Looking back on 2021

State of play

Economic revival has picked up speed, but the pace of recovery remains uneven across different sectors of the Indian economy. The outlook remains overcast by the future course of new variant of the pandemic and global supply disruptions. India is making steady progress in vaccinating its citizens with the number of vaccinations administered crossing 1.4 billion on 7 January 2022, with roughly 50 percent of the eligible population fully vaccinated. Energy consumption has returned to pre-pandemic levels. Electricity demand is projected to grow by over 8 percent in the financial year 2022 (April 2021-March 2022). Growth in power demand can improve utility finances but also boost coal demand.

Climate impacts, policy, and diplomacy

India’s new cop 26 commitments; bold, but a pathway of its own

In his speech at COP 26, Glasgow, the Prime Minister of India committed to achieving net zero by 2070. He also committed to increase non-fossil energy capacity to 500 GW (gigawatts) by 2030, meet 50 percent of energy requirements from renewable energy (RE) by 2030, reduce the total projected carbon emissions by 1 billion tons (BT) by 2030 and reduce the carbon intensity of the economy by 45 percent. Clarifications are awaited on these pledges and also on whether India’s pledges are conditional on $1 trillion additional financing that India says it requires over 10 years to meet COP26 commitments. India was a signatory to the declaration on accelerating the transition to 100% zero emission cars and vans promising to work intensely towards accelerated proliferation and adoption of zero emission vehicles with emphasis on two and three wheelers.India, however, gave a wide berth to three major COP 26 initiatives: global ‘coal to clean power transition’, the methane pledge and the pledge to arrest deforestation. India was also given significant credit for the final language in The Glasgow Pact of a “phasedown” of unabated coal power rather than a “phase out” of coal. Indian officials clarified that the terminology was already in circulation and not proposed or tabled by India for the first time. In the latest development, India joined Russia in opposing a draft resolution on climate change in the UN Security Council (UNSC), describing it as an effort of the developed world to “divert” attention from the failure to deliver on commitments on climate justice at the UN’s environmental body.

India based International Solar Alliance (ISA), an inter-governmental institution, received significant traction through strengthened partnerships and new initiatives. ISA and Bloomberg Philanthropies signed a pact to mobilize $1 trillion solar funding. India launched One Sun One World One Grid (OSOWOG) in partnership with UK’s Green Grids Initiative (GGI) to co-develop the first international network of global interconnected solar power grids spanning 140 countries. This initiative will be led by ISA. Thereafter, the United Nations granted observer status to ISA which could facilitate the OSOSOG initiative. The USA became the 101st member country to join the ISA to catalyze global energy transition through a solar-led approach, John Kerry, US Special Presidential Envoy for Climate, announced at COP26.

The Lok Sabha (lower house of the Indian Parliament) took up the discussion on climate change. The (Reserve Bank of India assessment showed that the impacts of weather on vegetable prices are often seen in the food price index with a lag and can stretch on for months. At least 25 people died in landslides and floods triggered by unusually heavy rains in south-western India. Climate studies predict increased rain deficiency and climate migration in many parts of India.

Power sector

Utility reform the key to meeting India’s new climate pledges, but economics will work if reform does its job

Without reforming bankrupt power utilities, India will struggle to meet its bold pledges made at COP 26. Power utilities' outstanding dues to generating companies are now over $13 billion. The government introduced an Electricity (Amendment) Bill 2021 that includes some measures to reform utility finances. But opposition to this proposed bill gathered momentum after the Government was forced to withdraw the farm bill following a yearlong protest by farmers. Power sector employees as well as engineers protested over the unilateral approach of the Central government to push the bill. The government has in response dropped four provisions in the draft including one to replace electricity tariff subsidies with direct cash transfers and one to create a contract enforcement authority.

Expressing concern over mounting payment dues to RE generators, the power minister said that no investor will come to India if they find that power bills are not being cleared. According to the latest report overdue amount of power utilities towards RE producers stood at $2.5 billion which was 11.8 times of average monthly billing of RE companies.

Effort to increase coal production and transport continued as low coal stocks in thermal power plants arising from logistical issues affected power generation. This led to black-outs in many parts of the country. However studies that recommend a coal phase out in India continued to pour in. The latest study by research groups Climate Risk Horizons and Ember recommending that India’s pipeline of 27 GW new build coal generation represents an investment burden of $22.36 billion that would be more productively invested in clean energy, battery storage and grid strengthening. A more recent study by the reputed Lawrence Berkley National Laboratory (LBNL) found that the least-cost resource mix to meet India’s load in 2030 consisted primarily of a combination of RE and flexible resources.

