Paris is again in the news, but hopefully for something positive, as world leaders gather for the global COP21 climate negotiations. Many feel it is now or never. But the question remains, who is supposed to contribute how much toward emissions reductions?

French President Francois Hollande (L) welcomes India's Prime Minister Narendra Modi as he arrives for the opening day of the World Climate Change Conference 2015 (COP21) at Le Bourget, near Paris, France (REUTERS/Christian Hartmann)

India’s Intended Nationally Determined Contributions (INDC) submission has targeted a measurable (33-35 percent) improvement in emissions intensity (per GDP) versus 2005, based in part on rapid decarbonization of its electricity generation supply by 2030, and adding tremendous capacity from Renewable Energy (RE) and nuclear power. If India achieves such capacity, it could well overshoot the emissions improvement targets. Such steps will take effort, but this framework is more realistic than an absolute “peak carbon” date and level, given that a higher (or lower) GDP growth would inherently result in changes in absolute levels. 

Given the cumulative nature of carbon, the timing of peaking is less relevant than aggregate total emissions. In fact, waiting to peak may be better, both because of technology improvements and a rise in affordability (GDP).  Realistically, an absolute commitment is unlikely to work for a country like India with a high GDP growth rate envisaged, in addition to massive development plans (i.e., a very low starting base). 

The Big Picture: Carbon Commons Framework

Will it be enough to get us to the total global target? This is a hard question to answer for two reasons. First, what are others doing? Second, what about history?  If we apply a global carbon commons framework, which adds in history and allocates allowable global carbon emissions to global populations, then India’s “fair share” would allow it to grow more than its INDC indicates. That said, perhaps the world is better off with a disproportionate contribution to greenhouse gas emissions reduction from growing economies like India, where new designs (of both supply and consumption) can likely be undertaken with greater effectiveness than in developed regions where the annual GDP growth is low and there is a lot of existing  capital stock. However, such solutions require capital and other support (including technology). 

If India achieves such capacity, it could well overshoot the emissions improvement targets.

An analogy that, unfortunately, may apply to global carbon emissions is a story told by a cardiologist practicing in a new region through a translator. An obese patient had trouble even moving, and was prescribed a set of exercises. Two weeks later his condition was worse, so the exercises were modified and set as a priority. Still two weeks later his weight was up and movements were more restricted.  When the doctor asked, are these exercises being done? The answer was, “Yes, I hired a laborer to do them.” We all agree we need to cut carbon, but many efforts seem be on trying to find some country’s carbon to cut. 

India is Different from China

When the U.S. and China signed a carbon accord, all eyes turned to India, especially before President Obama’s visit to India in January 2015. Would India also announce a treaty with the U.S.?  As written before, this didn’t make sense. First, the two biggest emitters of carbon, by far, were the ones signing the treaty (this is on a total amount, forget per capita). While the U.S. media may talk of a “Chindia,” China is in a different league and position than India, and the drivers are different. 

A traffic police officer directs traffic in front of India's presidential palace Rashtrapati Bhavan amid dense smog in New Delhi (REUTERS/B Mathur)

China’s expected population growth rate is an order of magnitude lower than India’s, and China already has reached a base level of modern electricity provision (with over 98.5 percent of homes already electrified, per reports). In contrast, some 300 million people in India don’t have access to electricity at all, and the bulk of India’s population experiences shortfalls of supply resulting in regular brownouts.   It’s a given that we cannot ask a starving person to go on a diet. But, there are portions of India’s economy that can become more efficient.  Given the high GDP growth rate envisaged (doubling in well under 10 years), it makes sense for future development to be as energy- and carbon-efficient as feasible. 

If the world fails, whose fault is it?

If the world goes over the target of future emissions (based on a 2 degree Celsius rise probabilistic plan), applying a global carbon commons framework, we would all be to blame – but India would be less to blame than many other countries, especially when applying a per capita framework. India might even be within its global carbon commons target, but the world’s cumulative emissions might still be too high. So the fundamental question is whether meeting the cumulative target is the responsibility of those with future growth, and to what extent. 

While the U.S. media may talk of a “Chindia,” China is in a different league and position than India, and the drivers are different.

It is premature to make judgements, on either countries or the aggregate impact, until discussions and negotiations are over. There are differences between INDCs in methodology (such as numbers, absolute vs. relative, etc.). We need to aggregate and synthesize these, and we should start with transparency in assumptions, accounting, and projections. Only then can we even begin to answer whether this is enough, and if not, what needs to change, and by whom.    

      

 

 

Event Information

As countries around the world look ahead to the 2015 United Nations Climate Change Conference in Paris, many discussions will focus on efforts to reduce carbon emissions and the potential resulting impacts on development. In India, for example, increasing industrialization and energy access come with rising CO2 emissions, and, as a result, the Indian government faces challenges in meeting climate change targets without slowing economic growth. In response earlier this year, Prime Minister Narendra Modi’s government announced ambitious targets for renewable energy, including an investment goal of $100 billion to increase solar capacity to 100,000 megawatts by 2022. While renewables have the opportunity to transform India’s electricity sector, challenges of scalability and economic viability are major obstacles on the path to India realistically achieving its clean energy goals.

