Ashwini K Swain & Olivier Charnoz: India's clean energy paradox
India claims to be undertaking a thorough transition to low-carbon electricity as a response to a range of competing agendas and constraints. It seems the country has made a smart choice for energy policy by focusing on a two-way approach — stepping up renewable energy and energy efficiency initiatives. Enhanced energy efficiency is expected to partly avoid demand for additional generation capacity, while much of the remaining demand is expected to be met through renewable energy. Both approaches have equal potential to take Indian electricity on a low-carbon development pathway as well as ensure much needed energy security. Considering their equal potential and complementarity, both the approaches merit equal and simultaneous attention.
But, has it happened? We do not believe so; we find two paradoxes that weigh upon India’s clean energy development. First, although energy efficiency initiatives offer high collective returns, at least as high as renewable energy at a much lower investment, it has received a lot less attention and priority. Second, within the energy efficiency domain, implementation is lower and slower in sectors where the energy savings potential is higher — especially agriculture and domestic sectors.
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For renewable energy, India has set an ambitious target of raising its capacity to 74,000 MW by 2022, including 22,000 MW solar energy. At the same time, the country also aims to generate 15 per cent of its consumable electricity from renewable sources by 2020.
Considering past experiences in Indian electricity, and its failed attempts at reforms and big initiatives, there is every reason to doubt its capability to achieve this target. Renewable energy development in India has already been plagued by several governance issues — such as tariff setting, lack of transparency and civil society participation, inadequate monitoring, social reasons and lack of coordination, and consequent scepticism about future development. Yet, considering India’s vast renewable potential, aspiration of private sector, and bundling of renewables with other developmental agendas, there seems to be a ray of hope.
India has set an equally ambitious target for energy efficiency – to save 10,000 MW by 2014-15 – which will avoid installation of 19,000-MW generation capacity. In practice, however, energy efficiency promotion is far from being on a par with the efforts devoted to renewable energy. While there are mandatory policy provisions regarding the latter, like renewable purchase obligations issued to utilities, energy efficiency lacks such policy endorsements. The electricity regulatory commissions have been very proactive in promoting new incentives in favour of renewable energy, whereas energy efficiency is treated as a “step child".
What drives this paradox? First, India’s renewable energy strategy, following a top-down approach of grid-connected generation, is much easier to implement than the energy efficiency strategy that requires action on part of consumers.
Second, presence of concentrated interests, including few manufacturers, project developers and generators, facilitates expedited implementation in renewable sector as opposed to energy efficiency where the interests are diffused across utilities and large number of consumers. Entry of big business conglomerates, such as Tatas and Reliance, into manufacturing has further strengthened the lobby for renewable energy. Third, institutional architecture for renewable energy, including an independent ministry at the Centre and dedicated agencies at the state level, is much stronger than the institutional architecture for energy efficiency that includes a “bureau" at the Centre and state-level “designated" agencies with other (primary and often competing) policy priorities.
Fourth, India seems to perceive larger developmental benefit from renewable energy, including employment opportunities, regional economic growth and energy access for poor. Consequently, the political will to promote renewable energy is stronger than energy efficiency promotion. Finally, while there seems to be an emerging global governance framework for renewable energy, with several recent initiatives, including the International Renewable Energy Agency, energy efficiency lacks a global governance framework that could put political weight on the issue.
While political will has been neither always strong nor always present, India has gained significant experience in designing and implementing energy efficiency policies. Since its formation, the Bureau of Energy Efficiency (BEE) has prepared an action plan, giving a thrust on almost all fronts of energy efficiency, and taken several initiatives keeping with the Energy Conservation Act, 2001. However, not all initiatives were implemented with equal vigour and outcomes vary across consumer sectors. Standards and labelling scheme has arguably had the greatest success, resulting in 2,100 million units of electricity saved in the year 2008-09, which is equivalent to an avoided generation capacity of 600 MW. Schemes aimed at energy-intensive industries and commercial buildings are being implemented rather adequately, bearing positive result. However, other schemes such as Bachat Lamp Yojana, municipal and agricultural demand-side management are still at pilot stage and yet to be implemented at a large scale.
Although the initiatives taken by BEE are commendable, implementation is slower in sectors where energy saving potential is higher. Based on conservative estimates, agriculture has a potential to save 30 per cent of sectoral consumption and contribute to 36 per cent to national potential, while domestic sector has a potential of 20 per cent savings on sectoral consumption, amounting to 32 per cent of national potential. Combining both the dimensions, agriculture and domestic sector s offer higher collective return in terms of energy savings and thus, need to be prioritised. Yet, BEE actions represent a different trend prioritising industrial sector and agricultural sector is almost ignored.
What drives this trend? A credible explanation may be related to the relatively low incentives faced by individual consumers, despite the fact that overall collective return and incentive are high in these sectors. We find that implementation is higher when individual incentives are higher. Second, in the absence of an effective incentive structure, upfront investment for energy efficiency is often unaffordable for most agricultural and domestic consumers. Third, low level of public awareness about the benefits of energy efficiency has contributed to low willingness and acceptance. Fourth, while limited numbers of industrial and large commercial consumers are easy to target, BEE finds it difficult to reach out to geographically disperse large number of agricultural and domestic consumers. Finally, technocratic orientation of Indian electricity has led to overemphasis on technology based solutions. Yet, promotion of energy efficiency, particularly in agricultural and domestic sectors, requires governance innovations and behavioural changes, along with technology.
Striking a new balance between energy efficiency and renewable energy as complementary approaches is of crucial importance, if India is to achieve its energy security and climate mitigation goals.
Ashwini K Swain is independent energy and climate policy analyst. Olivier Charnoz is research officer at Agence Française de Développement, where he leads a multi-country research programme entitled “Local Politics, Global Impacts: Climate Change, Biodiversity, and Health".