Can energy and innovation drive new growth in India?Legacy, Sanguinity, Prosperity

Arunabha GhoshCEO, CEEW

Nineteenth Annual Conference on Indian Economic Policy: Priorities for the New GovernmentStanford University3 June 2019

© Council on Energy, Environment and Water, 2019

CEEW – Among South Asia’s leading policy research institutions

Energy Access Renewables

Low-Carbon PathwaysIndustrial Sustainability & Competitiveness

Risks & Adaptation

Power Sector

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Technology, Finance, & Trade

Centre for Energy Finance

Four energy transitions

SOURCE: Bery, Ghosh, Mathur (2017)

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Traditional to modern Rural to urban

Growth to sustainable growthDeeper integration into global energy markets

Legacy

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Facing the oil headwinds head on

SOURCE: macrotrends.net; Ghosh (2018)

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• Understand trends• US production• Peak demand

• Iran

• Need buffer for subsidies• ₹15132 crore FY17• ₹23452 crore FY18• ₹26400 crore FY19 ??

• Don’t cut taxes for the privileged

India and global energy markets

SOURCE: Bery, Ghosh, Mathur (2017)

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Energy security is not energy self-sufficiency A complex quest for adequate quantities of energy resources, at prices that are affordable and predictable, while minimising the risk of overseas supply disruptions and ensuring sustainability of the environment and of the energy system for future generations.

Focus areas for India SAFE PASSAGEInvest in building fleet capacityStrengthen security partnerships in IOR

ASSURED SUPPLYDeveloping capacity for energy diplomacyCritically evaluate overseas investments

SECURE STORAGEBuild domestic storage capacityCooperative arragements for storageInstitutional capacity to manage reserves

FUNCTIONAL INSTITUTIONSTransparency; dealing with supply shocks; collective security; arbitrate disputes; pooling resources; sharing best practices

EXPLOITING MARKET POWERMoving from a price taker to price influencer.

Without fixing the power sector, the future looks uncertain

SOURCE: UDAY Tri-partite MOU and UDAY Dashboard; PFC Report; CRISIL

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• Total outstanding debt of discoms: ₹4.3 lakh crore (as on March 2015)

• High loss states: Rajasthan, Tamil Nadu, Uttar Pradesh

• Bonds (for 16 states)– Bonds to be issued: ₹2,69,056.35 crore – Bonds issued: ₹2,32,163 crore (approx. 86%)

• AT&C Losses (for 26 states)– Target: 15%– As of March 2019: 18.29%

• ACS – ARR Gap (for 16 states)– Target: ₹0 / unit (zero)– As of March 2019: ₹0.26 / unit

• Tariff Revision (for 27 states)– As of March 2019: 25 states

Sanguinity

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9| Image: istock

Ending energy poverty?

Image: Jaun Rizvi

ACCESS 2015 & ACCESS 2018

• 2015: First ever use of the multidimensional framework to evaluate energy access in India– Bihar– Jharkhand– Madhya Pradesh– Odisha– Uttar Pradesh– West Bengal

• 2018: Largest panel-data on multidimensional energy access in the world

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6 States | 54 Districts | 756 Villages | 9,072 Households | 5 million Data points

118 million have moved out of absolute electricity poverty

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64%

42%37%

84%74%

62%

Connected to the grid Grid as the primary source oflighting

Tier 1 or above

Prop

ortio

n of

rura

l hou

seho

lds

Access to electricity in six states

2015 2018

Source: CEEW (2018)

But long way to go, as only 20% of rural households are in top-two tiers

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63%

27%

7%3%

2015

38%

43%

14%

6%

2018

Tier 0 Tier 1 Tier 2 Tier 3

Electricity Access Evolution

Source: CEEW (2018)

