India’s Race to Energy Transition: Incentivising Renewable Energy

By: Virin Mukherjee; Edited by: Parisa Chatrath

India’s RE generation target is 500 GW of installed capacity by 2030, with 50 GW of capacity to be added per year. This goal is based on internationally declared sustainability commitments like  COP 26, where India committed that renewable energy sources will satisfy 50% of energy needs by 2030. Energy security concerns, economic growth, and job creation targets for RE also contribute to this ambitious goal. Even though India has the fourth-highest installed capacity for RE, the generation, adoption, and integration of RE in everyday life through transmission technology has to be faster.

This blog will highlight how the renewable energy sector in India is being pushed into cost-competitiveness through: generating more RE and reducing its price and R&D for key innovations in the sector .

Source: https://npp.gov.in/dashBoard/cp-map-dashboard 

Cost reduction through capacity building:

One channel of reducing the per-unit prices of renewable energy and increasing its competitiveness against coal is simply increasing its supply on the grid. This supply is the ‘installed capacity’ of RE. The referenced study found ‘learning-by-doing’ rates of wind and solar energy to be 0.1135, indicating an 11.35% reduction in the cost of wind and solar energy when the installed capacity doubles. In India, the government dominates tenders for new renewable energy projects that will go on to be integrated into the electricity grid, with limited private sector participation. Renewable energy projects are auctioned every year, with each project specifying how much capacity it will add. These auctions determine how the installed capacity will increase. An article by the Institute of Energy Economics and Financial Analysis said: “Despite robust auction activity, actual installations lagged, with only a 16% year-on-year increase in installed capacity to 209GW by December 2024. For India to meet its 2030 target of 500 GW of electricity generation capacity from non-fossil fuel sources, the growth has to be faster.”

Grid integration, or transmission, is a necessary condition for actually integrating this installed capacity, and these projects are only tendered by state utilities. Current progress looks optimistic because transmission project auctions doubled in 2024, amounting to USD 12 billion worth of projects. Transmission schemes have been planned to integrate 66.5 GW of renewable generation across multiple states, which will transport Rs 6.6 billion worth of inter-state transmission capacity and 2.5 billion intra-state capacity. This investment in grid infrastructure improves efficiency and lowers transmission costs.

Favourable policy conditions come in here as a factor of project execution and the actual increase in capacity. Two significant policy hurdles were deduced by this article.‘Right of Way’ which refers to the legal permission to use land for constructing and expanding transmission lines, is a significant policy hurdle. Building transmission capacity requires land acquisition, which in turn requires government compensation and faces local resistance. This is a complicated issue because it could involve encroaching on tribal land, and better planning is required for resolving RoW conflicts. Secondly, financing has also been cited as an issue towards the growth of the renewable energy sector. However, key policy tailwinds, such as long-term power purchase agreements (fixed price electricity purchase contracts), must-run status (projects can only be curtailed in case of emergencies), and transmission waivers have helped mobilise private capital at scale for the sector.

Cost-cutting through R&D:

R&D is also a vital condition for the growth and competence of the RE sector. This study found through a log-log regression of wind and solar prices v/s R&D investment that a percentage increase in R&D investment into solar and wind energy results in a 10.172% decrease in its cost. More R&D into renewable energy also increases its generation and capacity, in turn bringing down costs.

India’s renewable energy patent filings are growing at a much faster rate than traditional innovation hubs like USA, Japan, and Germany, though China still leads in absolute numbers.

Moreover, gathering awareness and knowledge of the specific R&D needs is important.  Niti Aayog reported on R&D needs for RE in the Indian context like lower-level wind mapping, offshore wind assessments (geographical mappings to identify suitable locations for wind energy mapping), etc as put forward by stakeholders of wind and solar projects.

As for what should be actively improved, it is again the issue of suitable policy frameworks that incentivizes the required R&D, like the recent PLI scheme that incentivizes manufacturing of high-efficiency solar PV modules. One crucial issue is how the Indian government’s investment in R&D for renewable energy still lags behind global leaders.

Policy hurdles for R&D in Renewable Energy in India

Besides investment, there are many other R&D policy frameworks that need improvement. The first policy framework that needs improvement is the patent registration process. The costs for filing and maintaining patent applications are high, along with complex and inefficient approval processes. Fast-tracking green energy patents along with subsidizing patent application and maintenance costs, will be the policy solution here.

The second inefficient policy framework is the affordability and accessibility of already patented technologies. Patent monopolies and high royalties restrict widespread adoption, especially in an industry like renewable energy, where technology is highly transferable. This urges a debate on intellectual property rights, because consolidating IP rights incentivizes innovation by firms, but on the other hand, it raises the costs of technology transfers. Thus, a balanced technology transfer policy - including cross-licensing agreements and patent pooling - needs to be implemented in the renewable energy industry. Moreover, tariffs and duties in this sector inhibit international and domestic investment into local renewable energy manufacturing, in turn lowering the transfer of technology.

A third is incentivizing local innovation. This study found that in emerging markets, innovations coming from residents of the country positively affect RE generation, but innovations in foreign countries negatively affect RE generation. Grants and subsidies for renewable energy R&D to incentivize local innovation, and creating a good startup ecosystem for clean energy are solutions in this context.

Privatising the RE industry:

 One overarching theme of policy recommendations for the RE industry is liberalization - including grants and subsidies for the private sector, balanced IP rights, good startup ecosystems and local R&D. This is because a lot of the suggestions made in this article - like removing RoW hurdles, increasing R&D spending, more R&D incentives - also lead to more liberalisation or deregulation.

Yet, will the privatisation of tenders for renewable energy projects make a better environment for research and development needs for the sector? Countries like the U.S., Australia, and parts of the EU have liberalised electricity markets, wherein corporate Power Purchase Agreements allow companies like Google and Amazon to directly acquire clean energy from developers through competitive bidding. Privatizing can be a key to R&D requirements by incentivizing specialized research in a competitive environment. It can help fund studies that Niti Aayog suggested, such as wind mapping at lower levels for urban areas or offshore assessments, enabling international cooperation. However, privatisation of this sector may also have cons. For example, in deregulated markets, firms may strategically reduce supply to drive up prices (see the California Energy Crisis (2000-2001), focus on profitable urban areas, and potentially neglect rural communities that need affordable access. They may prioritize short-term profits instead of long-term grid stability. Thus, though I do think India should involve more private entities in RE generation and transmission tenders,  there should be robust regulation to prevent unfair pricing, supply shortages, and infrastructure neglect.