View: ‘Green Stimulus’ – Can Budget 2021 balance economic recovery and carbon neutrality goals?

• Government spending on clean energy infrastructure has been proven to create more jobs than spending on fossil fuels.
• Stimulating low carbon economic recovery can boost India’s self-reliance goals in sectors such as energy, transportation etc

The expectations from Budget 2021, especially with respect to the renewables sector is multi-fold this year owing to a significant change in the supply and power consumption and the COVID-19 impact on local manufacturing. The big question from the renewables perspective is – can the government provide the much needed ‘green stimulus’?

In this respect, experts and policymakers are increasingly mindful that climate change risks pose a much bigger threat to India’s economic development goals than the shocks induced by the current pandemic.

In April 2020, G20 countries including India committed for environmentally sustainable recovery measures. Now, they must seize this opportunity to walk the talk. An international poll (IPSOS MORI, 2020) revealed that 81 percent of Indian respondents believed government actions should prioritize climate change in the economic recovery post-COVID-19.

The low-carbon stimulus can spur economic recovery and job creation. Government spending on clean energy infrastructure has been proven to create more jobs than spending on fossil fuels. Moreover, stimulating low carbon economic recovery can boost India’s self-reliance goals in sectors such as energy, transportation etc. Solar-powered livelihood solutions are already driving self-reliance in many segments of the rural economy.

Lessons from international experience of implementing low-carbon stimulus plans

As per the International Energy Agency (IEA), green stimulus programmes implemented after the global financial crisis of 2008-09 provide useful lessons for the design of current green stimulus efforts.

Previous stimulus programmes have demonstrated that more private investment can be leveraged with well-targeted and well-functioning policy frameworks, thus lowering the need for budgetary support.

Modular technologies that benefit from learning-by-doing, proved to be more suitable targets for a short-term stimulus than large, complex engineering projects with lengthy project development times.

The need to prioritize shovel-ready megawatt-scale renewable power generation projects

There are over 500 shovel-ready solar PV, wind and hybrid renewable energy (RE) power projects with a cumulative capacity of more than 100 GW in the pipeline. Most of these projects are under development, seeking to execute power purchase agreements (PPA), obtain regulatory approvals, complete land acquisition, grid connectivity, etc.

Many of the inter-state transmission (ISTS) connected RE projects auctioned in the second half of 2019 and first half of 2020 are still awaiting to execute PPA. The plain vanilla solar PV projects auctioned under the manufacturing linked scheme has 12 GW of capacity lying idle without PPA. Most of these projects have a relatively higher tariff discovered as compared to recently announced auctions achieving record low tariff discovery.

A few projects involving energy storage solutions for peak power supply and round the clock (RTC) supply of hybrid renewable electricity are also facing inordinate delays to execute PPA because of the relatively higher tariff discovery.

Furthermore, tariff adoption and power procurement plan approvals by respective state electricity regulatory commissions are also delayed in a few cases. We believe the central off-takers can explore renegotiating tariffs discovered in those auctions wherever possible and offer better deals to the state-owned DISCOMs.

In the long term, a robust coordination mechanism between Central and State governments involving PSUs, DISCOMs and other stakeholders working towards firming up power procurement plans with regulatory approvals (ex-ante) for the planned RE projects would significantly ease the pressure of getting these projects through PPA and other regulatory approvals (ex-post) after tariff discovery through auctions. Various stakeholders need to come together and take this as a priority not just for the environment but also for economic revival.

Additionally, there is a need for the government to clarify whether the waiver of ISTS charges and losses on electricity generated from solar and wind projects will extend beyond 30th June 2023 and for how much period.

There is a sense of growing uncertainty within the renewables industry that is already grappling with challenges on several fronts to commission the projects as planned. The RE auctions planned in 2021-22 may not witness the same degree of competitiveness in tariff discovery if this clarity is not provided now.

For easing the pressure on ISTS connected RE projects, delayed because of land acquisition and grid connectivity issues, the Central government could to step in by pooling land and strengthening the evacuation infrastructure in RE resource-rich territories.

Can the Budget help to accelerate kilowatt scale renewable energy project pipeline?

The Budget can play a key role to boost demand for rooftop solar deployment in the institutional sectors, especially rural health centers and educational institutions.

As per the World Health Organization (WHO), unreliable electricity access leads to vaccine spoilage, interruptions in the use of essential medical and diagnostic devices, among others.

In India, both rural health centers and schools are vulnerable to irregular power supply and frequent interruptions, adversely impacting the delivery of essential healthcare and education in rural communities.

There are approx. 1.5 lakh health centers across the country with the potential for around 564 MW of rooftop solar deployment. Similarly, there are approx. 6.82 lakh rural primary schools managed by the government with potential for ~2 GW of rooftop solar deployment.

Hence, one of the key expectations from the Budget will be to allocate a dedicated capacity for rooftop solar deployment in rural schools (2 GW) and health centres (500 MW) with generation-based incentives.

– By Somesh Kumar, Partner and Leader, Power & Utilities, EY India with inputs from Mohammad Saif and Shuboday Ganta