State-of-play

Budget for 2022-23: Highlight climate action and clean energy funding but no Comprehensive Plan

The crisis in Ukraine is likely to have a negative impact on its economy and this may affect spending on infrastructure including low carbon infrastructure. India’s first annual budget (2022-23) to follow its net-zero commitment at COP26 was the first to emphasize “climate action” in its opening statement but it did not offer a clear plan for clean low-carbon development.

Over $2.6 billion production linked incentive (PLI) for solar manufacturing, increased funding for the FAME (Faster Adoption and Manufacturing of Electric Vehicles) program, use of biomass pellets as fuel in thermal power plants and an additional duty on unblended petroleum fuel and the possibility of a new regulatory framework for carbon trading by 2022 were announced in the budget for 2022-23. A new “battery swapping policy” and “interoperability standards” for the electric vehicles (EV) sector are also to be formulated.

State elections 2022

In the five state elections held in March 2022, Uttar Pradesh, Uttarakhand, Manipur and Goa voted for the BJP (Bhartiya Janta Party) and Punjab voted for the Aam Aadmi Party (AAP, relatively small new party ruling only in Delhi). The victory of the BJP is considered significant for national politics and political analysts attributed the victory to both to the good work done and also to the not-so-good reasons including the absence of charismatic opposition leadership. Energy transition and climate change were non-issues in the state election campaign. State election results or even the national election results in 2024 are unlikely to change the course of the energy transition and climate change policies as both are largely influenced by the external environment: complying with international climate mandates and attracting foreign investment. But the frequent climate induced disasters and resultant loss and damages are sharpening the focus to act fast and in self-interest. States compete to attract investments (central government and private [domestic and foreign]) in new growth industries such as EVs and renewable energy (RE) and this not likely to change with change in leadership at the state level.

Climate impacts, policy, and diplomacy

India enhanced Coordination and cooperation to accelerate decarbonization

Both domestically and diplomatically the Government of India moved forward a broad set of new planning and coordination partnerships, including a roadmap for a Mission 500 GW to ensure implementation of India’s key short-term pledge in Glasgow. New data also highlighted India’s vulnerable position from ongoing climate disruption and future trends if global decarbonization stumbles or bogs down.

The Government of India has set up a committee to prepare a roadmap for ‘Mission 500GW’. The Embassy of Japan designated February-April 2022 as the "India-Japan Clean Hydrogen Month", while the US and UK announced support for India's solar energy target. India and Australia agreed to collaborate towards reducing the cost of new and renewable energy technologies and scaling up their deployment.

According to a poll almost 90% of people in India are worried about global warming – more than anywhere else among the 13 countries surveyed. Overseas Development Institute, observed that India is set to lose 3-10% of its GDP to global warming. An analysis of India's leading banks by think tank Climate Risk Horizons warned that the country's banking sector is unprepared for the financial impacts of climate change.

Power sector

Utility finances: electoral calculations undermine utility reform

Electoral calculations from a number of parties are clearly undermining efforts to relieve utilities of the burden of subsidizing broad categories of power consumers at election times. India just completed an important set of state elections, and the major parties competed vigorously to increase electricity subsidies – without offering ways to pay these subsidies that would not cripple utilities. Power distribution utilities outstanding dues stood at $13.4 billion at the end of February 2022. The outstanding amount of the utilities becomes overdue after 45 days of raising the bill for supply of power by generators.

The Bhartiya Janata Party (BJP) which was re-elected to power in Uttar Pradesh announced that farmers will not have to pay electricity bills for the next five years. The Aam Aadmi Party (AAP) that came to power in Punjab had promised 300 units of free electricity per month for every household. On the positive side, The High Court of Andhra Pradesh upheld the sanctity of PPAs (power purchase agreements) with renewable energy generators. Utilities will have to honor PPAs with high tariff signed earlier. All India Power Engineers Federation urged the government to withdraw the Union Cabinet decision to privatize power distribution in Chandigarh as the matter is still sub-judice.

