India currently consumes over 1,000 TWh of electricity a year, making it just about the world’s third largest power consumer. More than 60% of this electricity is produced from coal-fired power plants.
On a per capita basis, however, India’s power consumption is still very low, at less than 800 kWh per year (compared to China’s 3,500 kWh or the USA’s 13,000). As India’s population continues to grow and is set to overtake China’s in the mid 2020s, and as the country is planning for rapid growth and development through industrialization, electricity consumption will rise fast. Predictions vary and detailed scenarios are not available, but growing the overall power supply by a factor of 3-5 in the next 20 years is probably required. Doing that with coal power plants would almost certainly push the world beyond the 2 degree climate target.
But what kind of electricity system will India build? Will it be an extension of the current system, dominated by coal? Or can the backbone of India’s future electricity mix be solar (the most likely alternative)? Can India transition its electricity system?
Currently, the government in India follows an “all of the above” strategy: there is significant investment into renewables (especially solar). At the same time, the need to increase coal-fired power generation has been repeatedly stressed.
And indeed, it is difficult to see how renewables could replace coal in India anytime soon, given the energy demand. Take solar as an example: Today, solar still makes up less than 1% of the country’s power supply (4.5 GW of capacity). Even if the government’s ambitious target of 100 GW is achieved, this percentage will rise to only around 10% by 2022.
For solar to contribute more than 50% to India’s power mix in 15 years time, the required solar capacity would have to be more than 1,000 GW. That is five times the total global installed capacity today. Germany and China, the world’s leading markets are below 40 GW.
Most projections (by e.g. IEA, BP, the Indian government), therefore, assume that coal will continue to provide more than 50% of India’s future electricity mix – despite the rapid growth of renewables.
However, working in India over the last years has made me believe that a change in India’s electricity mix could be much more transformative and that a 50% plus solar mix is feasible. There are a number of reasons, why I think this is the case.
The drivers of a transformation
- If the current growth rate of solar in India (more than 40% on average over the last 5 years) can be sustained for more than ten years, a rapid energy transition is likely. It could be more difficult to achieve the 100 GW target in 2022 than reaching 1,000 GW in 15 years.
- New solar and new wind is cost competitive with new coal for utilities already today. Distributed solar is cost competitive with grid tariffs for many industrial and commercial customers. It seems reasonable to assume that the cost of solar will fall further as it is deployed more, making it more and more attractive in the future.
- There are persistent and deep-rooted infrastructural and political challenges around ramping up coal power generation (the same is true for hydro, gas and nuclear). Solar, on the other hand, can be built quickly, at different sizes, in a modular manner and in many locations. Solar irradiation is high throughout the entire country.
- In India, investment into renewables (especially solar) is already outpacing investment into thermal power. Investors are concerned about stranded assets in thermal power. International investment is flowing into renewables at unprecedented rates (e.g. Softbank at $20 bn). There is hardly any international investment interest in thermal power generation in India.
- Given that the Indian government has so far failed to provide reliable power to large sections of its industry and people, a significant part of the country’s energy transition might be driven by consumers rather than policies and infrastructure investment. (Currently India already has more than 60 GW of installed diesel gen-set capacity.)
- Externalities of coal-fired power generation are coming into focus: Urban and regional air pollution levels in India are among the world’s highest (for PM 2.5). The social damage associated with coal mining is causing unrest. The high water usage of coal-plants is a growing concern. It is unclear how long India can avoid accepting limitations on its carbon emissions. This threatens the pubic and, therefore, political acceptance of coal (licence to operate) and could increase the cost of coal power.
There are some key challenges, however, that need to be addressed to enable a transition of the electricity system in India.
What holds the transformation back
- The infirm nature of wind and solar: Above a certain percentage (at substation level; perhaps between 10-20% penetration) infirm renewable power will significantly drive up infrastructure cost and affect wholesale power prices. The main solution for this challenge is electricity storage. This might be applied at the grid level, at the project level or at the consumer level. While the cost of electrical storage is falling fast, at present deployment of e.g. Lithium-Ion batteries is still negligible. Demand side management, time of day charges, etc. would also help.
- Land usage: Building 1,000 GW of solar would require approximately 0.3% of India’s land. There are significant legal, procedural bottlenecks around acquiring land and there are potential conflicts with other land usage.
- Financing: 1,000 GW of solar would cost around $ 500 bn, around a quarter of India’s nominal annual GDP.
- Utilities have little incentive to support an energy transition that threatens their current assets and market position. In many Indian states, they resist the spread of renewables and new market entrants.
- New skills, new data, new regulations and laws are needed for a new type of electricity system. This is primarily a question of institutional willingness and capacity. Currently, India is far from having an institutional ecosystem that is able to actively support or manage a more complex electricity system.
Can India transition to a solar-based electricity system by 2030? Yes, I think so. And doing so will be the opportunity of a lifetime for India’s economy, India’s power consumers, energy companies in India and abroad and for the global climate.