Quality and reliability of supply remain main issues for Tier 0 HHs

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49%

8%

31% 30%32%

6%

32%

47%

0%

10%

20%

30%

40%

50%

60%

Capacity Duration Reliability Quality

Prop

ortio

n of

rura

l hou

seho

lds

Bottlenecks in electricity access faced by Tier 0 households

2015 2018

Source: CEEW (2018)

Duration of supply has improved, but reliability remains a concern

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5%

21%

50%

30%

21%

40%

5%8%

52%

29%

22%

42%

0%

10%

20%

30%

40%

50%

60%

Capacity Duration Reliability Quality Legality Affordability

Prop

ortio

n of

rura

l hou

seho

lds

Bottlenecks in electricity access faced by Tier 1 households

2015 2018

Source: CEEW (2018)

160 million have gained access to clean cooking energy

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Tier 078%

Tier 115%

Tier 25%

Tier 32%

2015

Tier 044%

Tier 135%

Tier 215%

Tier 36%

2018

Tier 0 Tier 1 Tier 2 Tier 3Source: CEEW (2018)

LPG is the driver for all the change, but a long way to go

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LPG connection and its use as a primary fuel has increased two-fold

22%14%

5%

58%

37%

19%

LPG use LPG as primary fuel LPG as only fuel

Prop

ortio

n of

rura

l hou

seho

lds

LPG adoption and use in rural areas of six major states

2015 2018

Source: CEEW (2018)

Affordability remains the biggest challenge to adopt and use LPG

Source: CEEW (2018)

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95%88%

72%

42%

92%87%

45%

28%

High connection cost High monthlyexpenses

LPG distributor notavailable in the

vicinity

Lack of Awareness

Prop

ortio

n of

hou

seho

lds n

ot

havi

ng a

n LP

G c

onne

ctio

n

Reasons for not having an LPG connection in 2015 and 2018

2015 2018

Source: CEEW (2018)

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1/4th

have come our of absolute electricity poverty, but only 20% in top-two tiers

1/3rd

have gained clean cooking energy access, but only 6% in top tier

Reliability and quality of supply remain the big concerns

Affordability of LPG and fuel stacking continue to be the biggest challenges

19| Image: istock

Tapping every ray of the sun?

Image: Abhishek Jain/ CEEW

Electrification to increase energy system resilience

SOURCE: Bery, Ghosh, Mathur (2017)

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• A range of generation options are required, whichever scenario is followed

• Five of the seven scenarios show significant future generation coming from renewables (wind and solar)

Electricity mix ….. today and tomorrow

SOURCE: Chaturvedi et al / CEEW (2018)

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Source 2010 2015 2020 2025 2030 2035 2040

Biomass 1% 0.5% 0.2% 0.2% 0.4% 0.4% 0.3%

Coal 67% 77.0% 72.1% 66.5% 59.7% 53.1% 47.1%

CSP 0% 0.0% 0.0% 0.0% 0.1% 0.1% 0.3%

Gas 12% 4.1% 5.9% 4.2% 3.2% 2.4% 1.7%

Geothermal 0% 0.0% 0.3% 0.5% 0.4% 0.4% 0.3%

Hydro 14% 10.5% 8.3% 6.5% 5.1% 4.1% 3.5%

Nuclear 3% 3.1% 5.0% 5.5% 5.5% 5.3% 5.1%

Oil 0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

PV 0% 1.0% 4.5% 10.4% 16.9% 23.4% 29.7%

Wind 3% 3.8% 3.8% 6.1% 8.8% 10.8% 12.1%

TOTAL 100% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

India’s renewable energy journey

1 Source: Central Electricity Authority & Ministry of New & Renewable Energy2 Source: CEEW Analysis

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0

5000

10000

15000

20000

25000

30000

35000

40000

2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 Dec-18

MW

India's solar and wind installed capacity1

Wind Solar

• Policy push on solar since 2014-15 has driven sharp increase in solar installed capacity