Renewables & storage

Solar installations grow but solar manufacture face hurdles

India’s RE generation is expected to increase by 30% by 2024 relative to 2021. Indian Railways is working on an ambitious project to meet the energy requirements of nearly 7000 railway stations with solar power. NTPC Limited and International Solar Alliance (ISA) will support 3845 MW of solar parks and projects among nine member countries from an investment of $3-4 billion.

The growing momentum towards local manufacturing in India could give India a strong foothold in the $226 billion of global RE market by 2026 which is growing at 21 per cent CAGR. Module production capacity is anticipated to grow at an unprecedented rate of ~40% (CAGR) over the next 2 years. But in the short term, domestic content requirement (DCR) schemes are still far away from their targets though the deadline was set for April 1, 2022. Solar manufacturers have highlighted the lack of support from the government.

Capacity and deployment

India installed a record 10 gigawatts peak (GWp) of solar capacity in 2021, a 212 percent year-on-year increase. India’s RE capacity addition is estimated to touch 16 GWp in 2022-23 with strong pipeline of 55 GW of clean energy projects. India installed a record 1,700 megawatt (MW) of rooftop solar capacity in 2021, 136 % year on year rise.

Tamil Nadu Generation and Distribution Corporation (Tangedco) alone is planning to install a 20 GWp capacity by 2030. Renewables already account for at least 30% of Tamil Nadu’s total power, the highest among the states. Himachal is aspiring to become the first green state in the country by ensuring 100 per cent clean energy. Karnataka leased 13,000 acres arrange the 2,050 MW. Pavagada photo voltaic park. But the Bhadla and Pavagada solar parks – among the world’s biggest, with a combined capacity of 4,350 MWp has opposition from local communities with respect to landowner compensation and local employment in Assam. The New Delhi Municipal Corporation (NDMC) has laid out a roadmap to fully switch to renewable energy by 2025.

India's solar open access projects which sell power to consumers with more than 1 MW connected load witnessed a sharp growth during 2021. Overall cost of rooftop solar has come down by 50 percent during the last seven-eight years. The Cabinet Committee on Economic Affairs has approved the Green Energy Corridor (GEC) to provide 20 GWp of renewable energy projects in eight states with transmission access to load centers. The Ministry of New & Renewable Energy authorized households to install rooftop solar panel themselves or by any vendor.

Manufacturing and supply chain

Currently, India has a PV manufacturing base of 18 GWp for solar module and 4 GW for solar cell and set to rise by almost 400 percent by fiscal 2025.

However imports of solar cells continues to increase and the value of solar cells imported rose by more than 10%. As Indian solar manufacturers expanded module production last year, imports of foreign-made cells to assemble those panels rose. Protective tariff imposed on solar imports is making some projects unviable. Norway's Scatec and India's ACME have put a 900 MW solar project in Rajasthan on hold because of rising import duties. India’s renewable energy ministry has backed a demand to shield some projects from impending taxes on solar imports, because added costs will slow clean energy.

Coal mining

Mixed signals from coal

Indian coal prices have surged in auctions held by the country’s state-run miner, with domestic buyers rushing to secure supplies as global disruptions push up the cost of imported fuels. Whether India will undertake further investment in constructing new coal power plants is uncertain. While government reports have suggested that there is already enough constructed but not yet operating coal capacity to meet future needs, the Minister of Coal told parliament that "as of now there is no scenario of energy transition away from coal affecting any stakeholder involved in coal mining". The currently idled plants are not being used because of lower power demand than anticipated and larger renewables displacing the need for some already constructed coal. But if all these plants were to be fully utilized, India’s coal generation would increase significantly. Since 2015, 326 GW of proposed coal plants in India had to be cancelled because financiers, mainly public sector banks, who earlier supported this sector are abandoning it.

The World Bank has funded $1 billion for India's first plan for a socially fair shift away from coal to provide displaced coal communities with alternative jobs and basic services. State-run Coal India, the world's largest miner of the fuel by output, plans to become a net-zero carbon emitter in three to four years.

