The Seismic Shift from Fossil Fuels to Renewable Energy

In an interaction with Industry Outlook, Arun Tripathi, Head - Energy Business, Regulatory & EHS, at Hero Future Energies shares his views on the emergence of renewable energy market in India, addressal of challenges faced by utility scale renewable energy projects and more.

The global renewable energy market size is anticipated to reach USD 1977.6 billion by 2030. How do you see this market evolving in India? What are the major factors driving the growth of this market?

Globally, India ranks fourth in <b>renewable energy</b> capacity and wind power and fifth in  solar power capacity. India has set a target to reduce the carbon intensity of the nation’s economy by less than 45% by the end of the decade, achieve 50% cumulative electric power installed by 2030, and achieve net-zero carbon emissions by 2070. India has been ranked amongst top 5 countries in the world, and the best among the G20 countries, based on its Climate Change performance. India is ranked 8th as per Climate Change Performance Index (CCPI, 2023).

The Central Electricity Authority estimates India’s power requirement to grow and reach 817 GW by 2030. Most of the demand will come from real estate and transport sectors.In the Union Budget 2022-23, the government allocated Rs. 19,500 crore (US$ 2.57 billion) for a PLI scheme to boost manufacturing of high-efficiency solar modules.In October 2021, India retained its third rank on the EY Renewable Energy Country Attractive Index 2021.At the same time, Non-conventional energy sector received FDI inflow of US$ 12.57 billion between April 2000-June 2022. Rising foreign investment in the renewable sector (such as the US$ 75 billion investment from the UAE) is expected to promote further investments in the country.

India’s ambitious renewable energy goals are transforming its power sector. Rising population and widespread electrification in rural homes is fueling the demand for energy to power homes, businesses, and communities.

India's renewable energy sector is expected to boom with a likely investment of US$ 15 billion this year, as the government focuses on electric vehicles, green hydrogen, and manufacturing of solar equipment. It is expected that by 2040, around 49% of the total electricity will be generated by renewable energy as more efficient batteries will be used to store electricity, which will further cut the solar energy cost by 66% as compared to the current cost. Use of renewables in place of coal will save India Rs. 54,000 crore (US$ 8.43 billion) annually.

Around 15,000 MW of additional wind-solar hybrid capacity is expected to be added by 2025. As per the Central Electricity Authority (CEA) estimates, by 2029-30, the share of renewable energy generation would increase from 18% to 44%, while that of thermal is expected to reduce from 78% to 52%. The CEA also estimates India’s power requirement to grow to reach 817 GW by 2030.

With the high scale of demand, strong policy support from government and competitive advantage of India over other economies makes it highly poised to achieve large investments in renewable energy sector.

One of the major challenges for the renewable energy sector is balancing the demands for energy with other land-use requirements. How can this requirement be met and balanced with the need for land for housing, food production, flexibility, etc?

In India, electricity generation has to compete with alternative uses for land such as agriculture, urbanization, human habitation and nature conservation, unlike Europe or the United States of America. India needs to ensure smart, judicious, and adequate planning of land use for renewable energy projects to meet its ambitious 2050 energy decarbonization and sustainability goals. It is expected by 2050, the amount of land that could be needed for solar will be equivalent to 1.7-2.5 per cent of the country’s total landmass, or 2.2-3.3 per cent of its non-forested land.

Balancing this huge land requirement with other alternative land uses is one of the toughest challenges the country will face in near future. Though there is no equal alternative to land based solar installations but with improvement in Renewable Energy technologies some part of this issue can be addressed in a better way.

It is important that innovation plays its part in minimizing land use. We have many options available with us like solar can continue to use more and more rooftops, even those belonging to large public and private institutions.

At present, India has three best bets to minimize its land dependency, these are Offshore Wind installation, Floating Solar and large-scale battery storage.

India can potentially generate 194GW of offshore wind power along its 7,600km coastline. Tamil Nadu and Gujarat combined can offer 71GW of offshore wind. Offshore wind projects can deliver more than 50-55% utilization factors with a better wind resource profile in deep oceans.

Recently, the ministry of new and renewable energy (MNRE) has revived its offshore wind power development goals by unveiling a roadmap for installing 30 gigawatts (GW) by 2030, just as project costs are falling globally.