On May 1, the Energy Security and Climate Initiative (ESCI) at Brookings hosted a conversation with Rahul Tongia, nonresident fellow with Brookings India in New Delhi, on the future of renewable energy in India. Tongia highlighted findings from “Making Renewable Power Sustainable in India,” a recent Brookings India publication. ESCI Senior Fellow Charles Ebinger moderated the discussion and audience Q&A.

Join the conversation on Twitter using #IndiaEnergy

Audio

• Opportunities and challenges in India's energy future

Transcript

• Uncorrected Transcript (.pdf)

Event Materials

• 20150501_india_energy_transcript

      

 

 

After the November 2014 joint U.S.-China announcement on climate change, all eyes turned towards India. What would India do? Would it sign a similar agreement, especially with the impending visit by President Barack Obama? Even if some agreement were signed, what would India promise?

Probably one of the best outcomes of the U.S.-China announcement was a de-coupling of India and China. There is no longer (and never really was) a “Chindia”, which portions of the US press periodically blamed for global woes on climate and periodic surges in commodity prices. China and India are rather different, and recognizing the differences helps understand what would make sense from India’s perspective. China has already achieved over 98 percent electrification of homes, while India has at least a third of the population remaining (let alone the shortfalls of supply, leading to almost daily outages). China has had visible air pollution, and wants to move towards green power not just due to carbon, but other pollution as well. Also, given the U.S. is already party to some targets with the U.S.-China declaration, does a second joint declaration with India make sense?

The December 2014 Lima declarations, with Intended Nationally Determined Contributions (INDC), really gave what many developing countries like India were asking for: no top-down obligations. But the flip side is they now have to come up with their plans and commitments.

A new path forward – emitting to develop and improve

Developing countries often mention historical carbon emissions of the developed world, given the cumulative nature of carbon emissions (the half-life of carbon in the atmosphere is almost a century). Thus, instead of annual emissions, some in India and other developing regions want to use cumulative emissions as a metric. Additionally, in terms of per-capita emissions India is meaningfully lower than China and far lower than the United States.

Even assuming that India isn’t to blame for the global climate change scenario, it has a key role to play for the future. What then? India has routinely held that it cannot sacrifice its development by restrictions on energy consumption.

Here the famous Kuznet’s Curve (an upside down smiley) is relevant. It posits that as countries become richer, pollution increases, and then when they are rich enough, pollution comes down. Is it possible to swap the axes, and thus the mindset? Instead of starting with the premise that for a country to develop it has to emit, can we reframe it that emissions will occur whether there is development or not. Then the question becomes what to do with such emissions?

Thus, for India the issue might be not just how much it emits cumulatively, but how well off its people are on a measure of human development? If India develops more, it will have a right to emit slightly more, but such development must be done with far less emissions. And if it develops less, it must emit less, else it has squandered carbon.

Of course, geographic, climate, cultural, legacy, and other differences prevent an easy comparison between countries, but each country can use such a yardstick to figure out how much is enough or required. This is where India can benefit. Given India’s development is occurring well after the US’s development (or even China’s), as well as the cumulative nature of emissions, its relatively delayed development might be a blessing in disguise since in the future, technologies for reduced carbon emissions will be much cheaper.

India’s chosen action plans, and global support

India has already taken actions on its own, in addition to the required INDC calculations. These include a very, very ambitious target for renewable energy, with a ~62% compound annual growth rate for solar power, to grow to 100,000 MW by 2022. This is especially stunning given that today the total capacity is only some 250,000 MW of electricity. Second, a number of states have announced low carbon roadmaps, action plans, or at least carried out analysis.

The US can contribute by helping states with funding and building human capacity. There can be city-to-city engagements, especially to learn new ideas and best practices (e.g., Los Angeles has made dramatic strides to reduce its carbon footprint). However, there is one difference between US efforts and Indian efforts at de-carbonizing. The US mostly has gradual changes or retrofits to consider, while India’s population is still growing, with attendant urbanization and sectoral shifts in the economy. India thus represents a new and large market for US and global technology providers. To accelerate de-carbonization, India would benefit from state-of-the-art technologies at reasonable terms.

India also needs financing support, not money per se, but cheaper financing. One reason India’s renewable energy (RE) power appears more expensive than some other countries is the high cost of capital; funding for RE projects in the U.S. is often at half the rate, and Abu Dhabi has funded their projects at around a quarter of Indian rates.

Lastly, India must improve the future energy mix towards lower-carbon options. On the supply side nuclear power is an option to consider. It has already acknowledged that its domestic three-phase plan will not suffice for its energy ambitions. India is now open to global technology, fuel, and capital, but many details (especially on liability, technology transfer, and financing) need to be worked out.

