December 06, 2018

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Renewable Energy: The Road To Sustainable Development

- Abhijit Mukhopadhyay, President (Legal) & General Counsel (Europe) [ Hinduja Group, London ]


Till recently, branded a polluting country, India is now emerging as a destination for sustainable development through sustainable energy...

This article discusses sustainable development through sustainable energy. This topic is of high relevance especially for India when for quite some time our metropolitan cities have been classified as among the most polluted if not the most polluted cities in the world. We are not alone in this matter. We are in a good company of the US and China, with the US being the most polluted industrialized country in the world. Therefore, international action and discussion on this issue are indispensable at this stage.

Global Perspective

Internationally, the signing of the climate change agreement in Paris in 2015 was an important step to draw attention to this matter and to act to reduce global warming by 2% in the next decade. The US was a party to it, but unfortunately, the new President who was opposed to this agreement even during his election campaign has finally withdrawn from the agreement. This Paris Agreement calls for sustainable development to ensure access to affordable, reliable and sustainable, and modern energy for all as one of the 17 goals for 2030. It aims at universal access to electricity and clean cooking fuels doubling the rate of improvement of energy efficiency and doubling the share of renewable energy through public and private finance.

India, though branded as a polluting country, played a major role in the Paris Agreement. In the last 3 years, India has taken the lead towards sustainable energy in the areas of wind power, hydropower, biomass, and biofuel. It was instrumental in creating International Solar Alliance (ISA), which is an alliance of 121 solar-resourced rich countries. ISA was jointly launched by Prime Minister Narendra Modi and then French President Hollande on 13th November 2015 in Paris.

In conformity with the ISA Framework Agreement which was signed on 15th November 2016 in Morocco, it became a treaty on 6th December 2017, with its headquarters in India. The main objectives of the ISA are to use solar energy massively and to innovate to reduce its generation cost as also to mobilize USD 1 trillion of investments by 2030. India has committed `175 crores for setting up of ISA and till date, released `145 crores.

During the inauguration of the first assembly in October this year, the PM stated that India’s target is to generate 40% of her total energy requirements in 2030 by non-fossil fuelbased sources. He also said that efforts have been made to make India’s transport system clean fuel based. There is a plan to launch National Energy Storage Mission that will look at technology development and policy framework. This initiative has received the support of the United Nations in the presence of its Secretary General.

In the first assembly of the ISA, the member States have agreed to pursue an increased share of solar energy in the final energy consumption in respective national energy mix. Till date, 70 countries have signed the framework agreement and it is hoped that the use of solar energy will get a boost. However, despite the best of intentions, trillion dollars of investments in sustainable energy can be affected by many factors including market size, country risk, and financial markets. The most important factors remain the policies and regulations of individual countries and attitude of the government in creating sustainable policies. Sometime back under the auspices of the World Bank, a group called RISE launched a survey in the area of sustainable energy. In its 200-page report, it has brought out the status of progress in sustainable energy by studying the situation of 111 countries. The group’s findings are pretty interesting, some of which are highlighted below:

a) Almost 80% of the 111 countries have begun to implement elements of supportive policy frameworks. In the policy formulation segment, around 45 countries are already at a reasonably advanced stage. Unsurprisingly, high-income OECD countries have stronger policy and regulatory frameworks.

b) About half of the 45 countries with strong policies are emerging economies. They are South Africa (Africa), China, India, Malaysia, Thailand and Vietnam (Asia), Brazil, Chile, Columbia and Mexico (Latin America), and Algeria, Egypt, and Iran (Middle East). Central Asian countries like Armenia, Ukraine, etc. also have effective policies.

c) Of the world’s largest energy consumers, 7 offer strong policy frameworks. However, it is sad that there are many countries, especially in Africa, where either policy is non-existent or there is no access to energy.

d) In sub-Saharan Africa, about 600 million people in Ethiopia, Nigeria, and Sudan have very limited access to energy, let alone clean energy. The population of these countries has access rates below 20%.

