India need to increase financial support for renewable energy to reach its goals for Aatmanirbhar Bharat

COVID-19 has demonstrated how disruptions in one part of the supply chain can affect the supply of components and the completion of projects. As governments around the world implement unprecedented policies to help stimulate economic recovery, the need for government support in the energy transition is greater than ever.

Renewable energy is increasingly attractive for meeting energy needs across different industries due to their decreasing costs, increased efficiency, and reliability. However, these technologies are still in their infancy in terms of technological maturity and cost competitiveness, and they face several market-related, economic, and social obstacles.

Why subsidies matter

Subsidies in the energy sector can help drive positive changes by helping consumers afford modern energy, bringing down the costs of new technologies, and encouraging investors to take risks in new markets.

A fundamental shift in the country’s approach to energy production and consumption is required to reach the goals of making India self-reliant and achieving an Aatmanirbhar Bharat in this clean energy transition.

The idea of financial support might seem controversial, but it’s essential if India wants to meet its massive renewable energy target of 2030 while keeping up with its growing demand for electricity (clean).

Subsidies come at a cost, of course, but they also provide tremendous opportunity. Without them, solar wouldn’t be nearly as accessible as it is today even more so than fossil fuels or coal power plants or wind turbines, solar projects rely on subsidies to become viable investments for developers.

So why are government subsidies needed? In short: financial risk. Solar technology has improved tremendously over time, but there are still risks involved in any new technology investment — it takes time to learn how to build these systems efficiently and cheaply enough to compete with traditional fuel sources like coal and gas.

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Why solar among all renewable energies

India plans to have about 450 GW of renewable electricity installed by 2030. Solar energy will provide 280 GW (more than 60 percent) of that. This will require a massive 25 GW of installed capacity addition per year. In addition, solar has been proven to be cost-effective across numerous applications.

On a large scale, it helps cut down on emissions from power plants. On a small scale, it can save individuals a considerable amount of money on their monthly utility bills by eliminating or reducing their dependence on fossil fuels.

A combination of these factors makes solar power an attractive choice among many nations. However, even after this, government support for the renewable sector is diminishing.

A recent report by IISD and CEEW, Mapping India's Energy Subsidies 2021, shows the government's support for the clean energy sector has fallen by nearly 45 percent since its peak in (financial year) 2017.

Ref.: IISD & CEEW report titled Mapping India’s Energy Subsidies 2021

The report explained why renewable energy subsidies have stalled, due to factors such as market parity between grid-scale solar and wind, a drop-in deployment of solar, and subsidy schemes are nearing its end.

Under the country's National Solar Mission, the first big wave of subsidies has ended, but the report recommends the government must continue supporting the sector financially.

This second-generation support for clean energy is crucial if India wants to achieve its target of 450GW renewable energy by 2030.

Why Aatmanirbharta (self-reliance) is essential for solar energy transition

The Indian solar industry relies heavily on imported solar cells, modules, and inverters. Additionally, India does not produce or refine many minerals used in solar modules, batteries, or other renewable energy systems.

As part of its attempt to increase domestic manufacturing, the government has increased duty on imports among other measures. Still, the domestic manufacturing of modules is not enough to fulfil the demand.

Over the next several years, India would have to import billions of dollars’ worth of solar modules to achieve this immense goal of 25GW every year. A comprehensive long-term policy to address these gaps is therefore imperative for India to steer its clean energy plans clear of the threat of pandemics (like COVID-19 in 2021-21) or geopolitical conflicts (a rift with China).

The government could also provide some handholding to solar energy manufacturers by supporting their large investments required in new capacities or technology development initiatives.

A second generation of support must for clean energy

The first generation of subsidies began in 2009 under India's Jawaharlal Nehru National Solar Mission (JNNSM), were all designed to lower solar system costs so that they are competitive with other fossil-fuel-based power generating technologies. These support measures have successfully brought solar and onshore wind power to market parity and placed renewables at the heart of India's energy system.

Having set the target of 450 GW of renewable energy by 2030 and knowing the significant amount of renewable energy that needs to be deployed annually to reach this goal, a strategy for the next generation of support is needed, with proportionate ambition and strategic planning to meet the challenges.

For India to achieve its goals of Aatmanirbhar Bharat and the clean energy transition after COVID-19, it must increase financial support for renewable energy.

The IISD and CEEW report has strongly recommended that the government, under its flagship programme Aatmanirbhar Bharat (self-reliant India) should develop more tailored subsidies for the centre and states, and should prioritize integrated solar PV manufacturing, electric vehicles, and storage solutions in a broader green industrial policy.

Emerging technologies such as grid integration and energy storage, decentralised renewable energy, green hydrogen, and offshore wind power should be identified, developed, and implemented.

PSUs in India invest heavily in the energy sector every year. The government should provide a mandate for clean energy to PSUs. The PSUs could play an important role in forming the base for this manufacturing wave, by ensuring investor confidence.

Also, it is extremely crucial to resolve DISCOM's fiscal problems to ensure compliance with long-term power purchase agreements and to attract new investors.

The time is right for the above next generation of support measures (financial and non-financial) for accelerating the clean energy transition and achieving India's 2030 goals for combating climate change.