Renewable Energy Policy in India
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India is leading the way in renewable energy expansion among developing countries. India’s current total renewable power capacity (without hydro) ranks fifth in the world and includes many different forms of renewable energy sources, including biomass-based electricity generation, geothermal, hydropower, solar photovoltaics (PV), concentrating solar power (CSP), solar thermal heating and cooling, wind energy, and renewable energy in the transport sector. In terms of annual investment in renewable power and fuel (without hydro), India also ranked fifth in the world in 2015, following China, the U.S., Japan, and the U.K. In terms of solar-based and wind-based power generation, India already has a high capacity (solar PV has 5 gigawatt (GW) year-end capacity for 2015 and wind (on-shore) has nearly 25.1 GW year-end capacity for 2015), and the country has set ambitious goals for even further increases. In 2015, India also introduced a national offshore wind energy policy.

One critical factor driving India’s successful development of renewable energy capacity and use has been the country’s supportive, although complex, policy landscape over the past decade. In 2015, India increased its renewable energy targets (including targets for electric and heat utility, transportation fuels, solar and wind capacity, and electric vehicles) and set economy-wide targets for deployment. Governments at the state level have been particularly active in expanding policies to promote renewable power deployment through the use of net metering programs. These programs give credit or payments to generators for excess on-site generation to support the deployment of small-scale, distributed renewable energy systems. Twenty-one states have announced net metering policies thus far, although the infrastructure to support these policies may not be fully operational at this point. In addition, several states, such as Andhra Pradesh, Karnataka, Rajasthan, Telangana, and Jharkhand, invited bids for solar power deployment in 2015. Furthermore, Renewable Portfolio Standard or quota policies for the use of renewable electricity sources have also become popular at the sub-national level and are currently in place in 27 states and seven union territories.

In addition to these regulatory policies, India’s policy system for renewable energy also includes fiscal incentives and public financing. Both national and state governments have announced policies for all sub-categories of: capital subsidies, grants, or rebates; investment or production tax credits; reductions in sales, energy, VAT, or other taxes; energy production payments; and public investments, loans, and grants.  A summary of the policies are provided in the table below, based upon information from IHS.

Agriculture has become more energy-intensive, and thus India’s growth in renewable energy has implications for both the supply and the demand side of the country’s agricultural sector. One example of the link between renewable energy and agriculture is the expansion of the use of solar-powered pumps for agricultural irrigation. Solar pumps are replacing diesel-based groundwater extraction mechanisms throughout India. This trend lowers costs of irrigation, which might lead to overexploitation of aquifers if certain measures are not taken in advance. In a nutshell, renewable energy brings both advantages and disadvantages to agricultural production systems in India. One solution advocated by Shah et al. (2014) is to combine other renewable energy policy tools with solar powered pumps. The study suggests helping farmers connect solar pumps to the grids, meter them and encourage farmers to sell surplus solar power to the grid using feed in tariffs.[1]

Other examples of the agriculture-energy nexus in India include the use of diesel fuel and gasoline for tillage, planting, transportation, and harvesting; the use of electricity, LP, gas, and natural gas for irrigation; the use of agricultural feedstocks being biofuels; and the use of natural gas for fertilizer production.

In this environment, the expansion of India’s renewable energy sector not only changes the source and deployment of traditional forms of energy, but also has implications for the country’s natural resource base and food system. For example, a change in energy policy, and therefore energy prices, has repercussions for agricultural sector since it affects cost of production and costs of irrigation directly. In reverse, agricultural market dynamics impact renewable energy sector expansion since biomass is now a source of electricity generation and biofuels used in transportation. Solar power expansion impacts irrigation costs, production of feedstock, and its prices, which impact farmers. Understanding and capturing the dynamics of the linkages between agriculture, energy and renewable energy in India, and understanding the implications of policy design in this integrated systems framework will be crucial in ensuring proper support for the expansion of the three sectors.   

Renewable Energy Policy in India
Policy Sector Description Year (enactment or update) Commodity

Renewable energy certificates

Electricity

Trading of renewable energy certificates for grid-connected renewable-based electricity

 

Electricity

National electric mobility mission plan

Electricity

5-6 million electric vehicles by 2020

2012

Electricity

Renewable power share target

Electricity

40% renewable share in electricity generation by 2030

2015

Electricity

Net metering tariff

Solar PV

Net metering was introduced to limit consumer’s electricity consumption.

2013-2015

Electricity

Feed in tariff

Wind

State-specific wind tariffs.

2013-2015

Electricity

Generation based incentive

Wind

Generation-based incentives for grid-connected wind development.

2016

Electricity

Renewable power installed capacity target

Solar PV and CSP

20 million solar lighting systems to be added in period of 2010-2022; 100 GW installation target for 2022

2015

Electricity

Renewable power installed capacity target

Wind

60 GW installation target for 2022

2015

Electricity

Renewable power installed capacity target

Biomass

10 GW installation target for 2022

2015

Electricity

Subsidy

Wind

A subsidy for water pumping windmills (20,000-80,000 Indian rupees).

 

Electricity

Subsidy

Solar PV

30% subsidy for solar water pumps

 

Electricity

Subsidy

Solar PV

40% subsidy for small solar PV

 

Electricity

Trade policy

Solar PV

Concessional import duty and excise duty exemption for setting up of solar power plants

 

Electricity

Trade policy

Wind

Import tariff paid by turbine assemblers around 15% for components manufactured abroad

 

Electricity

Tax credit

Solar PV

10% tax reduction for solar products

 

Electricity

Tax credit

Solid biomass

100% tax exemption on biomass and cogeneration

 

Electricity

Tax credit

Wind

Cancellation of the central excise duty for wind turbine components which will strip away a 12.5% cost premium on major components.

2015

Electricity

Source:  IHS Markit, Global Renewable Advisory Service. 2016. <https://www.ihs.com/index.html>

Written by: Simla Tokgoz

 

[1] A feed in tariff offers a guarantee of payments to renewable energy developers for the electricity they produce.

Photo credit:Flickr, Knut-Erik Helle