A new effort has been launched to reduce stubble burning by and carbon emissions by co-firing rice stubble with coal in power plants.

Maharashtra government announced a comprehensive study to help determine the phase-down of coal-fired power plants in a systematic manner.

Hydrogen

New hydrogen Policy falls short of expectations

The government came out with the first phase of the policy on promotion of domestic production of green hydrogen and green ammonia, to help meet the net-zero by 2070 commitment. The policy promised cheaper renewable power, a fee waiver for inter-state power transmission for 25 years, land in renewable energy parks, and mega manufacturing zone. Hydrogen advocates are also urging investments to bring down the cost of electrolyzers through large scale subsidies and investments in R&D.

The NTPC-Simhadri plant has launched a 50 kW fuel cell microgrid pilot project using green hydrogen, India’s first green hydrogen-based energy storage project.

Transportation

States rush to announce EV policies

India has committed to the Zero Emission Vehicle (ZEV) Pledge by 2040, and has seen a substantial increase in electric vehicles in India - from 24,600 in 2020, to over 49,500. The Society of Manufacturers of Electric Vehicles (SMEV) said electric vehicle sales in India are likely to reach around 1 million units this year owing to the high sales of electric two-wheelers. Electric vehicles and their value chain are expected to comprise roughly 10% of that India’s auto sector cap ex for the next decade.

With billions of dollars in funding and a new range of models, Tata Motors wants to take the lead in the EV race while Ashok Leyland plans to set up a new manufacturing facility to roll out electric vehicles. A Parliamentary panel concluded that The electric vehicle manufacturers would need government support for a longer term until the EV market becomes “self-sustainable, more affordable and within the reach of the common man.”

Indian state continue rapidly adopting their own clean transportation/EV policies, many of them substantially bolder than the Central Government’s steps to date and with the goal attracting investment. But Tesla Inc. says policies such as the one asking to commit to local sourcing of at least $500 million for the federal government to consider its request for an import tax cut, are barriers. But politicians from at least five Indian states took to Twitter to invite Tesla Inc. to set up shop in their respective states.

New EV policies have been announced in Maharashtra, Bihar, and Goa. Delhi continues to lead. As part of its vision to make Delhi India’s electric vehicle (EV)leader, the Aam Aadmi Party government has set up an EV team to accelerate progess and released an aggregator's policy which requires transportation services companies to purchase EV’s for new fleets.

India’s electric vehicle makers are bracing for a major hike in prices across models on the back of rising input and component costs of EVs. Two-, three- and four-wheeler EV manufacturers are under severe pressure to increase prices, and the price hike would be in the range of 6-8% across the board starting next month.

By focusing on EV production over charging networks, some argue that the government may have delayed the mass adoption of clean energy transport. In response to this challenge, the Government argues that battery swapping is the key technology for vehicle charging in crowded urban areas. Indraprastha Gas Limited (IGL), India’s CNG distribution company, and Kinetic Green, a Pune based electric vehicle manufacturer, has launched first “Energy Café”- a battery-swapping station aimed at revolutionizing electric vehicle industry in India. Hero Electric has partnered with Sun Mobility to deploy electric two-wheelers integrated with the latter's smart- swappable battery technology. Japanese automaker Honda Motors will roll out its battery-swapping services for electric three-wheelers in Bengaluru from June this year.

Nonetheless, the government agreed to offer cheap land to those setting up public charging stations. A total of 100 new EV charging stations will be set up across “prime locations” in Delhi by June; 71 will be at metro stations. Convergence Energy Services Limited (CESL) will install a minimum of 900 more across the country in 2022. Diversified energy major IndianOil has installed more than 1,000.

