mechanisms: Introduce capacity markets and long-term forward contracts to ensure reliability and price stability & develop financial derivatives like CfDs, futures, and options to boost liquidity and investor confidence

6. Offshore Wind Development: Fast-track offshore wind projects with strong policy support, incentives, and infrastructure development & leverage offshore wind to power GH2 production and industrial clusters.

7. Accelerate Nuclear Expansion: Expedite regulatory approvals for large-scale and small modular nuclear reactors (SMR) & enhance public awareness to address safety concerns.

8. Just Transition Framework: Develop targeted support for coal-dependent regions and workers to ensure equity in transition.

Conclusion

India's energy transition reflects a strong commitment to achieving sustainable and equitable growth. However, gaps in execution, sequencing, and policy coherence must be addressed. Prioritizing grid decarbonization, strengthening market mechanisms, and focusing on offshore wind and nuclear power can enhance the transition. Collaborative efforts, including global partnerships, financial innovation, and robust policy frameworks, are essential to align India's ambitions with its developmental and climate goals.