Author: Josh Vicary.
Immense climate challenges face the world, spurring many countries to join efforts to attempt to limit global warming to 1.5 degrees Celsius this century. The Indian Subcontinent represents an instrumental part of the global effort, with India, Pakistan and Sri Lanka setting ambitious renewable energy targets for 2030, off the back of strong commitments to minimise green-house gas emissions.
With a population of over 1.5 billion and total GDP of over $3 trillion, the Indian Subcontinent is experiencing strong economic and population growth, leading to sky-rocketing electricity demand. Last year the region reported energy consumption of 1,297 TWh and is forecast to grow at over 5.5% YoY over the next decade. The continued rise of these economies and their energy demands exhibit both an opportunity and a challenge for all stakeholders involved.
Most countries in the Indian Subcontinent have a significant reliance on fossil fuels, most notably coal and gas. The renewables segment is fast becoming a key part of the installed energy mix - albeit not yet significant enough to overtake conventional sources. Whilst this is proving challenging with strong demand and supply constraints, slowly nations are starting to shift away from greenfield fossil fuel capacity.
India’s Steady Growth Through Domestic Investment
India’s total installed generation capacity stood at 356 GW in 2018, with 81 GW of that made up by renewable sources (excluding large hydro). Renewables adoption is becoming increasingly advanced in India. With a fundamental drive to attract private sector and overseas investment into the market, we witnessed the domestic expansion of ReNew, Greenko and most recently, Total’s acquisition of Adani’s solar business.
Ownership of the generation segments is a mixture of public and private entities, with more recent solar tenders being heavily bid for by Domestic Independent Power Producers. The Government of India has set a target that by 2030, 175 GW of installed capacity will be renewable, displaying a commitment to a renewable lead future. It aims to achieve this through robust regulatory policy and PPA standardisation. Foreign investment in the sector has been strong, as the transparent, competitive and established tender processes have increased the bankability of renewable energy projects.
The power market in India isn’t without its challenges, with persistent difficulties being faced, including off-taker risk, transmission losses and a negative perception of many State Owned Utilities. A national liquidity squeeze in the Indian banking sector led to increased borrowing costs and flight to quality, thus adding pressure on domestic private capital and foreign investors to support the renewable transition. The issue was magnified by the rupee depreciation against the dollar, inflating the costs of fixed dollar denominated PPA auction tariffs. Such challenges are likely going to continue to hamper the Indian power market in the short to medium term.
The renewables potential of India’s power market is significant for its people and the worlds battle against climate change. The gap India is attempting to bridge with its ambitious 175 GW renewables target will need persistent support from the national and global community. This can only be achieved by continued government policy support, competitive renewables tariffs and transformation of the value chain.
Pakistan’s Measured Adoption of Renewables
Excluding large hydro, Pakistan has an installed capacity of 36 GW, with 2 GW of renewable installed capacity. The generation market is split between state entities and Independent Power Producers, with solar captive power solutions becoming increasingly popular with the commercial and industrial sector.
The power market in Pakistan is becoming more advanced and supportive of renewable energy developments. This has been encouraged by improved governance and transparency in its energy regulatory body, the Pakistan National Electric Power Regulatory Authority (NEPRA). However, the markets struggle in rationalising electricity tariffs, coupled with the rise in circular debt, has caused obstruction in the adoption of clean energy technologies.
Pakistan’s power sector will continue to face challenges in its adoption of clean energy sources. Inefficiencies across the value chain, supported by high off-taker risk, has presented consistent difficulties for generators, highlighting the need for investment in the power transmission and distribution chain. China’s belt and road initiative has hampered the uptake for renewable energy in Pakistan. China has been assisting Pakistan through the financing and construction of coal power plants, turning the focus away from adding capacity through renewable sources, crystalizing fossil fuels as a significant proportion of the future power mix.
The 2030 target of 30% renewable installed capacity is ambitious. Lack of currency stability, policy perception and progress, specifically on project tendering has been mirrored in the uptake of renewable developments. That said, with substantial renewables potential and with further progress towards renewables bankability, Pakistan can continue to build on its success, attracting further investment and support for its energy ambitions.
Sri Lanka’s Bright Renewable Future
Sri Lanka has made significant progress in meeting its energy needs, with electricity access increasing from 50% in 1990 to 100% in 2016. The resilience of Sri Lanka, alongside development support, has started the turning point in delivering a zero-carbon future.
Adoption of the Paris climate agreement accelerated the focus on building renewable power capacity in Sri Lanka. It is estimated that by 2050 Sri Lanka could save up to $19 billion by substituting fossil fuel imports. The Ministry of Power and Renewable Energy has been tendering solar developments for Independent Power Producers through “Soorya Bala Sangramaya solar programme”, which is currently undergoing third competitive tender, in an effort to drive this change.
Sri Lanka’s long-term generation plan does include new coal power additions to balance the grid but has also reviewed gas capacity additions to limit coal reliance. Historically droughts have caused hydropower generation to fall, causing rolling blackouts in 2019. However, Considerable progress is required to meet its target of 100% clean energy generation by 2050.
Impact of Covid-19
The global pandemic has seen project deadlines extended, shipping of equipment delayed, construction postponed and borrowers put under stress. India has seen around 3 GW of renewables projects delayed and has extended project commissioning to accommodate delays. Economic repercussions of the lockdowns are pressing utilities payment collections with the Indian government ensuring the financial stability of utilities as a top priority. Given the importance of the renewables industry in the Indian Subcontinent’s economy, many have deemed operation and maintenance of renewables an essential service.
A trying construction and supply chain environment should be short-lived as the world learns to mitigate the effects of the outbreak. However, in the medium term, it is expected to have lasting effects on the creditworthiness of businesses in the renewables sector.
Ambitious Investment Requirements Needed to Fund the Transition
A global effort is required to support these countries transitions to cleaner energy generation. Support from development institutions, governments and private sector players is all vital in tackling the climate crisis. Renewables financing required for the Indian Subcontinent to meet its renewables target is estimated to be at $425 billion over the next decade.
Clearly it is critical to the global climate crisis that the Indian Subcontinent region is fully supported in its clean energy aspirations. The region has vast untapped renewables resources and it is vital that these dominate the newly installed capacity in these countries. This will take both national and international involvement in building environments that allow renewable energy investment to flourish.