0

2

4

6

8

10

12

Dec-

10

Apr-

11

Aug-

11

Dec-

11

Apr-

12

Aug-

12

Dec-

12

Apr-

13

Aug-

13

Dec-

13

Apr-

14

Aug-

14

Dec-

14

Apr-

15

Aug-

15

Dec-

15

Apr-

16

Aug-

16

Dec-

16

Apr-

17

Aug-

17

Dec-

17

INR/

kWh

Solar Tariff Low Wind Resource Potential Tariff

High Wind Resource Potential Tariff

• Solar and wind tariffs have stabilised below USD c 4/kWh

Commencement of competitive wind tenders

Solar and wind tariffs in India2

Investment requirements ….. to fund a revolution

23| 1 Source: BNEF (2018); Chawla (2016)2 Includes large hydro investments

RE Investment Flows Average 2013-2017(USD Billion)

2017(USD Billion)

India1 10.0 10.9

Global2 321 334

2.7

10.713.1

15.417.6

19.721.7

4.28.3

13.613.3 13.0 12.1 10.6

7.0

19.0

26.628.6

30.6 31.8 32.3

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

2016 2017 2018 2019 2020 2021 2022

Billi

on U

SD

Annual investment needed in India’s solar sector

Distributed Rooftop Projects Medium and Large Scale Projects

Total Investment

Emerging economies receive only a small share of foreign funding

SOURCE: Ghosh and Chawla (forthcoming); BNEF (2016)

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94%

60% 61%81% 81%

67%

35%45%

62% 58%

4%

38% 32%

18% 14%

21%

63% 46%32% 41%

0%

20%

40%

60%

80%

100%

120%

China UnitedStates

Spain Brazil India Germany UnitedKingdom

Italy France Canada

Perc

enta

ge S

hare

Asset Financing by Funding Origin (Domestic v/s Foreign)

Domestic Foreign unknown

Factors determining returns on RE investments

Source: CEEW Analysis

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Anatomy of an RE tariff: risk perceptions determine costs of finance

SOURCE: CEEW (2017)

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Greater market concentration; solar parks become attractive

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0%

20%

40%

60%

80%

100%

2014 2015 2016 2017

Market concentration in solar energy generation

Share of top 5 firms in sanctioned solar projects

Share of top 10 firms in sanctioned solar projects

Source: CEEW and IEA (2018)

0%

20%

40%

60%

80%

100%

2014 2015 2016 2017

Market concentration in wind energy generation

Share of top 5 firms in sanctioned wind projects

Share of top 10 firms in sanctioned wind projects

45%

34%

21%

Share of projects at solar parks (2014-2017)

International IPPs

Indian IPPs

Indian State-owned Power Producers

0%10%20%30%40%50%60%

2014 2015 2016 2017

Solar investments by international IPPs

Share in solar park projects

Share in non-solar park projects

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Creditworthiness of offtakers strongly impacts investment

As per Ministry of Power’s Fifth Annual Integrated Rating for State DISCOMs, 2017

• Preference for creditworthy central offtakers for solar and wind projects• Creditworthy state DISCOMS account for the majority of state offtakers

0%20%40%60%80%

100%

2014 2015 2016 2017

Share of solar projects by offtakers

Centre Centre & State State Third-Party

0%20%40%60%80%

100%

2014 2015 2016 2017

Share of wind projects by offtakers

Cente State Third-Party

48%

13%

27%

12%

Share of sanctioned projects with state distribution companies by utility grade

A/A+ B+ B C/C+

What gets built and used: who bears integration costs?

29|SOURCE: Chaturvedi et al / CEEW (2018)

What gets built and used: who bears integration costs?

30|SOURCE: Chaturvedi et al / CEEW (2018)

Indian coal power has ~2X GHG emissions of gas-based generation

SOURCE: CEEW, ExxonMobil, IITB (Forthcoming)

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32| Image: istockImage: Abhishek Jain/ CEEW

Source: Ghosh (2018)Image: Unsplash

Renewing our vows on renewables

No backsliding Continue raising ambition

No lost electrons• Focus on integration

No failed contracts• Tackle risk perceptions

No false binaries• Manufacturing versus deployment• Coal vs RE OR Efficient TPPs + RE

Prosperity

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Lower-carbon industrialisationfor the fastest growing major economy

Image: istock

Using our roofs?

