New Delhi: Three months before his swearing-in as Prime Minister, Narendra Modi spoke at an election rally in Neemuch, Madhya Pradesh, where he articulated his strategy for India’s creaky energy sector.

If elected to office, Modi said at the rally where this writer was present, he would usher in an “energy revolution" by harnessing sources of energy such as solar and wind power.

India is no stranger to exaggerated poll promises made only to be forgotten once the polls are over. This time it was different.

In a rare instance of policy action rapidly following an election promise, Modi’s National Democratic Alliance (NDA) government put renewable energy at the top of its agenda after taking office in May, seeking to reduce India’s overwhelming dependence on coal-fuelled electricity.

The targets are ambitious. An earlier target of installing 20,000 megawatts (MW) of solar energy capacity by 2022 has been raised fivefold to 100,000MW. The government also wants to put in place 60,000MW of wind power capacity by then in a country that’s the world’s third largest emitter of greenhouse gases, behind only the US and China.

Tasked with the job of translating Modi’s vision into reality is Piyush Goyal, a lawyer and chartered accountant by training, who holds charge of the ministry of power, coal and new and renewable energy.

His job is to adopt a coordinated approach towards the energy sector and speed up decision-making.

Policy action has been reinforced by corporate backing. The new government has secured pledges from 213 companies to set up renewable energy capacity of 266 gigawatts (GW) over the next five years.

The companies—a mix of public and private entities—include state-run thermal power producer NTPC Ltd, which has agreed to set up 10,000MW of renewable energy in the next five years. In the private sector, the largest commitment for generation is from US-based SunEdison Inc. for 15,200MW; while ReNew Power Ventures Pvt. Ltd has promised 11,500MW.

“Earlier, green energy sources were looked more like a part of one’s corporate social responsibility. However, the world has changed, and so has India. It now has a very important place in our growth strategy so much so that we plan to shortly appoint a consultant to revise our future road map," said a top NTPC executive, who didn’t want to be identified.

Goyal has made a case for green energy as a pivot of India’s drive to achieve energy security.

The NDA government has the ambition of supplying 24-hour power to all households in a chronically power-short country.

Partly, the government’s focus on renewable energy forms stems from the fact that India has an energy import bill of around $150 billion, expected to reach $300 billion by 2030, which it wants to reduce.

India imports 80% of its crude oil and 18% of its natural gas requirements.

Certainly, the timing of the government’s renewable energy drive is opportune, coming as it does in the backdrop of both solar and wind energy nearing grid parity—a point in time at which they will cost the same as power produced from traditional sources and available on the nation’s transmission and distribution grid.

In states like Tamil Nadu, wind power already “compares favourably vis-à-vis imported coal-based thermal power," said Debasish Mishra, senior director, consulting, Deloitte Touche Tohmatsu India Pvt. Ltd.

“Solar power procurement, on the other hand, has been on the basis of competitive tariff-based bids and market forces, and cheaper equipment have ensured ever falling solar tariffs. It is expected that in the next three to four years solar power would achieve grid parity," he said.

For industrial and commercial consumers of electricity, solar and wind energy is close to grid parity, said Abhishek Poddar, a partner at consulting firm A.T. Kearney Ltd.

“We are possibly a couple of years away from reaching grid parity for residential customers," he added.

Global concern

Partly, the emphasis on solar and wind power stems from a desire to strengthen the country’s position at global climate change negotiations that will culminate in a summit in Paris late this year.

Fossil fuels are the world’s biggest energy source but burning them produces heat-trapping greenhouse gases that contribute to global warming.

“Renewable energy is fast becoming a mainstream source of power across the world. Continued technological advancement, reduced cost of modules and investment in utility scale play have been bringing down the cost of supplies from renewable energy," said Poddar of A.T. Kearney.

“The current thrust by the government in this space is being driven by the long-term energy policy and imperatives to reduce dependence on fossil fuels due to environmental issues. Additionally, if the current cost curves continue to evolve, renewable energy will become a self-sustained source of energy in India without major dependence on government subsidies," added Poddar.

India’s energy woes, exacerbated in recent years by delayed environmental approvals and other mandatory clearances, fuel shortages and land acquisition obstacles, have meant that the country has been hard-pressed to generate enough power to keep its economic engine chugging, and at a price that makes its manufacturing competitive.

Around 300 million Indians lack access to electricity in a country where per-capita electricity consumption is one-fourth of the world’s average.

“The country is craving for energy security and energy at affordable prices," Goyal has said. Both concerns around climate change and worries about energy security are driving India’s renewable energy ambitions, said Mishra of Deloitte.

“Given an ever-growing demand for energy and over-reliance on coal-based thermal power, any other alternative source of energy helps India. India is well endowed with good potential for both wind and solar generation. Helpful government policy, regulatory regime and vibrant private sector interest is making this capacity target doable," Mishra added.

India has so far resisted international pressure to commit to capping emissions, but Prime Minister Modi has pledged to increase the country’s renewable energy capacity in a bid to reduce the use of fossil fuels.