Reliance New Energy Solar, Ola Electric Mobility, Hyundai Global Motors and Rajesh Exports made it to the first list of companies that will get government incentives under the $2.4 billion PLI scheme for advanced chemistry cell battery storage. Reliance New Energy Limited has signed definitive agreements to acquire substantially all of the assets of Lithium Werks BV, a leading provider performance Lithium Iron Phosphate batteries. Ola Electric, India’s leading manufacturer of EVs (electric vehicles), has invested in an Israeli battery technology company StoreDot, a pioneer extreme fast charging (XFC) technology. Exide Industries has entered into a long-term technical collaboration agreement a Chinese company for lithium-ion cell manufacturing.

State governments are also encouraging other modes of low carbon mobility. To encourage cycling, South Delhi Municipal Corporation (SDMC) has launched a project to install 82 hi-tech cycle stations in its areas. India’s state-run fuel retailers are increasing their ethanol storage capacity by 51 percent as the nation targets to double the biofuel’s blending with gasoline to 20 percent by 2025. Nearly 400 buses in Indore will soon run-on Bio-CNG to be generated from waste at a plant.

Two emerging and important priorities are introducing concepts, tools and instruments to device policies and regulations on the supply side (production/manufacturing) to complement the excellent array of demand-side incentives, and electrification of heavy-duty trucks. With India now having a Net Zero goal target, these two areas have enormous potential to contribute to mitigation and thereby making the transition faster and with economic benefits. Philanthropy is working to support national and state governments on both by providing necessary analysis, data and evidence.

Climate finance

Equity investments gain ground in clean energy projects

What are the trends?

The renewable energy industry in India is private sector driven. Project developers have depended largely (about 60 percent) on domestic debt mostly sourced from commercial and other banks, but blended with government budgets along with bi-lateral and multilateral development finance institutions. In the last few years equity investments from foreign (pension funds, insurance funds and foreign institutional investors) and domestic sources are gaining ground. But, India receives only about 10-15 percent of climate finance needed for its energy transition, a worrying situation given the ambition. India’s de-carbonization space is expected to demand capex of US$ 395 billion by 2030. India needs $20 billion worth of investments each year to achieve its climate targets and fund its green transition.

As India is expected to revise its NDCs, finance will be a key factor for the decision makers and hence efforts to channel more international public and private capital becomes critical- an area ripe for philanthropic support.

India witnessed a massive surge of 503% increase in ESG (Environmental, Social and Governance) labelled issuances at $8.29 billion in the calendar year 2021 as against $1.37 billion in 2020. The government of India is planning to issue at least $3.3 billion in sovereign green bonds.

EverSource Capital has completed India's largest climate impact fund, Green Growth Equity Fund (GGEF), at $741 million, one of the largest single-country emerging market climate funds. Capital A, launched a $9 million venture cleantech fund for EVs and associated infrastructure. Photovoltaic (PV) cell manufacturer Jupiter International secured $22 .2 million from Edelweiss. The US announced it was funding $500 million to help American companies manufacture solar panels in India. Sterlite Power received a $57 million debt funding from Tata Cleantech Capital for transmission. Avaada Energy’s green bond worth $188 million was oversubscribed. In the debt funding segment, Virescent Renewable Energy Trust (VRET) raised $288.4 million. Adani Green Energy Ltd (AGEL) has extended its Construction financing framework to $1.64 billion by raising a $288 million facility from a group of international lenders.

Reliance Industries has said that it will invest $80 billion in Gujarat over 10 to 15 years to set up a 100 GW Renewable Energy Power Plant and Green Hydrogen Ecosystem as part of the Vibrant Gujarat Summit 2022.

Industry & energy efficiency

Continued leadership

Industries volunteer to go green

India continues to provide early mover leadership in the industrial decarbonization and energy efficiency sectors, with Indian and Indian owned steel, aluminum and cement companies investing in early-stage low carbon technologies.

In a significant development India Steel Association (ISA) in early 2022 called the government for ‘policy enablers’ to encourage production and adoption of green steel in India. To quote the news report “these enablers include mandating government-funded construction projects to source a portion of their steel from low-carbon-emitting producers, introducing standards for green steel, having a carbon credit mechanism and taking up the European Union (EU) Carbon Border Adjustment Mechanism (CBAM) at various international platforms.”

