Overemphasis on renewable energy would create a ‘double whammy’ for the government by reducing the viability of thermal power plants and raising bad loans of state-owned banks, Chief Economic Adviser Arvind Subramanian said on Thursday.
While renewable energy needs to be tapped, in the short-to-medium run the nation ought to focus on traditional sources of energy like coal, he said.
“Over-expansion, fuelled by the growth optimism of the mid-2000s, combined with stresses in the discoms and slowdown in the economy has led to plummeting Plant Load Factors (PLFs), declining profitability, and the spectre of large amounts of stranded power assets, and consequentially stranded coal assets as well,” Subramanian said.
“All this can have a detrimental effect on the health of the banking sector, especially the public sector banks, in the country, which in turn can adversely impact the health of the Indian economy, already afflicted by the Twin Balance Sheet challenge,” he said at the Sixteenth Darbari Seth Memorial Lecture here.
The CEA added that the financial impact for the government arises from having to recapitalise the public sector banks that have lent to power companies and to the reduced profitability of the coal industry.
“This seems a double whammy for the government,” he said. Noting that coal and renewables must be joint focus of policy, Subramanian said, “For India, today, social cost of renewables is higher than that of thermal power and it is highly unlikely for the converse to be true, at least for some time.”
He stressed that the world needs to embark on a programme to clean coal, almost akin to the Manhattan Project. Subramanian pointed out that for India, a country struggling to provide basic electricity to about 25 percent of its population, coal will provide about 60 percent of India’s power needs until 2030.
“It will, and perhaps should, remain the country’s primary energy source because it is the cheapest fuel available,” he said, adding that India must shape the national and global narrative and not be stampeded by the rhetoric of carbon imperialism.
He also observed that India should maximise the use of national assets to the greatest extent possible and then gradually ramp up the use of the free global assets — sunlight and wind — when it becomes advantageous to do so.
Speaking on the occasion, Railway Minister Suresh Prabhu said that global consolidation on mitigation efforts is key to combating climate change. India’s energy policy is far more forward looking and adequate now to achieve overall economic growth as it captures the linkage between economy, environment and social development, he added.