Source: A green transition, but not without the coal-rich states; Opinion; The Indian Express; 28-10-2023
Syllabus: Gs-3, Renewable Energy, Sectors of Economy, Transition to Renewable Energy
Coal’s Ongoing Role in India’s Energy Landscape
Reports of coal’s death are highly exaggerated. Between the strike notice by Coal India’s unions, to the power minister’s recent announcements of India’s intent to build new coal power plants, to addressing the peak power problems which have repeatedly surfaced during seasonal demand surges, the dilemma of energy transition has reared its face in the last few months.
Global Commitments vs. Domestic Realities
Between the G20, the Clean Energy Ministerial and the actions of the International Solar Alliance, much has been said about India’s global commitments and actions toward decarbonisation. But the logic and incentives of domestic energy transition need to be considered closely.
Historical Context: Waves of Power Plant Construction
The first wave of power plant construction in India, between the mid-1970s and the mid-1990s, happened on the back of a push by central PSUs to solve the imbalances of state power supply. Some state electricity boards managed to build up power plants, others did not.
The second great wave of power plant construction between 2000-2015 was driven primarily by private promoters who built plants after the Electricity Act, 2003 was passed. These plants were largely located in central, western and southern India.
The Next Wave: Mass Construction of Renewable Energy Assets
The next wave of power plant construction in India is likely the mass construction of renewable energy assets over the next few decades. According to projections, by 2030, solar and wind will make up almost 51 per cent of total generation capacity and almost 31 per cent of all generated power.
Regional Consequences of Renewable Energy Build-out
Research by Sanjay Mitra into the regional consequences of this RE build-out, and the accompanying expectation of greater RE procurement by state discoms. In August 2023, 92.5 per cent of all grid-connected RE generation came from eight states.
Challenges for Coal-Rich States
Assuming such patterns persist, RE-poor, coal-rich states are likely to face a double hit to state revenues: Coal royalties as a proportion of overall state revenue will decline as coal growth starts slowing later this decade, and the cost of power procurement will increase as new RE contracts are layered on top of existing commitments for firm power.
Inter-State Financial Transfers
Since most coal-rich states have limited grid-scale RE-deployment, they will have to import more power from other states. This means that the quantum of inter-state financial transfers for power procurement will shoot up over the next decade. We find that the combined revenue impact of declining coal royalties and increasing electricity imports could worsen budget deficits of RE-poor power-importing states by almost 8.66 per cent on average.
Addressing Policy Frictions and Fiscal Challenges
The reality of India’s fiscal federalism is that states are protective about the few major sources of revenue they have left post-GST. There are many axes of policy friction between Union and state governments, particularly in the power sector.
Empowering RE-Poor States
If these emerging frictions are not addressed, reluctant states and frequent policy conflicts could hold back India’s ambitions for an energy transition. RE-poor states need to be given a bigger stake in this energy transition, rather than be treated as collateral damage. The philosophy of balanced regional developmentalism that led to the creation of NTPC in the 1970s needs to be revived.
Conclusion: A More Inclusive Energy Transition
This could take many forms — preferential lending for RE projects in RE-poor states by state lenders, greater voice in federal power negotiations (through revival of institutions like the Inter-State Council), explicit financial transfers to RE-poor states through the Finance Commission and collaborative industrial policy through just transition mechanisms. Green industrial policy should not be the exclusive privilege of historically well-endowed states. Otherwise, the energy transition will simply be yet another drain of resources from India’s least developed to its most developed regions.