In 2021 India achieved the 2030 Paris target of 40% power generation capacity with non-fossil sources. In response to a question on nuclear power, the Minister of State in the Department of Space and Atomic Energy stated that the net zero targets are expected to be met through a combination of various clean energy sources, and that the present nuclear power capacity of 6,780 MW is planned to be increased to 22,480 MW by 2031 through progressive completion of projects planned and under construction.

Renewables

Prospects for huge renewables growth laid out; batteries and hydrogen major new investment focus

Prior to the Glasgow COP the Ministry of New and Renewable Energy (MNRE) said that India is set to achieve 450 GW of renewable energy installed capacity by 2030. That pledge has now been raised to 500 GW by the PM. India remains third in EY's Renewable Energy Country Attractiveness Index. Clean energy projects got 74% ($3 billion) of total funds for investment in the Indian power sector from Indian lenders. Coal projects got just 26 % ($1 billion) in 2020.

India added 2,205 MW solar power capacity in Q3 2021 taking total installed solar capacity to 47,322 MW. India’s solar power costs are expected to go up by around US₵0.13/kWh with a higher goods and services tax (GST) levied on cells, modules, and inverters from October 2021. The solar industry warned that the raising of the GST on solar devices from 5% to 12%, may hamper growth in the renewable energy sector. China’s power shortage led to Chinese solar equipment makers to serve force majeure notices on their Indian clients, citing inability to supply equipment according to agreed schedules. The Indian solar industries’ exposure to China is such that even port congestion ends up increasing costs for solar projects in India. Along with the surge in commodity prices this will increase costs for solar PV projects.

India remains the most cost-effective market globally in rooftop solar power at $66/MWh while the cost in China is marginally higher at $68/MWh. Roof top in India accounts for only 2.9% share of total solar capacity as of June 2021. However, about 2,068 MW of new capacity was added during January to September 2021, which is 134% higher than 883 MW capacity added during January to September 2020. The “Surya Urja Rooftop Yojana-Gujarat” scheme aims installation of solar rooftops for 800,000 residential consumers by March 2022. Analysts warned, nonetheless, that the trend of states limiting the ability of rooftop generators in the commercial and industrial sector to bank surplus power generated in high renewables periods and withdraw as needed would significantly impact the viability of roof-top growth. Freezing of prices of residential solar rooftop systems for 12 and 18 month and the overarching role given to the utilities may inhibit growth of solar roof-top.

384 MW of wind capacity was added in the Q3 2021, a 30% year-over-year (YoY) increase compared to 295 MW installed in the same period last year. Wind power costs were reduced substantially to US₵3.2/kWh from four wind plants In Rajasthan. Earlier, power was being purchased from these plants at the rate of US₵7.5/kWh. Rajasthan, Gujarat, Uttar Pradesh, and Maharashtra had the greatest growth in solar capacity for 68.53% of all solar installations in the first 9 months of the year while Gujarat, Tamil Nadu and Karnataka contributed about 98.66% of India's total wind installations.

The government is promoting Battery Energy Storage Systems (BESS) market through incentive schemes based on volume produced. The cost of grid-scale battery storage remains prohibitive for India and India does not yet have a domestic battery manufacturing value chain, in spite of government’s producer subsidies and planned battery Gigafactory announcements by major corporate houses and car makers, including Reliance, Adani, Tata, JSW, TVS, Hero and Suzuki.

The government is also emphasizing green hydrogen as low carbon energy storage technology for industries. NITI Aayog has tagged hydrogen as an early-stage technology where India has the opportunity to lead from the start, rather than catching up. The biggest “Greentech” announcements by corporate houses like Reliance and Adani all include green hydrogen components. ACME Solar, one of India’s biggest solar developers, has commissioned the world’s first commercial pilot of an integrated green hydrogen and green ammonia production facility in Rajasthan. Steel giant ArcelorMittal has plans to build 4.5GW of solar capacity in Rajasthan and green hydrogen production capacity backed by solar and wind in Gujarat. Bharat Petroleum Corporation Ltd. (BPCL), is collaborating with Bhabha Atomic Research Centre (BARC) to scale-up alkaline electrolyzer technology for green hydrogen production. At present electrolyzer plants are imported. This is a first of its kind initiative to support the country's commitment to achieve renewable energy targets and reduce greenhouse gas emissions. The government plans to implement a green hydrogen consumption obligation (GHCO) mechanism in fertilizer production and petroleum refining, similar to the renewable purchase obligation (RPO).

