The Finance Minister’s Budget speeches have been giving increasing emphasis to green growth. This has followed Prime Minister Narendra Modi’s announcement at COP26 that India would have 500GW of fossil fuel-free capacity by 2030 and it would become net zero by 2070. Affirmation of these commitments in the Budget speech would send the right signals. For reaching net zero, the sooner the use of fossil fuels peak, plateau and then begins to decline, the lower would be the ultimate cost of getting to net zero for individual firms as well as the economy.
Major investment decisions by all investors need to appraise their options through this prism. This would prevent sub-optimal, lumpy, capital investments in the fossil-fuel economy.
Renewable Energy (RE) capacities are being created by private investment with declining costs in a competitive industry structure. RE combined with storage for round-the-clock supply is now cheaper than new thermal power. Scaling up and achieving 500 GW of fossil fuel-free capacity by 2030 requires a huge increase in the capacities for which RE bids need to be invited.
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This intention with numbers should be announced. RE now requires large-scale storage as its generation is intermittent and inflexible whereas the demand to be met is variable. An ambitious plan for creating storage by the invitation of bids should also be in the Budget Speech. This would get potential investors to prepare for the large storage market that would be created. Both river and off-river hydro pump storage are attractive options. The technology of concentrated solar thermal energy being stored in molten salt to run a conventional thermal turbine has also become mature and cost effective. These storage projects have a large capital cost, a very long life and nominal running costs. The bid prices would be considerably lower if long-term rupee debt at fixed rates is made available to potential developers. The Finance Minister could announce this. Instruments such as government green bonds are already in place. Conceptually, government needs to assume some contingent liability for long-term fixed interest rate lending. India could become a global leader in large scale grid storage.
The ambition to become self-reliant should be a major theme of the Budget. The production of solar panels with full value addition in India over the next five years is an achievable goal. Our market size is large enough to support globally cost-competitive manufacturing with new, state-of-art production plants. The PLI (Production Linked Incentive) policy instrument should be crafted to get investors to put up plants with full value addition in India. One simple way of achieving this is for government to invite bids for procurement of solar panels with full value addition in India and for the supplies to be for five years from a future date giving reasonable time for a new plant to be built.
With assured offtake at a price which gives returns, the investment would become risk free, resulting in a good investor response. This government procurement would not be in contravention of our WTO commitments. Repeated bids should be used to create a competitive industry structure as has been done for development of grid scale solar projects and to get lower prices through competition. There should, if required, be a willingness to initially pay somewhat higher prices compared with the price of panels imported from China. The use of these government-procured panels can be made mandatory for the roof-top solar panel programme for one crore households announced early this year, for the government subsidised Kusum programme for using solar panels for pumping groundwater for irrigation, by the Railways, in government buildings, defence establishments and campuses of government-financed institutions. The Budget could also announce the goal of becoming self-reliant in the production of batteries for electric vehicles and the electronics that go into them over the next five years by extending and fine-tuning the PLI and FAME (Faster Adoption and Manufacturing of Electric Vehicles) programmes.
National Hydrogen Mission
There is an ambitious well-funded National Hydrogen Mission. This is positioning us well for the use of green hydrogen produced at a globally competitive cost for downstream carbon free production. This gives us an opportunity to leapfrog and become a competitive green manufacturing hub for the new, green global economy that would replace the existing fossil fuel-based economy. We need to outgrow our traditional mindset and welcome, rather than oppose as a new non-tariff barrier, the new European tax on import of goods depending on the carbon content of the entire value chain going into its production, the CBAM (Carbon Border Adjustment Mechanism). Indian industry has been very progressive in trying to reduce its carbon footprint and aiming at becoming net zero. Many have been going in for captive solar plants and the use of electric vehicles. But firms, especially MSMEs, exporting to Europe would gain by government support in reducing their carbon footprint. The Budget speech should announce government’s intention to do so. For this government would have to create expert groups for each industry segment which would evolve the pathway for induction of new technologies in the whole value chain. The easy part would be mandating real time supply of carbon free electricity, albeit at a higher price, by all electricity supply companies for industrial customers who demand such electricity. A small firm could buy carbon-free electricity for production and electric vehicle charging stations could use such electricity making the logistics of the supply-chain carbon-free. For capital investments for using a low/zero carbon production process a dedicated financing facility may be created. Where necessary government could provide credit guarantees and/or an interest subsidy depending on the sector expert group’s assessments.
We could then hope for a surge in the export of low-carbon goods. We may achieve the success in the export of manufactured goods that has been eluding us so far. Our journey to net zero would proceed faster.
(The writer is Distinguished Fellow, TERI)
Published - July 13, 2024 07:00 am IST