Image: Unsplash

State of the rooftop solar sector

21%

43%

16%

20%Commercial

Industrial

Public

Residential

Note: All values as on 31st March 2018 Source: Bridge to India, MNRE

35|

Total rooftop capacity installed in India:

2.5 GW

Low adoption in the residential sector despite the availability of significant technical potential

34%

11%

55%

Total rooftop capacity installed in Delhi:

103 MW

Why rooftop solar – Prospect for Delhi

Source: CEEW Analysis

36|

28794720 5925 7016

02000400060008000

2001-02 2010-11 2014-15 2018-19

Peak Demand (MW)

New DISCOM-led business models

Source: Kuldeep, Saji, Chawla / CEEW (2018)

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1.a For the roofless: Community solar – upfront payment 1.b For the roofless: Community solar – subscription mode

2. For the creditless: On-bill financing model 3. For all: Solar partners model

38| Image: istock

Low-carbon industrialisation for the fastest growing major economy?

Favourable renewable profiles, low electrolyser CAPEX, and low power costs could make “green steel” commercially competitive

Source: CEEW and IEA (2018)

39|

• Optimistic scenario– Electrolyser CAPEX = $

615/KW– Solar LCOE = $ 0.029/KWh– Wind LCOE = $ 0.043/KWh

• Under the optimistic scenario the Green H2 based production is 18% higher than the conventional method

Low Carbon Economy Carbon Tax = USD 40/ tonne CO2

19111

499 517480406 200

400

600

ReferenceScenario

Carbon Tac OptimisticScenario +Carbon Tax

Existing Carbon Tax BF-BOF + LowCarbon

Economy

Green H2 Method BF-BOF Method

ACO

S ($

/ton

ne)

40| Image: pixabay

Sustainable mobility for a country on the move?

Avoid, shift, improve…

Image: Karthik Ganesan/ CEEWSource: Ghosh and Ganesan (2019)

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• Metro + bus vs bus: 12-35 minutes saved at peak hours for > 10 km journey

• But each minute saved could cost between ₹0.5 and ₹2

Image: Arunabha Ghosh

42| Image: Arunabha Ghosh

Where did we lose out?

43| Image: CC WikipediaImage: istock

Resource efficiency to make in India?

Critical minerals: CEEW scenario_2030

Source: CEEW Analysis

44|

Critical minerals: Potential impact of recent ambitious EV targets

Source: CEEW Analysis

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Can India lead?

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Confronting our demons

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• Legacy– Resilience in international energy markets– Reform in domestic power markets

• Sangunity– Energy access will demand attention to detail to improve consumer experience– Renewables is a risk and reward game now; need to renew our vows on renewables

• Prosperity– Untapped sources of growth on the back of India's multiple energy transitions– Hard-to-abate industrial sectors need bets on new energy technologies– Understand global supply chains to design indigenisation policies– Urbanisation presents opportunities to integrate residential, commercial and transport– Resource efficiency has to be at the core

• Innovation is needed not only in technology but also in policy, markets and behaviour

International Solar Alliance: A new kind of energy partnership

SOURCE: PTI; www.isolaraliiance.org

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Recognizing that sustainable development, universal energy access, and energy security are critical to the shared prosperity and future of our planet, and acknowledging that clean and renewable energy needs to be

made affordable for all, we do hereby declare our intention to support India’s proposal to launch an international solar alliance as a common platform for cooperation among solar resource rich countries lying

fully or practically between the Tropics of Cancer and Capricorn.

49| Image: CC Wikipedia

Imagine

Image: Wikimedia

Thank youceew.in | @CEEWIndia

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