In addition to offshore wind, floating solar is another which has some good potential for Solar energy generation. A report by The Energy and Resources Institute (TERI) has found that India's reservoirs have 18,000 sq. km of area with the potential to generate 280 GW of solar power through floating solar photovoltaic (PV) plants. NTPC is already developing a 100 MW floating Solar capacity in Ramagundam out which 20 MW capacity is operational additionally MP state is coming up with a 600 MW floating Solar capacity on Narmada River in Omkareshwar Dam.

With combination of offshore wind, floating solar and other feasible options like rooftop solar and wind, battery storage and Agrisolar, India can easily achieve its ambitious decarbonization goals.

Financial issues involved in bringing renewable technologies and renewable energy to the masses is also a concern. New business forces are dramatically increasing investment in the sector. Yet the transition from the carbon and fossil fuel industry is a massive shift and comes with a huge financial cost. How can these issues be addressed?

India wants non-fossil fuel power sources to provide half of its electricity supply by 2030. To achieve this target, India needs to massively scale up funding for renewables. India’s giant target of achieving 450GW by 2030 needs a capacity commissioning rate of, on average, 35-40GW annually going forward, with annual investment of US$35-40Bn in generation, transmission and storage assets.

Funding for Indian renewable projects has come from a diverse set of sources. Debt providers assess several factors, such as offtake counterparty and the track record of the borrower. Refinancing has become more common. Patient capital providers such as pension funds are also increasingly taking equity stakes in Indian renewable energy projects.

Renewable developers face regulatory, project and financing risks. Power purchase agreement renegotiation requests, difficulties in land acquisition and payment delays were ranked as the top risks in a survey of 17 industry stakeholders. Rising interest rates and inflation, coupled with the depreciation of the rupee against the US dollar are creating new challenges.

Further, the government is looking to decarbonize other emission-intensive and hard-to-abate sectors which will increase the demand for renewable power. Financing will be a key challenge for building these large assets.

To attract higher investments in the sector government has to improve the basics of the electricity business in India. Renewable projects in India face regulatory, project and financing risks. Some regulatory risks are hard to mitigate for operational projects. Government planning is essential to manage future risks of a high renewables market. Policy certainty from government and regulatory support to IPPs is one of the keys to remove Regulatory risk from the sector.

Land and grid unavailability is another reason for delays in commissioning of projects. Strong Grid planning and stringent land acquisition laws will help eradicate the challenges in grid and land availability. Additionally, the government has to streamline group captive implementation for corporate clean power procurement and utilize land held by government companies.

With resolution of existing issues in the renewable energy sector, developers have to device a hybrid strategy for fulfilling their financing needs. A number of Indian renewable energy developers have successfully managed to access foreign equity and debt capital. But there is a larger pool of ESG and sustainability-linked funds available that could be accessed, such as through government-backed sovereign green bonds. The Indian renewables financing market also needs to access domestic capital. There is a scope to raise domestic capital through rupee-denominated green bonds to expand the pool of financing for renewables. Increase usage of revolving debt facilities.

Poor power quality can have adverse effects on the power grid as well as industrial processes. It can lead to high costs and equipment failure. How should utility scale renewable energy projects tackle this issue?

The penetration of renewable energy in India is highly variable across states. The share of solar and wind in India’s 10 renewable-rich states — Tamil Nadu, Karnataka, Gujarat, Rajasthan, Andhra Pradesh, Maharashtra, Madhya Pradesh, Telangana, Punjab and Kerala — is significantly higher than the national average of 8.2 per cent. Solar and wind account for around 29 per cent of annual electricity generation in Karnataka. It is 20 per cent in Rajasthan; 18 per cent in Tamil Nadu; and 14 per cent in Gujarat in financial year 2020-21.

Recent trends underlying the main renewables integration challenges include the increasing variability of hourly demand, the need to ramp up requirements due to the impact of solar on net demand, short-term frequency variations and local voltage issues.

With the growth of renewable energy, the electric grid is shifting. To make sure the grid is ready to meet the rising tide of clean energy technologies, advanced integration—including grid modernization and visions for future designs—is needed.

The path forward involves assessing long-range demands and evaluating pathways for efficient performance. For example, projecting atmospheric patterns can help guide—and maximize—siting of solar or wind power. It also includes evaluating, scheduling, and optimizing future energy market design using advanced modeling and simulation to understand the operational connections to renewable energy availability, generator performance, grid reliability, and electricity delivery to customers.