On the demand side, vehicular emissions (of local air pollutants and not just carbon) are a concern for India. This is where new technologies, including for electric vehicles, will be very important. Such a focus can synergize not just development and carbon concerns, but also align with India’s desire to reduce petroleum import dependencies.

Aligning the desirable with feasible

Climate discussions are often mired in complexity if not acrimony. Negotiations are the art of balancing the feasible and the desirable. First and foremost, no targets or goals will work if they cannot be achieved. It was easy for China to make some of its promise in part because they are already far along the energy and development curve, and in part because its population growth rate is minimal (a few percent at most projected over 30 years). In the same period, India’s population is projected to grow by 38%. The U.S. also has population growth rate projected, partly due to immigration, but the current per capita emissions (baseline) are at a very high rate, from which productivity and efficiency gains can suffice, especially given the high development and GDP. In contrast, India cannot ask people in the dark to cut down their emissions.

Just as one cannot determine the demand for a product without knowing its price, “feasible” also depends on the cost and effort. That is what translates to the desirable part. India actually wants to do a lot towards climate change – it just has to be multi-dimensionally attractive. It’s not clear if India wants the privilege of its own climate treaty. More than a new US-India climate deal, the US can encourage and help India achieve an ambitious INDC. This would strengthen the multi-lateral framework for Paris, and also encourage other nations to similarly be proactive in setting ambitious yet achievable targets. If some want a bilateral treaty for an emission reduction commitment, India could do so, but many targets are symbolic. India can make any agreement, but its actions should speak louder than its words.

      

 

 

Following their first summit in September 2014, Prime Minister Narendra Modi, in an unprecedented gesture, invited President Barack Obama to be the chief guest at India’s 66th Republic Day, the first time an American president has been invited in this capacity. With his acceptance of this invitation, President Obama will become the first U.S. president to visit India twice during his time in office. This second summit within six months offers a further opportunity to deepen the India-U.S. relationship.

As the two leaders prepare to meet in New Delhi on January 25-27, the Brookings India Center in New Delhi and The India Project in Washington, D.C. has produced a briefing book consisting of 16 memos written by a wide array of Brookings experts. The memos are divided into three sections: the introduction offers an overview of the current state of India-U.S. relations; the next section presents “scene-setter” memos that provide insights into crucial geopolitical and geoeconomic issues between the two countries; and the third section covers a range of issues on which India and the United States are—or need to be—cooperating, including foreign, security, economic, energy, urban and social policies.

This briefing book is a follow-up to the set of memos written for the September 2014 Modi-Obama meeting: The Modi-Obama Summit: A Leadership Moment for India and the United States.

Introduction

Building Up the India-U.S. Relationship Vikram Mehta and W.P.S. Sidhu note that Prime Minister Modi and President Obama were successful in providing momentum to the India-U.S. relationship with their first summit. They state that the New Delhi summit is an ideal opportunity to build on the joint vision outlined during the previous summit, but add that ultimately the success of the summit will be judged by whether or not the two countries deliver on the promises made. Read more »

Geopolitics & Geoeconomics

	India and Its South Asian Neighbors: Where Does the United States Fit In? Teresita Schaffer writes that President Obama’s Republic Day visit is an opportunity to put the challenges posed by Pakistan and Afghanistan into the larger picture of India’s regional and global leadership, and to reflect together on how India and the United States can pursue the interests they share in South Asia. Read more »
	Risky Business: The United States Turns Back to the Middle East Tamara Cofman Wittes writes that President Obama’s new commitment to the Middle East is fraught with uncertainties that are already provoking anxiety, both in the United States and in the region itself. She observes that America’s Middle East allies are concerned about the depth of Washington’s commitment to their concerns and the restoration of regional stability. Read more »
	The U.S.-India Relationship and China Tanvi Madan considers the American and Indian relationships with China, the concerns they share vis-à-vis that country, how they see each other’s relations with Beijing, and the impact China has had on the India-U.S. relationship. She also offers recommendations for India and United States on how to deal with this factor and actor shaping their relations. Read more »
	China’s Economic Challenges: Implications for India and the United States David Dollar discusses China’s current economic challenges and the reforms necessary to overcome them. He writes that India and the United States have a mutual interest in encouraging China to follow through on economic reforms, and identifies key areas for cooperation. Read more »
	China’s Domestic Dynamics: Implications for India and the United States Cheng Li traces Chinese President Xi Jinping’s consolidation of power and describes the resulting changes in China’s domestic politics. He writes that the United States and India must keep these domestic dynamics in China and that country’s concern about containment in mind. Read more »