JSW Cement has inked a pact with Punjab Renewable Energy Systems to use agricultural waste as biomass energy in cement-manufacturing. Vedanta Aluminum Business, India's largest producer of aluminum, launched 'Restora', its low carbon, 'green' aluminum brand, thus becoming become the biggest industrial consumer of RE in 2021.

The Kerala government has issued detailed guidelines announcing various incentives to the “green” rated buildings in the state as part of encouraging eco-friendly buildings.

Clean air

Halting progress, not breakthrough, on stubble burning

Emission norms have tightened but they have little effect on urban air quality

While various policy modifications designed to help resolve the winter air pollution from crop stubble burning program continue, breakthrough commitments to alter the fundamental problem – leaving the stubble problem to individual farmers to manage – remain out of reach. Similarly, three years after the National Clean Air Program (NCAP) was to reduce particulate matter levels in 132 cities by 20-30 per cent, there is a lack of evidence for substantial progress. India’s efforts to emulate western style incremental air pollution cleanup have proven to be insufficient; only with major technology transitions, such as shifting from oil to CNG, biomass to LPG, and coal to renewable generation, do the kinds of breakthrough emission reductions the air needs occur.

Allaying concerns of farmers over penalties for stubble burning, the government said it has made a provision to “decriminalize” it in the law. The Ministry of Environment, instead of banning small generators using polluting fuels like diesel, has simply standardized emission rules for all fuels. Frequent power outages make back-up generators unavoidable in industry and business. As part of its efforts to help sugar farmers, the government has guaranteed purchases and interest subsidies for ethanol, and ethanol blending in petrol has risen to 8.1% in the ethanol year 2020-21, up from 5% in the previous year., because of policy measures that helped increase supply through a combination of assured purchases at government-set remunerative prices and interest subsidy for production capacity expansion. How much clean air benefit this will generate is uncertain. Thermal power plants and lignite plants that do not utilize 100 percent of the fly ash they generate in an “eco-friendly” way will now face penalties.

The Gujarat high court asked the state government to phase out the use of coal and lignite in industrial units to curb air pollution in the state. The court also asked the governments to persuade industry to switch to CNG and PNG from coal. The government has argued that coal can only be phased out over a long period.

As another marker of the severity of air pollution, India lost 29% of its utilizable ‘global horizontal irradiance potential’, or the radiation that generates solar power, due to air pollution between 2001 and 2018.

Civil society and politics

Mumbai aims to achieve NetZero by 2050; South Asia’s first

Mumbai has announced strong in its Climate Action Plan (MCAP), devised by the Brihanmumbai Municipal Corporation (BMC) with support from the World Resources Institute (WRI). Mumbai has set a target of achieving total carbon neutrality/net zero emissions by 2050, the first city in South Asia to set such a timeline, two decades ahead of the Government of India's target. The plan aims to promote low carbon mobility solutions such as cycling and pedestrianisation for sustainable mobility; zero landfill waste management plan and increase in vegetation cover; flood-resilient systems and improved air quality through better monitoring and decentralised planning; investments in housing, electrification of public transport and significant changes in the way Mumbai manages energy, water, air, waste, and green spaces.

India’s global Sustainable development goals continue to lag its neighbors. Ranked 120, India is now behind Bhutan (rank 75), Sri Lanka (rank 87), Nepal (rank 96), and Bangladesh (rank 109), and only a bit ahead of Pakistan in Sustainable Development Goals ranking.

Climate change is starting to worry the states that called for a national Green Council on the lines of the GST council. While that is unlikely, it illustrates that, climate change is going to stretch every level of government.

India’s forest cover growth has slowed to an eight-year low in 2021, with just 0.22 percent increase over 2019, down from 0.85 percent in 2013 and 0.94 percent in 2017, the highest in the last decade. State got approval to use 1,355 hectare of forest land for non-forestry purposes in 5 years.