Can renewables make India energy-secure?

Recently, the International Energy Agency (IEA) has acknowledged India would be the fastest growing energy consumer – and market – till 2040. This applies not only to the hydrocarbon sector, but also to renewable energy (RE), as fast-declining costs turn solar and wind energy into the main drivers of growth in the power sector.

What does this mean for India, and more importantly, for its energy security? Poised to be among the top five renewables generators in the world in a few decades, moving up several notches from its current seventh position, will renewables solve India’s energy insecurity? After all, despite having an installed generation capacity of around 303 GW – the fourth largest – more than 300 million citizens are yet to gain access to electricity.

At the same time, a growing economy and rising living standards has seen per capita consumption of energy increasing from a below global average – which means that there is room for even more growth! India is also one of the largest growing passenger vehicle markets.

Yet, its stagnating domestic oil and gas production has seen import dependency for both growing year-on-year. While low oil and gas prices saw India’s oil and gas bill decreasing despite a rise in import volumes, a combination of OPEC strategy and West Asian geopolitics has led to the price of oil ascending gradually from a low of US $28 a barrel in early 2016 to more than $60 (Brent) currently.

No doubt, oil is not really a major contender for the power sector – except when intermittent power supply compels the use of diesel generators – and here renewables seem to be ruling as prices per unit of solar and wind-based generation are falling rapidly. Prices have dropped from a high of Rs 17/unit in 2010 to Rs 2.44 per unit by mid-2017 for solar and to between Rs 3.51 to Rs 5.92 per unit for wind as against coal which stands at around Rs 3.20 per unit.

With the goal set at 100 GW by 2022, India had ramped up its solar generation capacity to around 13 GW and 32.5 GW for wind by the end of fiscal 2016-17 as against 3,744 MW and 17.4 GW, respectively, at the end of 2014-15. 1 That is the good news. But the challenges with regard to energy security remain grave. Much of the reasons lie with skewed policy decisions.

India’s impressive growth of RE generation has led to a vast demand for further growth, which, in turn, has led to huge imports of solar panel modules, mainly because domestically manufactured solar modules were costlier – around 10 to 15 per cent more – than imported ones from China, Taiwan and Malaysia. This led to the Indian government filing a petition for anti-dumping duty on module imports.

That, in turn, led to a growing reluctance by solar exporters, particularly from China, Taiwan and Malaysia, to supply modules to India. In fact, around 89 per cent of solar modules used in India in 2016-17 were imported, and it is unlikely that domestic alternatives will be able to fill the gap. Moreover, the price of imported solar modules have increased by almost 12 per cent since the second half of 2017, due to the increased demand in overseas markets as well as a shortage of polysilicon, an important component in solar panels.

Given that modules contribute to more than half of the overall cost of a project, the price increase is expected to hike up project costs by 18 per cent, which roughly translates into an increase of around ₹895 million for a 100 MW project. In per unit terms, this is expected to see the cost of solar go up to Rs 3.50 to Rs 4.00.

With around 10,842 MW of utility-scale solar energy in the pipeline, the price hike is expected to affect project installations as the institutions which provide finance for the sector are showing increasing reluctance to finance projects due to concerns over cost recoveries and debt coverage.

Alternatively, it may lead to an increase in the cost of solar power as the price hike is passed on to the customers. Hence, the very reason for the popularity of solar power may be defeated, leading to a fall in generation.

While a case can be made for continuing the import of solar panels, it does not lend itself to enhancing the country’s basic energy strategy of greater energy independence and security. For this, India would have to invest in creating a competitive module manufacturing sector across the manufacturing chain, from procuring primary resources to the finished product.

Manufacture of solar panels and wind turbines depend on access to rare earth elements (REE), which are a special class of 17 elements or minerals that have extensive use across various industries, including computer, healthcare, defence systems and batteries, apart from clean energy systems.

As of now, China has the largest reserves of REE and largely controls the market, sometimes even using it as a strategic tool. Interestingly, India too has significant reserves of REE. According to some studies, it has the fourth largest reserves after China, the US and Australia. However, despite commencing rare earth mining activities more than five decades ago, India has not leveraged its advantage.

A combination of low-cost Chinese production and lack of R&D, including in extraction techniques and facilities for the separation of individual elements from combined elements, has kept the sector from progressing up the value chain.

Taking cognizance of the challenge, the government has initiated a review of requisite policies to provide a fillip to the sector. In August 2017, the Supreme Court directed the central government to revise the 2008 National Mineral Policy by the end of the year and emphasised the need to encourage scientific mining through proper survey and exploration, as well as the need for adopting better mining practices, advancing R&D, and regulation of unauthorised activities.

A new committee has been set up comprising representatives of various ministries and industry – keeping in mind the importance of involving the private sector – as well as representatives of organisations such as Indian Bureau of Mines, Geological Survey of India, Niti Aayog and the Railway Board. One of the main focus areas recommended was improved exploration and scoping of minerals, including rare earth and strategic minerals.

With policies like electrification of the transport sector and sourcing 40 per cent of power requirements from RE, India needs to ensure that it has the necessary primary resources required to power its energy sector if it is to achieve its goal of energy security. No doubt, finding alternatives to low-priced Chinese REE or developing substitutes will take time and investment.

But in the current situation, where China controls the global supply of REE and has even begun stockpiling in preparation for future market demand, efforts to diversify the REE supply chain is critical, both from the economic and security perspectives. India is a latecomer in the sector, but with requisite policy initiatives and implementation, it should join the battle for the soon-to-be-more-competitive renewables market. (Courtesy: https://idsa.in)

By Shebonti Ray Dadwal