India-U.S. Relationship: From Promise to Practice

	Economic Ties: A Window of Opportunity for Deeper Engagement Eswar Prasad observes that India and the United States share a wide array of economic interests which provide a good foundation for building strong bilateral relations. He proposes measures and reforms that would enable the countries to strengthen these ties. Read more »
	Intellectual Property Rights: Signs of Convergence Subir Gokarn notes that India and the United States have made considerable progress on the issue of intellectual property rights since the Modi -Obama Summit in September. He recommends that for effective cooperation to continue in the future, it is vital that the countries find an approach that reconciles both private and public interests in the two countries. Read more »
	Strengthening India-U.S. Relations through Higher Education Shamika Ravi states that it makes economic and strategic sense for India and the United States to strengthen ties in the higher education sector. She identifies critical areas for cooperation, including financing of higher education, curriculum design and teaching quality. Read more »
	Primary Education in India: Progress and Challenges Urvashi Sahni writes that issues like quality of learning and teacher accountability impede the progress India has made in primary school enrollment. She writes that India and the United States share several concerns about education and suggests the two countries can achieve better learning outcomes if they pool their experience and resources – both intellectual and economic. Read more »
	Enhancing U.S.-India Defense Cooperation Stephen Cohen and Michael O’Hanlon write that the Obama -Modi joint statement in September signals an emerging common strategic vision between India and the United States. They recommend steps leading up to and beyond the upcoming Obama visit that can strengthen U.S.-India defense ties as well as the quality of defense policymaking in each state. Read more »
	Strengthening Counterterrorism Cooperation Against Growing Turmoil Bruce Riedel explains that the multiple massacres in Pakistan and the transition in Afghanistan challenge the counterterrorism infrastructures built over the last couple of decades. He emphasizes that it is essential Obama and Modi reaffirm their commitment to closer counterterrorism and intelligence cooperation. Read more »
	Time to Act on U.S.-India Energy Cooperation Charles Ebinger and Vikram Mehta examine the opportunities for U.S.-India cooperation in the energy sector. They write that India and the United States together can make tremendous strides in renewables development along with efficient management of fossil fuels and help bring electricity to nearly 300 million people. Read more »
	Operationalizing U.S.-India Civil Nuclear Cooperation Robert Einhorn and W.P.S. Sidhu assess current impasse in U.S.-India nuclear energy cooperation. They argue that Obama and Modi must take greater measures to resolve lingering issues surrounding liability and tracking of nuclear material. Read more »
	India and Climate Change: Reversing the Development-Climate Nexus Rahul Tongia discusses India’s position in global climate negotiations. He also comments on the status of India’s renewable energy projects and whether a second climate deal with the United States similar to the U.S.-China deal is feasible. Read more »
	Delivering on the Promise of India’s Smart Cities Amy Liu and Rob Puentes write that the United States and India have an opportunity to make their partnership on the three Indian cities (Ajmer, Vishakhapatnam and Allahabad) a model for smart city development. They further recommend five principles that can serve as a framework for a U.S.-India partnership on smart cities. Read more »

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• The Second Modi-Obama Summit: Building the India-U.S. Partnership

      

 

 

In this India-U.S. Policy Memo, Rahul Tongia explains how the India-U.S. energy relationship can strike a balance between pure cooperation and competition toward a middle ground dubbed “coopetition”.

The U.S. is the second largest energy consumer in the world, and India is soon to become the third. The U.S. already has a large consumption base; India has enormous growth ahead of it given the low per capita levels of energy consumption (an order of magnitude lower than the U.S.). This difference—high consumption today versus high consumption tomorrow—becomes secondary when we recognize the advantages of bilateral collaboration, in part based on commonalities. Of course, commercial concerns abound, but modern industries, especially high-tech ones, have shifted from the extremes of pure cooperation versus pure competition towards a middle ground, dubbed “coopetition.” The India-U.S. energy relationship will also need to strike this balance.  

Both nations have large populations and a federal structure. They also have an abundance of coal, which is viewed as a dirty fuel, though cleaner coal usage, including through carbon capture and sequestration, can be one area for research and collaboration. Beyond carbon concerns, other challenges including land use, transportation bottlenecks, and local air pollution are strong drivers for diversification of supply away from coal in India, especially through renewable energy (which could become a multi-billion dollar market).

Climate change: agreement on the challenge, but no easy answers. Both India and the U.S. recognize climate change as an important challenge, but in the U.S. domestic resistance has often prevented dramatic steps being taken, the recent 30-percent-reduction plan by President Obama notwithstanding. In India, the pressures of increasing energy access and consumption—linked to economic development—limit commitments in the short run, especially any with binding targets and penalties. Even the voluntary improvement in carbon intensity by 2020 announced by the previous Indian government doesn’t appear so ambitious when compared with what is already being achieved (in part due to the rise of the services sector in a growing economy). Collaboration can span both mitigation and adaptation initiatives, especially at the sub-national level (e.g., city-to-city or state-to-state partnerships).

