India’s fully synchronised national power grid and ongoing reforms in the wholesale markets have created a perfect foundation for beneficial power trade across Indian states, especially for renewable energy like solar and wind-based power. As renewable energy becomes progressively cheaper, renewable-rich states are in the perfect position to trade with low renewable energy-potential states. While there are challenges in implementing such a system, certain states have a competitive advantage if they act now and either align this opportunity with their industrial policies to either supply the cheapest power to the market, or create the ability to use cheaper power from markets for growth.
This policy brief makes a case to key stakeholders to look towards renewable energy as a commodity for trade and promote it as an industrial policy. We explore the role of wholesale markets in integrating incremental renewable energy in the energy mix. With the help of a stylised case study, we illustrate various macroeconomic impacts of renewable energy trade. The study takes a representative case of Tamil Nadu exporting its cheap, wind-based power, which can help meet the existing non-solar renewable purchase obligations for select northern states — Delhi, Punjab and Haryana.
We find that both renewable energy-exporting and importing states are better off as a consequence of renewable energy trade in a number of ways:
- Incremental investments in wind capacity by Tamil Nadu lead to enhanced direct and indirect demand along with reduction in cost of electricity production.
- The renewable energy-importing northern states of Punjab, Haryana and Delhi benefit due to availability of potentially cheaper electricity and its concomitant positive impacts on state GDP, employment and income.
- Coal-based generation in the power mix goes down in all the states, but the overall macroeconomic impact of the renewable energy trade is positive for both exporting and importing states.