India’s Renewable Investment Goal Seems Misguided

 

The news has been full of stories about renewable energy programs in the industrializing world, giving cheer to those concerned about slowing progress in the developed world.  China intends to spend $360 billion on renewable sources by 2020, and India has a target of 175 GW of renewable capacity by 2021/22, versus 42 last year.  To many, this signals a new era for non-OECD power generation and a major commitment to addressing climate change, to say nothing of reducing local air pollution.  Of course, the New York Timesheadline “Despite Climate Change Vow China Pushes to Dig More Coal,” puts a little perspective to the story.  As does the fact that there is currently a glut of coal-fired capacity, which might be as important a justification for cancelling some new plants as a desire to reduce GHG emissions.

India is a different case altogether, a country that is poorer than China and famously suffers from both shortages of electricity and seriously unreliable power supply.  The government reports that 96-97% of villages have ‘access’ to electricity, but this apparently overstates the percentage of households that have electricity.   Hundreds of millions of people do not have connections, and an estimated quarter-billion have only three or four hours a day of power. The World Bank put economic losses due to lack of electricity at 7% of GDP, an unconscionable amount for a developing country, and which is largely the result of bad governance.

So promoting renewable power would seem to be a no brainer, right?  After all, climate change is an existential threat to the planet, India suffers from inadequate electricity plus pollution from burning coal, and many people are not connected to the gird.  In reality, it only takes even superficial examination to realize that a massive renewable energy program is far from optimal from India, if not the worst possible policy.

First of all, renewable energy (wind and solar) is the most variable, unpredictable and unreliable source of power.  As such, it will worsen India’s problem with reliability—and require not only additional fossil fuel capacity to back it up, but increase the cost of power to consumers (or taxpayers).

Second, India’s electricity sector suffers from poor finances, with significant debt and difficulty raising sufficient capital to meet current needs.  Since renewable energy is typically the most expensive source of power, this will worsen the strain on the power sector (or taxpayers).  Costs are site-dependent, especially for wind, so there will be places where renewable power is economically attractive, but solar will rarely be the best option.

Third, government mandated goals are by nature inefficient, as they are usually set with imperfect information (compared to investors on the ground) and unresponsive to changing conditions.  Thus, China has large amounts of wind capacity that is idle, Germany has seen its power costs soar due to overinvestment in capacity, and the California power system suffers from a mismatch between solar generation and electricity demand.  The Indian government can hardly be expected to do better, especially given the high level of political interference in the power sector.

Clearly, India is responding to political pressures to deal with its carbon emissions, as well as a desire from the populace to reduce local pollution from coal-fired power plants.  Given that even rich countries like Germany are finding large-scale investment in renewable energy unattractive, there can be no doubt but that India will achieve less reduction in emissions than many other approaches.  The United States has achieved far more progress in lowering GHG emissions from fuel switching, coal to natural gas, which is also economically efficient than countries like Germany and Japan have accomplished (especially given their reduced nuclear power).

Sadly, India has limited access to cheap natural gas, although that could change with either import deals from major resource owners in the Caspian area, including Iran, but also more aggressive exploitation of domestic resources.  Another source of quick, cheap reductions in emissions would be repowered coal plants:  a combination of updating aging plants with modern equipment and adding units, such as combined cycle repowering, would mean greater energy efficiency at a fraction of the cost of existing units. (Presumably, modernizing existing plants would result in much less opposition than taking land for new plants.)

Given that nearly all villages in India are connected to the grid, the value of renewables in serving isolated consumers would be minimal, and the danger is the construction of capacity in inappropriate places that costs more than the government or consumers can bear.  The government should learn the lessons of other countries, and focus on incentives, not command and control, and efforts to reduce emissions as opposed to artificial goals for renewables.

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