Business as Usual (BAU) won’t work. Business as Usual (BAU) is the extrapolation of today’s energy usage trajectory in terms of fuels, consumption, etc. Improving on BAU in the U.S. context means cleaner energy and de-carbonization faster than is happening otherwise. Improvements are taking place, but not evenly. Cheap natural gas has helped but it won’t necessarily solve the problem—it may even reduce any sense of urgency. In contrast, improving on BAU in India means providing modern energy services to the large section of the population that has either erratic or non-existent access to efficient fuels and electricity.  It’s not clear how this can be done in a traditional manner, even if one had all the coal in the world available at one’s disposal. New solutions, in terms of technology, and energy services and management, become critical. This is where innovation and bilateral collaboration can help.

Smart Grids and smarter management. The advantages of green/clean energy for supply are well known, but it also has limitations beyond the usual challenges of price, location-sensitivity and variability, especially in the short term. In India, a weaker electrical grid makes managing renewable energy even harder, since most renewable sources cannot easily contribute to the evening peak demand.

While adding supply in India is important, it won’t be enough. Instead of the traditional grid where supply has to increase to meet rising and fluctuating demand, a future grid can mitigate and even control demand to match fluctuating supply conditions, such as the variability of green power.

This is why a Smart Grid, which is both more robust and green power amenable, becomes essential. A Smart Grid is a broad transformation of the electricity system using digital communications and control, and encompasses various technologies at many levels of the grid. The U.S. has extensive experience with Smart Grids, and learning and collaboration will help India to avoid having to re-invent the wheel, even if India-centric changes in design are required.

Collaboration and New R&D. Innovation across the energy spectrum—supply, storage, conversion, consumption, etc.—will drive improved sustainability. Even something as mundane as storing energy via pumped hydropower (running a dam in reverse), which is commonplace in the U.S., is rare in India. Yet it cost-effective and highly efficient, more so than today’s batteries, and thus could be an area for cooperation.  

There will and should be gradualism in the research and development (R&D) involved, but India and indeed the world needs sustainable energy breakthroughs as well. While somewhat of a stereotype, U.S. product innovation (most recently with batteries, solar cells, etc.) and Indian expertise in process innovation, which extends to frugal engineering, can complement each other for helping realize new solutions with a global impact. Areas of potential collaboration include new materials (spanning batteries, nanotechnology and insulation), hyper-energy-efficiency, and solid-state power electronics amongst others.  

One channel for collaboration can be through the inclusion of additional existing or new players interested in innovation and commercialization. These include private research entities, non-governmental organizations, start-ups, spin-offs, etc., which are sometimes left out of “big collaboration” initiatives between India and the U.S., such as the Joint Clean Energy R&D Center.

As both nations take action based on the growing sense of urgency in clean/smart energy, this will also help displace historical mistrust if not blame (à la carbon and technology transfer). The market potential and access to energy human imperative are too large for business as usual to continue.

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• India-U.S. Energy Cooperation: Moving to Green, Clean and Smart

      

 

 

Much has been written about the death spiral U.S. and some European utilities face because of the rise in renewable energy production and use. With high if not saturated energy demand, and the falling costs of renewables, more and more end users, especially higher-end consumers, are opting for distributed renewable generation. This reduces their grid demand (if not cutting the cord completely). This hurts the utilities’ sales, which then have a smaller consumer base to pay for the shared infrastructure, which raises costs, which prompts more people to leave the grid, and so on.

Whether true or exaggerated, a corollary question for India and other emerging economies yet to reach 100  percent electrification and supply is can they leapfrog to a renewables-centric grid? The answer is no, at least not in the foreseeable future. Even in the West, few solutions are 100 percent decentralized; the grid still provides back-up and stability.

Pricing Is a Greater Challenge than Renewables

While a renewables-driven utility death spiral isn’t likely soon in India, there are other spirals and challenges India faces. For starters, demand is nowhere near saturation. With a quarter or more of rural homes unelectrified, and most electrified homes facing supply outages (dubbed “load-shedding”), demand will grow, perhaps 6-8 times before reaching a semblance of saturation.

Indian utilities face different threats, beyond the well-known issue of losses, theft, and shortfalls in supply. With low prices for small consumers (based on a tiered tariff structure), much of the latent demand is not profitable for utilities; and the remote and rural consumers are the most expensive to wire. Worse, their household demand comes during the evening peak, when supply is tight. Socially important pushes for universal electrification strain utility finances. If utilities were to implement time-of-day consumer pricing to help incentivize peak generation, this would raise the peak tariff. However, renewables, especially solar, would not be able to compete as easily at such hours.

Competition spirals and viability challenges come not from renewables, but from broader electricity pricing challenges. Simple “cost of generation” comparisons miss the fact that not all generation is equal. Retail prices in India are disconnected from the cost of generation (procurement by distribution utilities) not just because of average cost pricing, but also because procurement itself lacks time of day pricing. Lack of mark-to-market pricing (where the last transaction sets the price for all units, even in the past at different prices, such as with stocks,) means that state owned generation costs (averaged out, including older and cheaper units) come out cheaper than virtually all new plants, further diminishing the pressure on many retail consumers to shop elsewhere for power.