Indian Perspective

I believe that India is emerging as a destination for sustainable development through sustainable energy

India has time and again reiterated its commitment towards clean energy and reducing carbon emissions. India’s increased thrust on renewable energy was reflected in the 2015 national budget, which set a fivefold increase in renewable energy targets to achieve 175 GW by 2022 comprising 100 GW solar, 60 GW wind, 10 GW biomass, and 5 GW small hydropower capacity. The conventional coal-fired thermal plan, which is around 70% of the total capacity, dominates the existing power generation. If we see the world scenario, though in many countries sustainable energy policy is available, they are not backed by an effective regulatory framework. Even in countries where regulatory framework is available, very few countries have made serious progress in investment in energy-efficient appliances or investment in grid corrections.

In my opinion, India faces three major challenges affecting the growth of sustainable energy:

1. India has a quasi-federal Constitutional structure where legislative and executive powers are delineated between the Centre and the states. The Seventh Schedule of the Constitution designates subjects over which the legislative power is assigned to the Centre (List I), states (List II), and concurrently to both (List III). Electricity is a concurrent subject under Entry 38 in List III; therefore, both Centre and states can legislate on this matter. Matters relating to inter-state transactions are in the Centre’s domain, while states are responsible for the inter-state sale, purchase, distribution, and supply of electricity. However, in practice, the demarcation of power between the state and Centre is not as simplistic. Concurrent jurisdiction prevents the Centre from directing the states to take specific action. This can be observed in the manner that the Central Electricity Regulatory Commission (CERC) and the State Electricity Regulatory Commissions (SERCs) function.

Therefore, while the Central Government’s thrust on development of renewable energy is apparent, the Constitutional framework prevents the Centre from realizing its vision without the support of the states. While the Centre can facilitate and incentivize the states to achieve renewable energy targets, it cannot overstep the bounds of concurrent jurisdiction to implement or penalize non-compliance by the states. States have often used this Constitutional authority to push back on reforms spearheaded by the Centre which do not further their political agenda.

2. State distribution companies (Discoms) are by far the largest purchasers of electricity, including that from renewable energy sources. Therefore, the ability of the Discoms to purchase such power lies at the heart of the success of the national-level directional shift from conventional to renewable power. However, presently, Discoms are reeling under massive debts and their actions are often dictated by local political factors rather than the achievement of operational and technical efficiency. Working towards the ambitious national renewable energy targets necessarily requires a revamp of the electricity distribution sector. Major legislative amendments and policy changes have been made and are underway at the central level to create an enabling environment for the nationwide growth of renewable energy.

3. The enactment of the Electricity Act marked a paradigm shift within the power sector towards a globally competitive model, with an emphasis on renewable power. Section 86(i)e of the Electricity Act specifically included promotion and cogeneration of electricity from renewable sources of energy and setting of RPO targets among the functions of SERCs. The Electricity Act also empowered the SERCs to specify the terms and conditions for the determination of tariffs, and in doing so, they should be guided by ‘the promotion of cogeneration and generation of electricity from renewable sources of energy’. The Electricity Act aimed to make power distribution more transparent and accountable by unbundling the state electricity boards, resulting in the formation of independent companies with separate financial accounts for the generation, transmission, and distribution of power, set up of independent regulatory commissions at the state and Central levels and the Appellate Tribunal (APTEL). However, problems in the sector persist with the corporatized entities continuing to function as public enterprises. This throws some light on why even 13 years after the enactment of the Electricity Act, Discoms are reeling under a cumulative debt of `4.3 trillion. Reasons attributable to this debt include commercially unviable tariffs, losses from theft coupled with transmission and billing inefficiencies. The adverse financial condition of the Discoms affects their creditworthiness and therefore further prevents them from raising debt for the renewable energy sector; the financial condition of Discoms is particularly relevant since Discoms are the biggest off-takers of renewable power.

In conclusion, I believe that India is emerging as a destination for sustainable development through sustainable energy. Actions and policy measures taken by India raise hopes for a better living environment. This is remarkable considering that until recently, India was classified as a polluting country. In Hinduja Group, we have started investing in solar energy. Today, we are operating a portfolio of 125 MW and have also recently acquired 2 solar companies and are in discussions with several others to expand our solar portfolio. Therefore, it seems that India through its initiatives is leading by example and is making a mark in the world.

Disclaimer – The above are the personal views of the author


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