The first major challenge is that while the targets are set top-down, the real action happens at the state level, and the state utilities that buy RE are taking losses, which represents an enormous counter-party risk for RE developers.
The second challenge is the inherently intermittent nature of RE, whose nominal costs are relatively inexpensive. But when system-level costs (e.g., those of transmission and other generators that have to balance the grid) are considered, RE costs increase. Today, these hidden or system-level costs are more than 50% higher than figures typically circulated in the press. This is before accounting for the eventual need to add storage technologies — since RE’s output is not just variable but often doesn’t coincide with grid demand, which peaks in the evening — and the stress higher RE will place on the rest of the coal-heavy system.
With better grid management, higher transmission (important, as most RE is concentrated in a handful of states) and demand shifting to match supply, RE’s system-level costs should come down.
The bottom line: India may take longer to reach its targets, and expectations should be realistic. However, growth still remains impressive, and even with a delay, India is on track to meeting its Paris commitments.
Dr. Rahul Tongia is a Fellow with Brookings India, where he leads the energy and sustainability group.