Coal mining

Renewables growth not seen as reducing the need for more domestic coal production: simplified auction procedures being rolled out

On India’s 75th independence day the Prime Minister announced a $1.3 trillion Gati Shakti National Master Plan for infrastructure platform that seeks to bring 16 ministries together for coordinated planning and implementation of infrastructure connectivity projects. Gati Shakti is likely to reduce logistics cost for coal transportation; this would be in line with the plan to augment coal production. 14 rail projects worth $2.89 billion will increase coal shipping capacity to 410 million tons per year. This is significant in light of the recent logistical issues in production and supply of coal that resulted in black-outs in many parts of the country.

Auction process for 40 new coal mines is likely to begin after successful auction of 28 coal mines in the first two tranches. But private sector involvement in coal mining through auctions is seen as a threat by workers of Coal India Limited (CIL), the dominant government owned coal miner. Around 75,000 workers of a CIL subsidiary halted coal mining in Southern India to protest. India mandated use of biomass pellets in coal-fired power plants in a bid to cut air pollution by using agricultural waste.

Responding to a question in the upper house of the Parliament over steps being taken to phase down coal as pledged in COP 26, the Minister for Power stated that coal will stay a major source of energy for the foreseeable future as it is an affordable source of energy with substantial domestic reserves. However according to a report by Niti Aayog, the government think tank, coal-based electricity generation capacity in India is likely to peak at about 250 GW by the end of this decade or immediately thereafter, and coal-based utility electricity generation in India will peak after 2040.

Transportation

India joins global EV pledge, but emphasis for electrification is two and three wheelers

The Reserve Bank of India is considering a proposal from the Niti Aayog to categorize loans to purchase electric vehicles as priority sector lending (PSL);such loans carries lower interest rates. Fitch Solutions suggested that EV purchases in India between 2021 and 2023 could increase by a rate of 26% annually, driven by the recent national policy push for greater EV uptake. The Indian government aims to encourage a shift towards EVs, using higher taxes on petrol and diesel as well as tax incentives on EVs. A strong case exists for India to enact its own version of supply side policies such as US ZEV mandates; NITI Aayog in its report on the freight sector has flagged it as a key strategy. While supply side regulations are not a part of the current, approved policies, it is encouraging that states like Maharastra have includedthem t in its draft strategy (for cars); NITI Aayog has proposed them as one of the options at the national level (for 2.3w and heavy trucks). The government of Maharashtra has decided to purchase or rent only electric vehicles used by the government departments, urban local bodies and municipal corporations from January 1, 2022. However, the EV community has an important job to socialize and remove misconceptions on the concept and highlight the several social, economic and climate benefits.

Central taxes on petrol and diesel have increased by over 600 percent since 2014. On an average, petroleum taxes equaled over 2 percent of GDP during in the last decade. Excise duty from petroleum products alone now contributed 85-90 percent of all excise collected by the Union Government accounting for roughly 24 percent of indirect tax revenue in 2018-19. According to the government, the money raised was spent on free COVID vaccinations.

*Source: Society of Manufacturers of Electric Vehicles*

Private investment in EVs continues to gather momentum. In Delhi, energy utility Tata Power has installed 1,400 chargers throughout the city and neighboring areas in the nationwide capital area. BP ventures is investing $13 million in integrated EV ride-hailing and charging company BluSmart to expand its fleet of electric vehicles and charging stations in Delhi to five additional Indian cities in the next two years. Matter, a startup focused on energy storage and electric mobility solutions has signed a memorandum of understanding (MoU) with Gujarat Government to invest over $197 million over the next five years. The automotive research & development agency in Pune is developing fast chargers for EVs.

However, while domestic production of EVs is yet to take off, high import taxes on EVs (60-100%) cause further hinderances. Tesla’s plans to enter the Indian market have been put on hold due to this and the EV giant urged India to slash import tax.

While the share of Electric vehicles (EVs) in the total number of passenger vehicles sold in Europe was 5.4% in FY2020, the same in India was a minuscule 0.2%. However, BEVs are expected to account for nearly 12% of all passenger cars by FY2026. Recent restructuring in FAME-II (Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles) policies suggest that the government has shifted its focus on electric 2 wheelers (E2Ws) to generate demand for achieving short-term growth.