This also means that electricity prices will rise faster than inflation. While fuel, labor, and other commodity costs may go up “just” by inflation, the average electricity procurement cost is low due to older and cheaper plants. However, newer plants are all measurably more expensive than average procurement costs, regardless of whether public or private (imported coal or liquid fuel plants are just extreme examples of this). A hypothetical example (ignoring losses): a 10 percent growth in procurement from entirely “expensive” new generation (say, 50 percent more expensive than the average) pushes the average price increase above inflation (of perhaps 7 percent) by another 3.9 percent. This is even before pricing in peaking power, which is inherently expensive. The answer isn’t necessarily to move to mark-to-market pricing – such a step would raise procurement costs overnight – but at least the marginal costs must be accounted for and signaled to generators and procurers.

Decisions for Utilities: Face the Music and Plan Ahead

Pressure on prices includes the fact that distribution utilities are bleeding money; a 2012-13 annual accounts filing by a major Indian distribution utility showed that over 97 percent of its total revenues (including non-operations revenues) was spent on procuring power. That leaves very little for operations, maintenance, salaries, let alone capital investment, R&D, or profitability.

Pressures from renewables are not the key problem, since such private generation also faces high wheeling charges or, in some cases, official cross-subsidy charges. Instead, pressure comes from today’s cross-subsidies across consumer categories and tiered consumption, where over-paying commercial and industrial consumers have maximum incentive to leave the system (either legally or illegally), further straining the rest of the system.

There are other spirals and pressures on utilities, such as privatization or franchising operations in urban areas, which might be the only viable geographies that private entrants want to enter. This will leave the rest of the utility with lower-revenue consumers.  

      

 

 

Why Indian Smart Grids Make Sense

What are Smart Grids? There is no single technology or design, but these are a general term for the transformation of the power grid using digital communications and control to enable functionalities such as increased awareness, resiliency, flexibility, efficiency, and enhanced renewables integration.  Definitions and functionalities abound, but for India, the killer apps are likely to be different.  In the West, labor costs for meter reading and connections/disconnections have been one driver, in addition to pressures due to renewable energy and electric vehicles, as well as concerns on handling the peak on aging infrastructure.  In India, the short-term needs include reduction of losses (both technical and financial) and keeping the grid in balance (especially given shortfalls).  Focusing on these applications, and viable price points, will make or break Smart Grids in India. 

Theft reduction is important, but the scope, on average, may be about 13-15 percent, without grid upgrades to reduce technical losses (which are higher than in comparable countries).  In contrast, the demand is expected to grow several hundred percent over the coming decades.  Today’s challenge is meeting the peak load, due to which outages (feeder level “load-shedding”) are common, and load management will be very important for a power-deficit nation.  Instead of load-shedding, can all consumers not be guaranteed a minimum supply (e.g., 100 watts or 200 watts, enough for lights and a fan), even during deficit periods? If they want more, they could then pay a small surcharge (with regulatory approval).

It’s important to recognize that Smart Grids are only a means to an end, an enabling infrastructure (one could provide 50 watts or 300 watts as “lifeline” if one wished).  You also don’t need a Smart Grid to cut down theft.  In a few Indian utilities, professional operations and political will have worked. But Smart Grids make it much easier to reduce leakage.  It’s not as if the utility doesn’t know what is going on and where. But now one can have irrefutable data, instead of ad hoc and assumption-based calculations. 

Why Smart Grids Can Now Succeed in India

Today, Smart Grids in India have become a distinct possibility, instead of a science experiment.  The new Narendra Modi government has announced a vision for 100 Smart Cities.  Importantly, over the last five years, India has moved ahead from “What is a Smart Grid?” to “What does it mean for India?” (partially answered) to “How do we do it?” Yes, there has been hype (e.g., the cover of a business magazine showing the Badshah [emperor] of Bollywood,  Amitabh Bachchan, with a Smart Meter), but there has been consistent (even if sometimes slow) steps towards Smart Grids, including the recent National Smart Grid Vision and Roadmap. 

The technology has also improved over the last few years with standards for many components.  While ongoing, such efforts have led to solutions that take far less customization than before.  It’s not an off-the-shelf solution (yet) but price-performance points are now becoming interesting, even for a price-sensitive nation like India (where the median household electricity bill is only a few US$/month).   India’s IT skills are also world-class, and labor costs are low. In France, the national utility’s pilot showed smart meter installation costs of over 40 euros! 

Probably the greatest reason these can work is a willingness to change – people are sick of business-as-usual.  The government recognizes the issue of utility losses (many billions of dollars per year), and consumers hate losing power and paying for back-up power (also to the tune of billions of dollars per year).  This has an impact on GDP growth reportedly of several percent.  In the U.S., to save a dollar or two per month, consumers may not get that excited (what I call the “Smart Grid Slice of Pizza Syndrome”), but in India, if you tell consumers that with modest modifications to their usage patterns, they can save Rs. 50/month (with time of day pricing), or avoid outages, many will jump at it.  Modest? They already face extreme (involuntary) engagement with the grid – most lose power weekly if not daily, and expensive back-up power only covers part of their load.

