Financial Impact of Mitigation Policies Centered on Deep Decarbonization Most Severe on These States

Financial Impact of Mitigation Policies Centered on Deep Decarbonization Most Severe on Jharkhand, Odisha & Chhattisgarh

The National Institute of Public Finance and Policy (NIPFP) has released a paper reflecting on ‘Deep De-decarbonization and Regional Equity’ and regional imbalances in India with respect to Variable Renewable Energy. The insightful report has been authored by Sanjay Mitra and Rohan Chandra from the School of Public Policy, IIT Delhi.

Impact on states

The paper presents a preliminary assessment of the nature and extent of the financial impact of the mitigation policies centered on deep decarbonization of India’s electricity sector on the budget deficits of the states with relatively low endowments of solar and wind power. The report finds that it could be quite substantial, adding 8.66% to the combined deficits of the Variable Renewable Energy (VRE) poor states under fairly conservative assumptions. The impact is most severe on the three coal-rich states of Jharkhand, Odisha and Chhattisgarh.

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Optimal Generation Mix

The share of renewables in generation capacity is close to 25% and is expected to go beyond 50% by 2030. Renewables share in actual generation has grown from less than 5% in 2006 (not including small hydro) to 23.92% in 2020 (definition of Renewable Energy Sources (RES) expanded to include small hydro) and is expected to rise to 30% by 2030. (CEA). Changes in the energy mix through the next decade to 2030 have been built into the National Electricity Plan and the Optimal Generation Mix (OGM) for 2029-30 and are set out in the table below. It is expected that OGM, under which the VRE share to rise from about 18% in 2022 to about 30% in 2030,
will require about 895 MT of coal @ 0.7 kg/ Kwh (CEA2020-p 36), nearly 555 MT lower than the coal requirements were the share of VRE to remain unchanged during 2022- 2030 (BAU).

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VRE rich VS VRE poor states

India has more than 1050 GW of VRE potential-solar (749) and wind (302) combined. Less than 10% has been exploited. Almost all of the immediately realizable potential is in eight major states, that is states with populations in excess of 20 million, located mainly in the west and south. It is possible to categorise the states as VRE rich and VRE poor.

The VRE rich states include Rajasthan, Gujarat, Madhya Pradesh, Maharashtra, Karnataka, Tamil Nadu, Andhra Pradesh and Telangana, each with VRE potential greater than 5% of the total. They account for nearly 67% of the total VRE potential in the country.

On the other hand, 10 other major states, (categorized as VRE Poor each with less than 5% of the total potential in the country) in the east and the north, including three of the largest in terms of population, Uttar Pradesh, Bihar and West Bengal have a much lower (13%) share of
India’s VRE potential. Wind power potential is particularly skewed.

The latter have only 1.6% of the total wind power potential, while the former have 98%. The distribution of solar energy potential is relatively less skewed, respectively 54 and 17%.

VRE installed capacity

The skewness shows up more in the pattern of actual installed capacity across the groups. More than 94% of the total VRE capacity installed so far (2020) is located in the eight VRE rich states. The VRE poor states have only 4.8%-all solar. They have no wind power installations. Five sparsely populated Himalayan states, Jammu & Kashmir (112 GW solar potential), Himachal Pradesh (33.84 GW solar), Uttarakhand (16.8 GW solar), Arunachal Pradesh (8.65 GW solar) and Sikkim (4.94 GW solar) are very well endowed and together have close to 25% of the total assessed solar potential of 749 GW. Despite the endowment, they are unlikely to play a role in the renewables-based generation scenario in 2030.

In the coming decade, as per the report, the VRE rich states will continue to dominate and maintain their present share of 95% in the total VRE basket-88% in solar and more than 99% for wind. The VRE rich states are unlikely to go beyond 10% of the solar capacity and could look to a token wind capacity of 62.5 MW -all from Kerala.

Regional inequities 

The report indicates that as the proportion of VRE in a power grid increases, the system maintenance costs also increase significantly, especially when RE penetration rates exceed 15% of total power generated for solar, and 30% of total power generated for wind.

On an all- India basis, at 1200 hrs during 2021-22, – the average position of solar generation shows a surplus of 347 GW. But at a regional level, the western region shows a big surplus- 9785 GW, whereas the northern region has a similar deficit-6405 GW. Hence exports will have to happen between regions and to Bangladesh or Nepal. Entities like NVVNL and PTC have been doing this domestically, but so far, such products have not been used in crossborder power trading.

Need for greater attention

While much has been done to try to enhance the ability of the Indian grid to absorb large amounts of VRE, this is arguably the most underinvested part of the energy transition so far, the report says. It would only be logical to assume that investors would be more interested in the more accessible VRE sites with the necessary ecosystems to start with before looking at the trans-Himalayan zones. The leading states have already built up a considerable momentum in the exploitation of their VRE potential and they have so far tapped only 10%.

For the last thirty years, India has been making progress towards having a national power grid. While certain islands and corridors of congestion still exist, it is easier for states to buy power from national power exchanges than ever before, and many states have made out-of-state power sales and purchases a central part of their energy policy (eg. Gujarat, Rajasthan, Chhattisgarh). Rapid VRE growth in certain states will inevitably lead to higher inter-regional power transfers. During certain seasons and times of day, it is quite possible that renewable generation could be the dominant source of power generation in certain states within the next decade.