Central and state renewable energy procurement agencies in India cancelled approximately 7,000 MW of tenders for solar and wind capacity addition in 2018. They reason that delaying procurement will lead to savings in purchase costs, since the levelised cost of energy for new projects is generally lower than the cost of old ones.
The hidden costs of delaying renewable energy procurement are borne by citizens, and the cumulative negative impact burdens the nation.
However, a clear understanding of the primary reasons for clean energy procurement, including reducing emissions, increasing employment and improving air quality, along with reducing costs – will help refocus the process on that collective end goal. This also puts the criticism of “first mover disadvantage” (where the followers reap the benefits of greater efficiency and cost reductions) to rest, as the first mover has acquired the desired value by paying the desired price.
India’s success with auctions
With 75 GW of installed renewable energy resources, India now ranks fifth in the world for cumulative installed capacity. It has set a target of installing 175 GW of new solar and wind projects by 2022. As of February 2019, renewable sources, excluding large hydro, supplied 9% of India’s total monthly energy requirement of 100 BUs (billion units or terawatt hours). A significant majority of the remaining energy, 87%, was generated by conventional thermal projects, primarily coal plants.
Reaching this level of portfolio mix has been a case study worthy of mention. India initially adopted the German model of feed-in-tariffs for attracting investments in renewables. Later, with the National Solar Mission 2010, policymakers introduced an auction where the prospective developers may offer a discounted price below a reference price ceiling. Competition, created by this reverse-auction bidding process, along with the dramatic fall in solar module costs, the availability of cheap finance and the formal central and state procurement processes, resulted in the stellar growth of India’s renewable energy sector in the last decade.
Solar capacity grew from a meagre 18 MW in early 2009 to 26,025 MW by the start of 2019! Wind capacity grew 2.7 times over the same time period – from 13,000 MW to a current installed capacity of 35,288 MW. Based on the average emissions intensity of coal plants (0.97 tCO2/MWh), India has saved roughly 1,047 million tons of CO2 over the last decade along with savings of approximately 8 million tons of SOX, 5 million tons of NOX and 1 million tons of PM10. These same clean energy developments also created approximately 117,000 job-years over the last decade.
Need to see beyond the obvious benefits
This scale of emissions reductions has no doubt provided significant health and ecosystem benefits — none of which would have been possible if the renewable energy procurement decisions that were made over the last decade were delayed or postponed. However, this is just one part of the procurement pie.
In the same time period, India added approximately 100 GW of new coal power generation capacity. What if renewable energy procurement had been even more aggressive? What if more aggressive procurement resulted in the creation of a domestic module manufacturing capability, something that China did so handsomely? That would have created many more clean-energy jobs, generated a socio-economic alternative for people employed in the coal supply chain, and developed an avenue for global investors to participate in the Indian infrastructure growth story. In short, instead of locking capital, jobs and time into creating more coal capacity, policymakers could have used all of these resources (along with India’s plentiful solar potential) to create a strong, dominant position in the world renewable marketplace.
Given that India currently has a supply surplus and still aims to meet its renewable energy goals, an effective strategy would be to optimise the utilisation of capital already deployed while at the same time valuing the societal benefits provided by renewable energy – including reduced air, water and soil pollution, all of which affect other sources of livelihood, primarily agriculture.
The costs of renewable energy (and storage, too) are expected to fall further, which will lead utilities and consumers to choose clean energy over energy from conventional sources. Policymakers interested in overcoming the perceived “first mover disadvantage” will have to find new and innovative methods to value all resources – depending upon the role they play in meeting our energy needs. That could mean expanding the cost-benefit analysis to include health costs, system losses, and reliability benefits to justify decisions for adding new renewable energy capacity or retiring conventional resources that offer a lower value.
Doing the right action at the right time, matters. And that time is now.