‘Price of electricity from renewables will be same as from coal by 2025 … unfortunate that coal cess went to GST’
Chief economic adviser (CEA) Arvind Subramanian recently argued that since renewable sources of energy come with hidden costs, coal – which is cheaper – should remain India’s primary source of energy and we should not allow the narrative of ‘carbon imperialism’ to come in the way of realistic energy policy planning. Ajay Mathur, Director General of TERI (The Energy & Resources Institute) and member of the PM’s Council on Climate Change spoke to Nalin Mehta and Sanjiv Shankaran on the debate over the high costs of renewable energy and how India should balance energy policy:
How do you respond to the CEA’s argument that coal should remain the mainstay of India’s energy needs?
There is no doubt that in the medium-term, coal will continue to provide the vast bulk of electricity that we need. It is important that the coal sector does not collapse. The current over-capacity in coal generation has led to many plants operating at low plant load factors. In the short-term, we need to nurse these plants through so that we don’t have a collapse in the system.
Given the high cost of power from renewables on one hand, and climate change imperatives on the other, how do we get the right policy mix?
There is broad agreement that as we move to the future, all new capacity addition should be based on renewables beyond a certain date. We expect that the price of electricity from renewables plus storage cost will be same as the cost of electricity from coal, by somewhere around 2025. We expect this will become about Rs 5 per unit. The issue is what happens between now and 2025.
But today this costs roughly about Rs 11 per kWh, as per the Economic Survey?
Exactly. If you break that up, it translates into about Rs 3 per kWh for renewable electricity and Rs 8 per kWh for storage capacity. Over the next 10 years, if battery prices reduce to about one-third, then battery power will cost less than Rs 3. The price of renewables-based energy itself will fall to much less than Rs 2 or a total price of less than Rs 5 per unit by the mid-2020s.
But aren’t there other hidden costs in renewables – like land – as the Economic Survey has pointed out?
The great advantage of solar power stations is that they can be in places where you don’t need a railway siding to bring in coal. The issue is if there a marginal or social cost which is larger than financial cost. We don’t know.
But even in 2025 you won’t be sure of the social costs of renewables?
A good example is wind, where all power generation is from the private sector. Most of these people bought the land and there were no acquisition problems. Financial and social cost are somewhat in equilibrium. Even within this, in Tamil Nadu, farmers got very smart with land. And the cost is linked to kWh generated per-square-meter of land. We will see more innovative measures of land allocation which ensure that financial costs are much closer to social costs.
How do you respond to the view that realistic policy making requires India to not buy into carbon imperialism?
We have to invest in futures that make sense to us. So, we move to large-scale renewables as they become the least-cost option. The price of electricity from coal is also increasing because of the social costs of air pollution, and the necessity for more stringent air quality standards. This will add 75 paisa to Re 1 to every electricity unit produced from power plants today. An average cost of Rs 3.5 per unit of electricity ends up becoming Rs 4.25 to 4.50 once the additional air pollution control costs are built in.
It is important to go back to the Electricity Act, 2003. That represents a broad agreement in the nation that we need to push renewables for something that is more than only an economic argument. In 2003, renewable electricity was 2%. We are now at about 8%. The question is: Are renewables coming at a cost greater than their benefits? The answer: No.
India has been taxing coal since 2010 for the Clean Energy Fund but that money, instead of being used for research and development (R&D), has been diverted to GST. Isn’t that an anomaly?
The coal cess was to be used to promote renewables implementation and R&D. It is indeed unfortunate that this cess has gone to GST. I would like to see it resurrected to be used for renewables, even for the short-term succour that is needed for the coal sector. We are essentially talking about buying time.
It will be good if the National Clean Energy Fund is used for that.
DISCLAIMER : Views expressed above are the author’s own.