The role of markets, technology, and socioeconomics in India's sustainable energy transitions

There is great optimism in India that rapid economic growth will lead millions out of poverty. And for a young and vibrant population, the aspirations for change are high. Availability of affordable, clean energy will be vital to realizing the ambition of fast economic growth in all sectors of the economy.

India is well on its way to moving from reliance on fossil fuels to renewable energy. The country has made real strides—cutting its dependence on carbon-based fuels to help combat climate change. This watershed shift has the dual advantages of 1) improving energy security, as renewables are local and oil is not, and 2) providing clean energy that eliminates externalities like pollution and emissions. But, the transition requires shrewd choices, careful management, skill, and sensitivity.

Optimism at the pace of change

As one of the world’s biggest emerging economies, India is working hard to make progress towards its agreed 2030 climate goals from the Paris Accord. The country aims to reduce greenhouse gas emissions intensity of GDP by 33-35%, increase renewable energy to 40% of installed power capacity, and enhance its carbon sink by three billion tons of CO2. These efforts have the potential to keep India’s per capita emissions at less than the current global average—while at the same time meeting growing energy needs.

India’s achievements are already ahead of expectations. For example, it reached 35% of installed power generation capacity from renewable sources before the end of 2019. Confidence is such that Prime Minister Modi raised the target for non-fossil fuel capacity from 175 GW to 450 GW by 2030.

The country is implementing similar path-breaking initiatives for energy consumption. The conversion of India’s streetlights and household lights to LEDs by EESL is already a well-known success story, and countries across the globe are replicating the model—including developed nations such as the UK.

"Now hailed as a clear global leader for clean energy-based economic development, India is irrevocably on its way towards energy transitions. However, the path forward is trickier than it seems."

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The change will require newer technologies, redefined markets, and socioeconomic sensitivity to ensure success.

The challenges

The challenges involved with smooth energy transitions are enormous. These hurdles include:

• Providing energy to all citizens at an affordable cost.
• Bringing the required private capital to invest in generation and distribution of the vast amount of energy.
• Supporting the industry in adopting cleaner technologies to reduce carbon footprint.
• Reducing and removing the externalities associated with current fuel mix choices.
• Communicating the benefits of clean energy to all.

Such hurdles along the way are inevitable. And, they require a new—and fundamentally different—approach that is well-suited to India’s specific situation but borrows from the best practices globally.

Solutions

While these challenges might appear to hinder India’s goals for harnessing clean energy, they also provide opportunities for the country to make tangible progress. India will experience new possibilities as part of the shift—creating new jobs, markets, and skills. Opportunities for investment abound, and the same goes for partnerships and other creative collaborations to support India’s ambitious plans. Building upon this approach is arguably the richest route to exploiting benefits for India’s growth and development.

Three key areas are particularly important for smooth energy transitions in India and must be better understood:

• The role that markets can play in enabling smooth energy transitions.
• How technology choices will enable cleaner generation and efficient consumption.
• Identifying and managing the social impacts of energy transitions.

All three contribute to a range of approaches that employ global expertise and can adapt to best suit India’s needs.

The role that markets can play in enabling smooth energy transitions

Energy markets in India are already changing. On the generation side, the country is re-modeling power markets, setting up competitive gas markets, and freeing up coal mining and sale for the private sector. On the consumption side, there is the generation and trade of energy savings certificates from the Perform Achieve and Trade (PAT) scheme, and Renewable Purchase Obligation (RPOs) and Renewable Energy Certificate (RECs) are in play. For emissions, the government is designing market-based mechanisms for select sectors. Plus, there are talks of a meta GHG registry to enable carbon markets, along with the testing of pilots for pollution markets. While these are great steps, markets across the full energy value chain stand to benefit from integration. The entire energy value chain is inextricably linked, and any signals in one market of the energy value chain affect the other components. There is not only a need to understand this critical link between markets but also to make this link workable. The proper functioning of integrated energy markets is vital for the sector to gain investment.

With proper understanding and intervention, different markets will achieve greater success with specific plans to accomplish shared outcomes collectively. Such an approach also ensures that policy and regulations for market design are aligned coherently across the value chain.

How technology choices enable cleaner generation and efficient consumption

For maximum results, a shift to cleaner energy requires an underlying knowledge of the use of energy efficiency and renewable technologies. Expertise is also useful in applying hard and soft technology options in situ to provide additional impetus for the switch to clean energy. For example, India needs cutting-edge knowledge about hard technology developments in material sciences; new battery chemistries; Carbon Capture, Utilization, and Storage (CCUS); hydrogen; and other energy transition technologies. Soft technologies such as data analytics, embedded AI, and predictive modeling of consumer behaviors provide practical prospects for moving to an efficient, world-class energy system. Together, these hard and soft technologies will reshape the future of energy and, potentially, its usage.

India has a well-developed Information Technology sector and can leverage in-house capabilities to its advantage. But in order for India to do this, it must first understand the transformative potential of these technologies and identify mechanisms to support their widespread adoption. This process necessitates initiatives in R&D, technology transfer, scalable pilots, robust business models, financing mechanisms, and a supportive policy and regulatory environment.

Identifying and managing the social impacts of energy transitions

Ensuring successful energy transitions in India will require a thorough appreciation of the socioeconomic context of the country. Understanding the underlying drivers for energy usage, appreciating the perspectives of various stakeholders, and engaging them in meaningful dialogue is essential. Technologies and solutions that do not attain local acceptance and buy-in at the grassroots level will likely fail to deliver the results expected.

India will want to leverage expertise and understanding to raise people’s awareness of the benefits of energy choices. The population will welcome the move to cleaner energy if its advantages are quantifiable, tangible, and well-understood. Communication programs designed to introduce and embed the reasons for change among the population will help contribute to the success of the energy transition.

India has a real opportunity to benefit from global knowledge and expertise on these issues—applying them to local conditions in a way that leads to successful energy transitions. The world is watching, and the impact of smooth energy transitions will reach far beyond India’s own borders.