Costs, alternatives, and options

“If you think education is expensive, try ignorance” – Derek Bok.

Certainly a Smart Grid has costs, but what are the alternatives? Load-shedding is artificially cheaper (as utilities avoiding buying costly peaking power) but this just passes the burden on to consumers.  Just imagining smart meters as avoiding meter reading costs (which are low in India) is a false comparison, or rather, can be considered Parmenides Fallacy (comparing the future to the present, instead of alternative futures).  With a smart grid, not only is meter reading far more accurate, one can get load profiling, outage detection, theft detection, time of day pricing, and congestion planning as well. 

To end load-shedding, one option that has worked well is the “Gujarat Model” which included rural feeder separation (which itself has costs).  However, some of the other states that tried something similar achieved less stellar results.  This is because of inherent differences in consumer profiles, availability of supply (generation), and sheer political will.  A smart grid isn’t an alternative to that – it is the next step where separation and granularity isn’t just at a feeder level, but can be down the household level. 

Recommendations for India’s Smart Grids

1)      Focus on consumers (and utilities), their needs, and think bottom-up

Smart Grids work when you get the design right. They fail when consumers don’t want them.  Consumers need carrots (e.g., no more load-shedding) and not just sticks (e.g., theft detection). Engaging consumers need to require the Internet or even a fancy in-home display – one could use mobile phones and text messages (SMSes), which are ubiquitous in India.

Too much of Indian smart grids today are top-down driven, if not vendor/consultant driven.  Utilities have their hands full trying to implement the Flagship R-APDRP program, which can be considered a pre-cursor to Smart Grids.  Both efforts need to synergize to avoid duplicated or wasted effort. 

2)      Improved if not innovative financing and accounting

1. Innovative doesn’t mean convoluted Wall Street-type instruments, just improved granularity and accuracy. Instead of average costs, one has to account for marginal costs and time of day costs.  
2. Use societal cost benefit analyses (CBA) for proving the business case of Smart Grids, instead of utility Return on Investment (ROI).  If a Smart Grid ends load-shedding, as of now the utility doesn’t benefit financially, but the consumer saves on back-up power.  A ROI will not capture this, but a CBA will. 
3. Consumers today pay for electricity meters – can they pay for a smart meter? A modern digital meter can cost about Rs. 1,000 (almost $20), so can they cover the incremental estimated Rs. 1,000 for a simple smart meter? This isn’t the full system cost, but the utility could cover shared infrastructure, telecoms, data center, analytics, and more.  This is akin to the telecom concept of houses with tails, where the last hop optical fiber costs are borne by the household, in exchange for a network this can simply plug in to. 

Is this fair? First, if the utility buys the smart meter, ultimately it charges the consumer down the road. Second, regarding affordability, in most urban areas, the most basic of homes costs many hundreds of thousands of rupees (in Mumbai, there are single-room slums that builders have paid Rs. 10,000,000 for).  This cost is a small price to pay for improved electricity.

3)      Learn, try, innovate

If anyone says they have a perfect, ready smart grid at the Indian price point, with modularity, interoperability, security, and other important features, then either they’re unaware, or trying to sell you something.  Smart grids need effort, and the 14 nationally supported Pilot Projects are a step toward rollouts. Better pilots would differentiate between learning and deployment pilots.  India also needs innovation to handle communications and other challenges, not to mention usability and consumer engagement needs. An in-home display is available, but too expensive (if not complex) today.  The government is planning a Smart Grid Mission, which can help drive both funding and policy. Importantly, the real challenge is not at the center but with the states, which are resource-constrained, both in skilled manpower and cash.  

Challenges with Smart Grids remain, including relating to the technology, especially communications.  Rural areas have limited cellular (data) coverage, and urban areas are cellular congested, and RCC-type dense construction with apartments doesn’t help in urban areas.  But these are surmountable. 

Probably the single biggest challenge is one of mindset.  To a utility, nothing looks cheaper than load-shedding. But it should be disallowed.  We can and should be granular.  We already differentiate consumers and tariffs. But now we can do it smartly, in a transparent, equitable, and efficient manner. 

Smart grids have been described as a work in progress, a journey, with different utilities worldwide at different levels of implementation.  If these are tough to get right in developed regions, do Smart Grids make sense for India, which is still struggling to keep the lights on (and provide access)?  Smart Grids can and should look different in different places, and an Indian Smart Grid becomes not only an option but, likely, an inevitable transformation of the grid.  Why? Because business as usual just will not meet India’s aspirations in terms of speed, economics, and sustainability. 