Grid integration of renewable energy includes building resilience against threats, such as natural disasters and cyberthreats. It also involves overcoming challenges, such as instantaneous to seasonal unavailability of renewable resources. By developing solutions and mitigative measures across both information technology and operational technology systems, we can prepare for a cleaner, greener, and more resilient energy landscape.

Energy companies will need sophisticated, smart solutions and the data derived from these solutions in order to help them understand their consumers’ usage pattern in real time. How can companies use this data to help customers get better value from the services they receive?

With advancement in metering technologies and implementation of smart grid solutions, electric supply companies are becoming more aware about the consumption pattern of its user and they are able to efficiently recover their energy charges with minimum losses. Smart solutions hold the promise of performance improvement in the form of quicker detection of outages and losses in the system, better service quality, and load management. To reap such benefits, it is important to closely monitor the implementation of the program. Going forward, smart meters will be the main interface between consumers and DISCOMs, and if the metering systems, and not just meters, do not function properly, it will result in significant inconvenience to consumers.

India has already started a program to replace conventional energy meters with smart meters. Way back in 2020, the Finance Minister announced that all conventional consumer meters would be replaced by smart meters by 2022. Subsequently, a scheme worth ₹ 3.05 lakh crore was announced in the union budget for Financial Year 2021-22 (FY22), which focuses significantly on smart metering. The idea has gathered steam, and primarily under the Smart Meter National Program (SMNP), which is steered by the Government of India owned- Energy Efficiency Services Limited (EESL), 19 lakh smart meters have already been installed in India.

The idea of smart grid increases the efficiency of power usage by the introduction of bi-directional flow of information from utilities to consumer and vice-versa. Smart meters can definitely cut the domestic or commercial energy consumption by giving a lot of useful information to the consumer, at the same time with the advent of advanced monitoring technology the number of personnel required will be less. Smart solutions benefit the consumers in more accurate and timely electrical billing. It allows the consumer to schedule the electrical usage in the most optimal manner and the user to think about a better plan for using the electrical equipment during the expensive hours. It also allows the consumer to switch between conventional to renewable resources based on the tariff.

How do you see the market for the renewable energy evolving in the near future?

India recently updated the first Nationally Determined Contribution (NDC) under Paris Agreement (2021-2030) declared earlier in 2015, and communicated the revised NDCs to the United Nations Framework Convention on Climate Change (UNFCCC) in August 2022. The revised version clearly articulates India’s key internal goals towards achieving “net zero”. The country aims “to adopt a climate friendly and a cleaner path than the one followed hitherto by others at corresponding level of economic development”. India also has committed “to reduce Emissions Intensity of its GDP by 45 per cent by 2030, from 2005 level”. Further, the country aspires to achieve “about 50 per cent cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030”, which will involve transfer of technology from the advanced nations and assistance of low-cost international finance, including Green Climate Fund (GCF).

Investment in renewable energy hit record levels in India in the 2021-22 financial year. A total of $14.5 billion was invested in renewable energy, up by 125% compared with financial year 2020-21 and 72% higher than in the pre-pandemic period of the 2019-20 financial year.

India's renewables sector is booming, with the country projected to add 35 to 40 gigawatts of renewable energy annually until 2030, enough to power up to 30 million more homes each year. Renewable energy prices are falling, and renewables are now a cheaper source of electricity than coal-based power. The Russia-Ukraine war has driven up the prices of imported coal and gas and is adding strain to the dispatchability of high-cost power. Renewable energy combined with energy storage systems such as battery storage and pumped hydro have become a cheaper source of electricity to meet electricity demand round the clock.

Rising electricity demand, falling prices for renewable energy, India’s push to manufacture solar photovoltaic modules, government support schemes aimed at boosting Indian manufacturers’ competitiveness and attracting investment (Production Linked Incentive schemes), and the waiver of transmission charges for renewable energy are the key drivers of India's renewable energy growth right now.The growth trend will continue, but renewables need support from the government. The issuing of big tenders for energy storage and supportive policies for green hydrogen will accelerate the roll-out of clean energy technologies to decarbonize not just the electricity sector but also other hard-to-abate sectors like fertilizer production and petroleum refining.

India has massive renewable energy potential that has yet to be fully exploited. It is also a large developing economy with huge energy demand growth. The country not only needs to make a seismic shift from fossil fuels to renewable energy, but also has new incremental demand that needs to be met through additional renewable energy capacity.