Trends show the drift towards renewables has found new acceleration.

India is at a crucial juncture on the climate change pathway when it has to step up its renewable energy capacity while gradually weaning away from its dependency on fossil fuels. With renewable energy deployment costs moderating and renewable power storage getting competitive with coal plants, the transition process could see an acceleration.

This is because recent trends show there is a clear global tilt towards funding renewable energy. With banks adopting a calibrated approach to lending for fossil fuel plants and focussing on renewables. The funding has also begun to shift towards renewable energy projects in India.

Points out Joe Athialy, Executive Director, Centre for Financial Accountability, an independent platform which aims to improve financial accountability in India: “Cost of renewable energy with storage is now comparable and cheaper than new coal plant construction. Besides losing out to renewable energy on per unit cost of electricity, coal power plants will have to be retired within a decade from now. Financial institutions are reluctant to fund coal projects, be it power plant construction or coal mining.”

A recent report by Climate Trends shows that for the second year in a row, 100 per cent of the value of project finance loans in India in 2022 went to renewable energy projects. Solar power was the dominant renewable energy, accounting for six out of eleven deals. Hybrid projects for both solar and wind accounted for 56 per cent of financing.

India has already installed close to 132 GW of renewable energy from its earlier target of 175 GW and is determined to meet additional power demand from renewables where possible. The World Energy

Outlook 2023 expects India to meet its 2030 target to have half of its electricity capacity from non-fossil sources.

Driven by strong policy support and moderate solar module prices, ICRA in its outlook predicts India’s installed renewable energy capacity to reach 170 GW by March 2025. The increase is supported by improved tendering activity in the current fiscal, with over 16 GW projects bid so far and another 17 GW bids underway by Central nodal agencies. The number of RE-based round-the-clock (RTC) projects is expected to rise in upcoming tenders to mitigate intermittency risk associated with renewables.

Challenges however remain in execution, including delays in land acquisition and transmission connectivity. Further, the rise in the RE capacity over the next six years is estimated to increase the share of large hydro projects in the all-India electricity generation from 23 per cent in FY2023 to around 40 per cent in FY2030. Also, given the intermittent nature of RE generation, the availability of RTC supply from RE sources like wind and solar power projects needs to be complemented with energy storage systems.

At COP28 India pushed for an equitable, inclusive and a realistic approach in shaping and sustaining its development goals and balancing climate action. While there was a commitment to triple the global renewable energy capacity to 11,000 GW by 2030 and double the annual energy efficiency rate, India aims at striking a right balance towards its net zero goals. Given the current energy basket, India may have to rely on coal in the medium term (possibly about 15 to 20 years) as fossil fuels make up 75 per cent of its power supply.

“The shift from fossil fuels to RE is inevitable, but what matters is the speed. A delayed shift will have negative consequences for air quality, climate change and the financial competitiveness of industry, not to mention higher costs for electricity consumers. Renewable is the cheapest source of new electricity and accelerating the shift will mean big savings for the Indian economy,” says Ashish Fernandes, CEO, Climate Risk Horizons.

The financial logic is clearly in favour of renewables. There is no economic case for the construction of new coal plants. That the world has finally agreed on the need to phase out fossil fuels is significant, even if it comes decades too late. But a balance is needed given economic compulsions and the growing demand and supply situation. There is also the question of tackling unemployment in coal producing states.

This article was originally published in Business Line and can be read here.

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