      

 

 

Challenges of Renewable Energy Sources: Global Plus India-specific

Renewables in India are different from renewables deployed in the U.S., Europe, etc. and understanding these differences is key to viable policies. The triad of “usual” challenges of renewables remains in India, such as (1) intermittency/variability; (2) location-specific potential (concentrated in areas sometimes away from consumers or the grid; and (3) higher costs. However, there are specific differences and needs that demand deeper analysis for the long-run viability of renewable energy. Making renewables viable for producers is easy—pay them enough—but can the rest of the system handle that? Because of pricing subsidies as well as high losses (both technical and commercial, i.e., theft), utilities already lose on average about a rupee, if not more, per kilowatt hour sold.

One of the typical calculations that power systems operators do is estimate how much renewable power the grid can handle. Typical figures from elsewhere are in the range of 20-30 percent , with more requiring significant investments in transmission or peaker plants. India is different because its grid is very weak and unstable, and instead of having a reasonable reserve margin (typically 15-20 percent in the west), there is a shortfall in the grid, officially in the range of 5 percent or so, but actually much higher. Even the Grid Code is modest, recommending (but not mandating) only a 5 percent margin.  The grid is kept afloat through massive “load-shedding” (feeder-level cutouts of supply). Such load shedding even impacts options like rooftop solar, since grid-tie inverters are designed to switch off during outages or faults, for safety reasons. But if the grid is down so much, then the economics of rooftop solar takes a massive hit due to non-supply of power.

There are other technical reasons why the Indian grid is weak, including lack of ancillary services (systems designed to keep the grid stable, instead of just pricing kilowatt-hours), and even a lack of time-of-day pricing for bulk procurement of power. There are few peaker plants (which would operate only some 5-10 percent of hours in a year), since there isn’t sufficient incentive for these. Without incentives for plants that can ramp up (or down) quickly but may not get used much, how will the grid handle 20 percent renewables? Even worse, the types of plants capable of fast ramping are limited in near-term growth in India—hydropower (due to land and social/environmental challenges) and natural gas (due to supply constraints).

What Is the Problem You’re Trying to Solve with Renewables?

Germany is touted as a model for rooftop solar programs. India gets some 20+ percent more sunlight, and labor costs are lower. But that would only bring the cost of such systems down from about Rs. 20/kWh to perhaps Rs. 13/kWh, still some four times higher than the average household tariff. Much more importantly, Germany and other countries are solving an energy (kWh) problem—India is still working to solve the capacity (kW) problem. Solar does not contribute in the evening, which is when India’s peak demand occurs (driven by lots of small residential and commercial users). Thus, even if India adds 20 GW of solar, it still needs 20 GW of additional capacity to meet its peak, and the picture is almost as bad for wind because of its strong seasonality.

This is also one reason why renewables aren’t a panacea for rural electrification. Beyond the issue of the evening peak, most optimal renewables (except solar) are village-scale, if not larger, not household. One still needs a last-mile connection. At that point, the grid becomes more attractive (given it reaches the vast majority of villages already), especially as demand grows rapidly once a household is electrified.

Renewables Are Vital and Worth Supporting, but Need Honest Accounting and Extensive Planning

Where are renewables headed? They will certainly grow, especially because of support mechanisms (for more background information, see my chapter on Renewables in India, commissioned for the Economist Intelligence Unit’s special report on Energy in India). The national government has immense support mechanisms, from a dedicated Ministry to various Missions and Programmes, but do consumers support renewables? Will they pay a higher price for them? Or, are they just too concerned with lack of access/supply?

There is another dimension, one that impacts policies – the role of the state-level distribution utilities (which are the real decision-makers when it comes to renewables). In almost all states, the steps utilities have taken toward renewables have been top-down imposed, whether through state policy, or regulatory requirements, or even a renewables portfolio obligation (RPO). Talking to many utilities, they ask a tough question: Why should I encourage an unpredictable and non-dispatchable source of power that costs much more than my average supply costs, but offers a Plant Load Factor (PLF, aka capacity utilization factor) close to 20 percent (coal plants easily operate at 75-80 percent PLF)? Of course, utility cost calculations are based on them having older and “cheaper” generation stations in the state, which offset the costs of more expensive “external” power (whether from Central Generation Stations like NTPC or private producers).

When we factor in the price of new generators, especially coal (which is often imported), renewables don’t look as expensive anymore. Plus, the cost of fossil fuels is only rising, not to mention subsidies or preferences given to fossil fuels, let alone costs of externalities such as pollution or even carbon. This is why, among other reasons including large scope for growth, employment, and perhaps exports, renewables should be pursued.

Recommendations

To help integrate renewables better into the grid, a few recommendations for India include:

(1)    Move toward time-of-day pricing for bulk supply, including peak pricing (this is easier than consumer time-of-day pricing, and can come first).

(2)    Enhance storage solutions and deployments.

(3)    Improve measurements, predictions, and analysis for wind and solar generation, including data sharing.

(4)    Begin ancillary services in the grid.

(5)    Deploy smart grids to make demand more dynamic and grids robust.

(6)    Improve planning and accounting for renewables (rather, all generation), factoring in their burden on the rest of the grid such as transmission congestion.

Renewables have been called the energy source of the future. With proper effort and planning, that future can start much sooner.