Rising fuel prices are expected to accelerate demand for CNG (compressed natural gas) vehicles in India. The Minister of Road Transport & Highways is also promoting green hydrogen as a future transport fuel to reduce import dependence on petroleum-based fuels. India’s expectation that it may be able to lead the hydrogen revolution, but is catching up on batteries, may shift attention from electrified vehicles to hydrogen fuel cells, in spite of the much higher energy requirements of fuel cell vehicles. Until hydrogen becomes economically viable (and even beyond), it is important India’s EV ambition is intact and not diluted by arguments pitching hydrogen against EV. India is also promoting ethanol blending in transportation fuels to reduce use of petroleum, which has political attractions for India’s sugar growers. Ethanol demand has tripled to estimated 3 billion liters between 2017 and 2021 according to the IEA. The IEA expects India to become the third-largest market for ethanol in the world after the US and Brazil by 2026.

Clean air

Progress in using rice stubble for power generation offers hope for air pollution progress

With the onset of winter in Northern India, urban smog and pollution started gaining attention from the media, judiciary and legislative bodies. The Supreme Court of India continued with its activist role in addressing environmental pollution, with a 24-hour ultimatum to the government to reduce pollution in and around Delhi. In response, the environment ministry planned to shut down of all power within a 300 km radius of Delhi for a limited period to bring down the level of air pollution. The government of Delhi closed educational institutions indefinitely and asked institutions to allow “work from home” to reduce pollution. The Commission for Air Quality Management (CAQM) ordered immediate closure of NCR industries not running on PNG (pressurized natural gas) in view of the air quality of Delhi-NCR.

Stubble production in Haryana, Punjab and eight NCR (national capital region) Districts of Uttar Pradesh have come down by 7.72% during the current year as compared to last year. Overall stubble burning incidents came down by 63% in November 2021. Reduction in stubble burning was achieved by the central government through financial support offered to the governments of Punjab, Haryana, UP and Delhi to purchase equipment such as bio decomposers to dispose stubble without burning. In Punjab a power plant has started converting stubble into electricity.

The Ministry of Environment Forest and Climate Change (MoEFCC) has stipulated that all coal-fired power generating units need to reduce harmful SO2 (sulfur dioxide) emissions by retrofitting necessary pollution control equipment. The deadline for thermal power plants to install Flue Gas Desulphurization (FGD) units that cut SO2 emissions has been moved three times. FGD units have been installed at 2.16 GW of thermal power plants against the planned 169.3 GW capacity. According to the Central Electricity Authority CEA, bids for FGD installations for 69.26 GW of thermal power units have been awarded by the Ministry of Power (MoP) so far since 2019.That leaves 100 GW of coal plants emitting sulfur without having placed orders for pollution control equipment.

Energy access and energy efficiency

As per the latest survey most houses in India have potential access to electricity through the national grid, although in rural areas 25% are currently unable to utilize this opportunity, either for cost reasons or because the availability of power is too unreliable. The central government published new rules providing easier access to electricity transmission for disbursed, small scale renewable generators. The new Electricity Rules 2021 will pave the way for overhauling of transmission system planning, towards giving power sector utilities easier access to the electricity transmission network across the country. This will enable increasing share of renewable energy, and the develop the market mechanism. India plans to invest $1.6 billion to add new lines to transmit electricity from renewable plants as it seeks to draw half of its energy requirement from greener sources by 2030. The project will be completed by 2026 and transmit 20 gigawatts of renewable energy capacity.

The International Solar Alliance is projected to play primary role in providing energy access to 800 million people worldwide, particularly in Africa.

On the industrial efficiency side, JK Cement Ltd signed a long-term strategic memorandum of understanding (MoU) with Punjab Renewable Energy Systems Private Limited (PRESPL), India’s largest biomass aggregation and Densification Company to decarbonize its operations and significantly scale-up the use of biomass-based and alternate fuels as a replacement to fossil fuel like coal in its manufacturing operations.

India’s Energy Conservation Act completed 20 years. The Bureau of Energy Efficiency (BEE) was set up under the Act. An analysis based on bottom-up energy modelling shows that just a shift in behavior of use of appliances can reduce the residential electricity demand in 2030 by 25&. These savings can reduce India’s climate change inducing emissions, lower consumer energy bills, strengthen energy security and accelerate the adoption of renewables. Energy efficiency has so far remained at the margins of the policy discourse. But the government allocated only about $26 million for energy efficiency measures out of the Ministry of Power’s (BEE’s parent ministry) $1.9 billion annual budget for 2021-22.

Civil society and politics

After unprecedented rain and flooding several residents and youth groups came together for a rally to raise awareness about a host of environmental issues in Tamil Nadu including the loss of biodiversity, climate change and pollution of wetlands. Indian architects are finding housing options that are both environmentally friendly and comfortable.

Students in Maharashtra will start learning about worsening droughts, floods and storms on a hotter planet, and find out how to map and reduce their carbon footprint under the first climate-change school curriculum introduced by an Indian state.