India’s $122 Billion Energy Stimulus a Mixed bag for its Energy Transition: Report

A new report shows the government’s stimulus for the energy sector, despite being the largest, is a ‘mixed bag’ for its energy transition

While India has committed more public money than any other economy to date – at least USD 122 billion (~Rs 8.8 lakh crore) – to support the energy sector since the start of the COVID-19 crisis in early 2020, a new report shows the government’s stimulus is a ‘mixed bag’ for the country’s energy transition.

The Government of India continues to promote a greener recovery by committing USD 35 billion (28.5 percent) of the USD 122 billion total in energy-related funding to renewables, almost twice the USD 18 billion (15 percent) flowing to fossil fuels. However, the largest proportion of support for energy by far is being spent on policies categorised as ‘other energy’, some USD 69 billion (56.5 percent), with little public information available on whether this recovery funding is going to policies that promote sustainable energy, or energy types and sectors with high carbon emissions.

In a new joint report called How Green is India’s Stimulus for Economic Recovery?, the Institute for Energy Economics and Financial Analysis (IEEFA) and the International Institute for Sustainable Development (IISD) reviewed energy-related policies from the Energy Policy Tracker (EPT), to determine what India can do to promote a greener economy recovery in 2021.

The Energy Policy Tracker (EPT) is a database developed by the IISD and other organisations that use official government sources and other publicly available information to track energy-related COVID-19 recovery policies across major global economies. The EPT is updated frequently – as of 3 March 2021, it shows that 31 major economies have pledged over USD 686 billion to supporting energy through new or amended policies since January 2020 (energy-related funding from President Joe Biden’s new USD 1.9 trillion American Rescue Plan is not yet included).

Of this overall amount, USD 274 billion (40 percent) is committed to fossil fuels, USD 259 billion (38 percent) to renewable energy, and USD 153 billion (22 percent) to “other energy”, such as nuclear power, first-generation biofuels or policies that support multiple sources of energy. By comparison, more than half (56.5 percent) of all public money committed to energy in India is supporting ‘other energy’.

“According to the EPT, India has committed more public money to the energy sector than any other economy globally since January 2020,” says lead author Vibhuti Garg, IEEFA Energy Economist, Lead India. “We estimate that around 22 percent of the value of these public money commitments are primarily to deal with the impact of COVID-19 and the rest is to meet the government’s ongoing policy objectives on energy security, air pollution and climate change.”

“We are concerned India’s ‘other energy’ policies may disproportionately benefit fossil fuels, despite the fact they are not targeted at fossil production or consumption exclusively,” Garg added.

At the moment, India’s policies in ‘other energy’ largely support transmission and distribution companies in the power sector. For example, the liquidity support to Discoms to build infrastructure, modernise the grid but primarily to settle payment dues to generators will support the dominant fossil fuels generators more than renewable energy. Also, state-level fuel policies, transport policies, development of power projects and transmission infrastructure are categorised as ‘other energy’.

The report points out that India’s energy-related commitments in the EPT are only an “at least” value and could, in fact, be much higher than USD 122 billion.

“The EPT only quantifies the cost of a policy that can be drawn from publicly available sources,” said co-author Max Schmidt, a Carlo Schmid Fellow with IISD. 

There are many measures for which values are not available from official documentation such as support for commercial mining of coal, pushing back timelines to install pollution control technologies for coal-fired power plants, adding 100 more districts to the City Gas Distribution network, but also the excellent capital support of 25-year power purchase agreements and waiving inter-state transmission charges for renewable energy. “With more transparent reporting, we would likely see support skewed towards fossil fuels rather than renewable energy. But as of now, the picture in India is incomplete,” added Schmidt.

As India starts to recover from the COVID-19 pandemic, the report authors make six recommendations for a green recovery in 2021.

1. Strengthen green industrial policy: As part of restarting the economy, the government should invest in India’s capacity to manufacture for the green energy revolution.
2. Invest in large-scale RE grid integration: Instead of just investing in trying to fix the problems of its existing electricity distribution system, India needs to start investing in the distributed system of tomorrow.
3. Improve energy access: Increase adoption of distributed rooftop solar energy sources and energy efficiency measures. These are low-hanging fruit that would help alleviate discom woes while making power more reliable and helping in job creation.
4. Compliance with environmental norms: Avoid further rollbacks in standards and lock-in of fossil fuel assets. Achieving energy security through domestic production that does not exacerbate air pollution, undermine forests or the climate crisis should be the priority.
5. Improved targeting of subsidies and fossil fuel taxation: Targeting of subsidies to the intended beneficiaries and the savings to be redirected for promotion of clean technologies. Increase fossil fuel taxation and attach more conditionalities to new fossil projects in order to level the playing field.
6. Unlocking finance: Government should work on resolving policy and legacy issues to attract global and Indian financial institutions to bring in more capital to the deflationary, domestic renewables sector.