Parties to the historic Paris Accord on climate change signed in 2015 meet in Bonn next week, and their discussions will inevitably veer toward the Donald Trump-led US administration’s decision to exit the Accord. US is the second-largest greenhouse gas emitter in the world, in per capita terms as well as in absolute volumes. The upcoming summit takes place amid growing concerns that the US move may encourage other countries to abdicate their responsibility to rein in greenhouse gas emissions.
With the US withdrawal, all eyes will turn toward the moves China and India make. Although both emerging economies have relatively lower per capita emissions compared to developed economies, they still rank among the top three emitters in absolute volumes.
Shortly after taking charge as prime minister, Narendra Modi signalled a pivot to renewables as a major way in which India will seek to fight climate change. He set an ambitious target of setting up 100 gigawatts (GW) of solar capacity by 2022, which stood at just 4.3GW in 2015, on the eve of the Paris Accord.
So far, progress has been impressive but at 13GW of installed solar capacity in mid-2017, India has only reached a tenth of the target. And it is uncertain whether solar capacity will continue to grow at the same pace in the years ahead.
Nonetheless, India’s installed capacity to produce electricity from renewable energy sources—mainly wind and solar—currently stands at around 58GW, which is among the top five in the world. This excludes hydro power capacity.
Over the past two years, India has stepped up the overall share of renewables in its energy mix. India committed to raise the share of renewables in installed capacity to 40% by 2030 compared to 18% currently. Under its “Intended Nationally Determined Contributions” (INDC) commitments, India will seek to reduce its emissions-to-GDP ratio by 33-35% by 2030 from 2005 levels.
However, India has continued to add coal capacity over the last two years. Contrast this with the US, where installed capacity in coal fell almost 23GW or 8% between December 2015 and August 2017.
It is also worth noting that coal-based thermal power plants in India have declined in importance over the past few years partly because of commercial considerations. The pile of bad debt and overcapacity in the sector has made investments in new thermal power plants relatively unattractive. As these problems recede, coal might start looking attractive once again, at least from a commercial point of view. And given that coal remains the cheapest source of power, it will continue to be a tempting option for an emerging economy with a large power deficit. According to the International Energy Agency, 18% of India’s population did not have access to electricity in 2016.
A lot will depend on whether the growth in the renewable sector is sustained. At the moment, things do not look very bright for solar. The reverse auction system, where solar power development projects are awarded to the lowest bidders, has raised concerns over the sustainability of solar power companies. Too few solar projects and too many solar companies have pushed companies to bid aggressively for low tariff rates, raising concerns about their balance sheets. SunEdison, a US solar giant with interests in India, filed for bankruptcy last year.
Solar tariff rates have fallen significantly in India, prompting states to try and renege on offtake commitments that had been negotiated at higher rates earlier. Capacity utilization in solar is also low (around 20%) as opposed to coal (about 60%) owing to the challenge of storage of energy and grid integration.
The uncertainties in the renewable space could prompt a rethink on India’s energy mix, and make India renegotiate the commitments made two years ago. It remains to be seen whether India signals that shift at Bonn, or chooses to stay the course for now.