During US President Barack Obama’s visit to India in January, Modi agreed to work together with other countries to reduce emissions, signalling that India may join an international deal on global warming.

Policy action

The US and China, the world’s top polluters, signed a landmark bilateral climate deal in November under which the US will reduce its emissions by 26-28%—below its 2005 level—by 2025, and China will reach the peak of its harmful carbon dioxide emissions around 2030.

India, too, is gearing up to meet the climate change challenge. Unlike other nations, India has taken significant steps to eliminate oil subsidies and gone beyond to impose taxes on petroleum products, taking it from a carbon subsidization regime to one of carbon taxation.

India is also among the few countries in the world to have introduced a carbon tax. Finance minister Arun Jaitley last month raised levies on greenhouse gas-emitting coal from 100 to 200 per tonne.

This comes in the backdrop of a plan to reduce borrowing costs and improve the viability of solar and wind power projects by extending hedging support for foreign loans, leveraging the National Clean Energy Fund.

“As environmental degradation hurts the poor more than others, we are committed to make our development process as green as possible. Our de facto ‘carbon tax’ on most petroleum products compares favourably with international norms. With regard to coal, there is a need to find a balance between taxing pollution, and the price of power. However, beginning this year, I intend to start on that journey, too," Jaitley said in his budget speech.

To be sure, there is a degree of scepticism about the targets for renewable energy generation, given the low base from where it’s starting. Green energy has a share of only 12.25%, or 31,692.14MW, in the country’s installed power generation capacity of 2,58,701.46MW.

“Most stakeholders thought that it is a desirable and feasible target but very ambitious and will require a step change in policy commitment," Bridge to India, a solar energy consulting firm, said in a recent statement. “Similar interest was created in the Saudi Arabia and Mexico markets but because of a lack of tangible progress, they lost that mind space. The same should not happen in India."

The government is expecting an investment of $200 billion in green energy projects.

“Clean energy investments in India jumped to $7.9 billion in 2014, helping the country maintain its position as the seventh largest clean energy investor in the world. The upswing was driven by the newly installed government elected in May 2014 which supports clean energy reforms," Bloomberg New Energy Finance said on 23 January.

Financial institutions have made a commitment to finance renewable energy projects totalling 78GW, and the government plans to start five funds of $5 billion each to promote green energy sources.

India is also working to build a consortium of some 50 countries that have abundant solar radiation. This grouping will pool research and technological advances in the field of solar energy in order to improve access to it to the poorest of the poor, and in the remotest of locations. The plan is aimed at lowering the cost of solar energy.

Who’ll pay?

Other concerns remain.

India’s power distribution sector is still plagued by its inability to pay for the power it procures from generating firms and the Indian clean energy market is largely driven by asset-based finance to the extent of 94% of the total investment in the sector.

State government-owned electricity distribution companies (discoms), which will have to buy the green power, are awash in red ink. State electricity boards, with a cumulative debt of 3.04 trillion and losses of 2.52 trillion, are on the brink of financial collapse.

Many distribution utilities are saddled with losses arising from theft, besides transmission and billing inefficiencies. Last year, with the general election looming large, some purchased expensive power to tide over short-term deficits (and keep voters happy). Many boards are yet to raise power tariffs to viable levels. The poor financial health of these utilities means they cannot raise debt.

“The biggest challenge for the development of renewable energy investment in India is the health of the public electricity distribution utilities... All the lofty targets will remain a plan if the utilities’ finances do not improve," said Deloitte’s Mishra.

Of course, India’s push to boost wind and solar power production provides an opportunity for global energy companies hit by the plunge in international crude oil prices. Lower oil prices can potentially derail, or at least delay, the world’s shift to wind and solar energy, as it makes less economic sense to tap costlier renewable energy sources.

US-based First Solar Inc., Sun Edison and China’s Trina Solar Ltd are among the energy companies that plan to set up manufacturing facilities in India.

The government’s ardent advocacy of solar and wind power has had other, less desirable spin-offs. Land prices in areas that are ideal for wind and solar power farms have already escalated significantly as large developers start building land banks, said A.T. Kearney’s Poddar.

“This, in turn, can become an entry barrier for newer players and also increase the cost of installations," he said.

The road ahead

The Modi government is pushing steadily ahead. It is working on a strategy to turn some 20,000 unemployed graduates into entrepreneurs to help it meet its solar power generation targets—a plan it will implement in concert with state administrations.

State governments will choose these graduates, preferably engineers, who will then be trained by the central government for around three to six months so that they have the entrepreneurial and technical skills to set up solar power plants with a capacity of 1MW each, to create 20,000MW of solar capacity combined.

This is in addition to the government’s plan to train around 50,000 people in areas related to solar power.

“India recognizes that it needs to do a lot more in the renewable energy sector, and it also recognizes that the renewable sector will be a big part of the development story in India. Those two things go hand in hand," said Baroness Sandip Verma, an undersecretary of state in the UK government’s department of energy and climate change.

“That enables India then to take a lead role to look at its own national needs. That commitment can then work towards making sure that the Paris talks are successful. Every country has recognized that something has to be done," she said in an interview.