India has been under a complete lockdown since March 24 to arrest the spread of the COVID-19 pandemic. Six weeks into this unprecedented lockdown, there have been 49,501 recorded cases of COVID-19 and 1,697 deaths (as of May 6). This crisis, apart from being a human tragedy, is also expected to hit the economy hard.
A closer look into the current scenario, however, reveals that we are facing three converging crises: the on-going COVID-19 pandemic, its immediate impact on the economy and the ever-present threat from climate change. What remains to be seen is how the pandemic and its economic aftermath will affect efforts to address the existing climate crisis.
India, under the Paris Agreement, has committed to a 40% non-fossil share of cumulative power generation capacity by 2030. This target is driven by the country’s flagship plan to produce 175GW of Renewable Energy (RE) by 2022. This target might be affected in the wake of the COVID-19 crisis.
Due to the nation-wide lockdown, construction of projects totalling about 5GW has come to a halt. Industry experts have outlined the following reasons for the delay:
- India imports nearly 80% of its solar cells and modules from China. Due to the ongoing pandemic and subsequent disruption in production and transportation in China, the timeline for project completion will be pushed back. Installation will be affected in the first half of the year and economic recovery can only be expected towards the end of third quarter.
- The lockdown has led to migration of construction workers to their native places. Remobilizing the workforce is likely to take months.
- Projects that are currently stalled due to the pandemic, were supposed to be completed by September-October 2020 as the necessary civil construction work would have been completed before the monsoon season. However, due to shortage of labour, construction is now likely to start only after the monsoon (July-August) months.
- The fall in electricity consumption due to the lockdown will also have an adverse impact on already financially stressed electricity distribution companies (DISCOMs), thereby contributing to systemic financial risks across the electricity ecosystem.
The central government has announced a ₹1.7 trillion stimulus package to support 800 million people in the low-income segment. It also provides the government with an window to consider a low-carbon element in the economic stimulus package. Here are three recommendations:
- Near-term: A recently-released office memorandum from Ministry of New and Renewable Energy (MNRE) has categorized delays in scheduled commissioning date of RE projects as Force Majeure (a clause included in contracts to remove liability for natural disasters, etc., that might delay a project). This needs to include RE projects that are under construction, as power generation services are considered among the essential services during the lockdown. The notification should address issues related to penalties, tariff reduction and re-negotiation of Power Purchase Agreements (PPAs) if the project is not commissioned on or before the scheduled date. Further, the notification directs the RE implementing agencies to grant an extension on a case-to-case basis, which is a time-consuming affair, thereby delaying the process to grant an extension of time. Amid such uncertainties, the vulnerability of these projects is not addressed and might have long term consequences on the installed capacity.
- Medium-term: India needs to accelerate local production of solar panels and modules to reduce dependence on China. Currently, domestic manufacturing capacity stands at 10GW against a capacity addition plan of 20GW per year. During FY19, India manufactured cells and modules worth US$1.8 billion, corresponding to 6.5GW capacity. If India shores up its domestic production, and with a projected addition of 200GW of capacity in the next 15-20 years, we are looking at foreign exchange savings worth US$50-60 billion (Rs 3.7-4.5 lakh crores). This might require a comprehensive strategy from the central government beyond the Domestic Content Requirement (DCR).
- Long-term: Large-scale use of electricity storage is key to India achieving the target of installing 175GW of renewable energy capacity by 2022. Battery electricity storage is essential for the integration of RE with the grid while overcoming the challenges of variability and uncertainty. Under the National Mission on Transformative Mobility and Battery Storage, the Government of India plans to implement battery manufacturing at a large scale in a phased manner. With falling battery prices, it is an appropriate time for the government to accelerate battery manufacturing at the local level. India is also in a unique position to drive road transport electrification by targeting two-wheelers. A recent analysis shows that high upfront costs for electric two-wheelers due to the cost of battery packs can be reduced by domestic manufacturing of lithium-ion batteries under the Make in India initiative. This will also help in accelerating the adoption of Electric Vehicles (EVs), as India has an ambitious plan of reaching 30% sales share for EVs by 2030. Local manufacturing of batteries will also boost the adoption of electric buses for mass transit, as many state EV policies emphasize on electrifying the public transport fleet.
While containing the COVID-19 outbreak is rightfully the primary focus of the central government at this moment, it is also imperative to think about ways to revive the economy in the post-COVID-19 landscape. Low-carbon interventions would not only help in bolstering and sustaining economic growth, but will also provide the much-needed boost in the bigger fight against climate change.