Jul-Sep 2014

Renewable Energy: The Promise and Cost-effective Deployment

Renewable Energy: The Promise and Cost-effective Deployment

In this introductory article, Professors Rajesh Chakrabarti and Gireesh Shrimali, the guest editors of this issue, outline the growing importance of renewable energy and the necessity to adopt policy and institutional measures that ensure energy security and sustainable development.

Development and sustainability are often thought to be incompatible objectives. While the former requires investment in infrastructure and rising energy consumption, the impact of both objectives seem to create environmental concerns. Yet no responsible nation can sacrifice the latter objective, even at the altar of development. This balancing of the two goals is arguably one of the most defining challenges of long-term policy making in a developing country like India.

The current issue of ISBInsight focuses on this delicate balance between development and sustainability. A significant part of the research highlighted in this issue is part of the output of the CPI-ISB project within the Bharti Institute of Public Policy. The set of six articles grapples with several aspects of this broad question and delves deeper into issues related to the broad challenge of generating environmentally sustainable development, with a particular focus on renewable energy.

It is now well-known that fossil-fuel based energy has been primarily responsible for greenhouse gas emissions and can have severe environmental and economic consequences. In response, India has set an emission reduction target of 98 million tons per annum by 2014-15. Further, India does not have ample fossil fuel resources. It is heavily dependent on fossil-fuel imports. This raises the question of energy security. Finally, more than 66 years after independence, 33% of Indian households still do not have access to electricity, raising the issue of energy access.

Renewable energy seems to be an important solution to tackle these concerns. So is energy efficiency. Recognising this, India has taken up ambitious goals that include deployment of 20GW of solar, 50GW of wind and a reduction in energy consumption by 6.6 million tons of oil equivalent. However, the deployment of renewable energy is nowhere close to the desired levels. The amount of electricity generated by renewable energy is still less than 5%, well below the target of 15% to be reached by 2020.

The first article in this issue, by Ashwini Chhattre and Brian Dill, traces the evolution of the global discourse and institutions over the last few decades propelling renewable energy agenda even in the absence of a global renewable energy policy requirement. They point out how the three forces of international development, climate change and market liberalisation have combined to push policy in various countries towards increasing adoption of renewable energy. This adoption however has not been uniform around the globe.

As India struggles to fulfill its ambitious agenda of significantly raising the share of renewable energy in its energy mix, it also faces another challenge, of a similarly ambitious task of hectic infrastructure building. As the second article by Gireesh Shrimali points out, the largest barrier to widespread deployment to renewable energy in India is costs. Today, despite falling costs, renewable energy remains more expensive than conventional power. A key challenge here is of financing costs, in particular due to inferior debt terms – high costs, short tenors and variable rates. This suggests that the Indian government make provision of reduced-cost, extended-tenor debt for renewables a policy priority.

The article by Sandhya Srinivasan builds on Shrimali’s article by providing an in-depth analysis of the relative effectiveness of a set of proposed federal policies providing reduced-cost, extended-tenor debt and comparing them with existing policies. She shows that the debt-related policies are highly effective – from multiple perspectives – in both the long and short terms.

Charith Konda’s article further explores the issue by analysing capital-market based instruments facilitating lower-cost, longer-term debt – some introduced in India and others that are not – in search for an amelioration of the financing cost issue. Konda shows that some of these instruments include green bonds, credit/risk guarantees, and currency hedging.

Oshani Pereira and Tillman Liebert look at the question of infrastructure and sustainability and stress on the use of ‘Value for Money’ over the entire life cycle of the investment in policymaking.

The final article by Anant Sudarshan talks about the other aspect of sustainability efforts – energy efficiency or energy demand management. The article summarises research showing how simple, low cost non-price interventions can bring about electricity consumption changes through behavioural effects.

The sustainability question is inseparable from infrastructure investment and energy usage in a developing economy. The set of articles in this issue probe a few of the critical questions in this area, while focusing on the policy imperatives.

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