This International Institute for Sustainable Development (IISD) & Council on Energy, Environment and Water (CEEW) three-part commentary series takes a deep dive into how India’s energy sector is coping with the impacts of COVID-19 and what this means for the sustainable energy transition. We explore three key themes.

• Part 1 – Financial Sustainability: Bailing out India’s electricity sector
• Part 2 – Environmental Sustainability: Tracking COVID-19 support for fossil fuels and renewables in India
• Part 3 – Social Sustainability: Energy affordability and pricing reform in India

This workstream is linked to global efforts to track government support for fossil fuels and renewables in light of COVID-19, as reported in the Energy Policy Tracker launched in July 2020 by IISD in partnership with 13 other organizations.

Part 2 – Environmental Sustainability: Tracking COVID-19 support for fossil fuels and renewables in India

Government responses to the pandemic have raised serious concerns about the global prospects for a transition from fossil fuels to cleaner sources of energy. These concerns are not unfounded: energypolicytracker.org shows that G20 governments have pledged USD 169 billion to fossil fuels during the COVID-19 crisis and only USD 138 billion to clean energy (as of August 14, 2020). India specifically has seen a concerted effort to decrease dependence on imported coal by easing business for domestic coal.

IISD and CEEW organized a webinar session on July 27 to dissect some of these emerging trends in the Indian power sector. This commentary synthesizes highlights from IISD’s tracking efforts and the webinar. A recording of the webinar is available here, and full details on the session, including presentations, are available at the end of the commentary.

How has India’s support for energy been split between fossil fuels and clean energy since COVID-19 began?

Energypolicytracker.org shows that government commitments to clean energy have been trailing those made to fossil fuel sources globally. A shining example in the other direction has been France, with almost five times as much support for clean energy (USD 33.7 billion) over unconditional fossil fuels (as per an update available on July 29, 2020), directed largely toward energy efficiency in buildings, transportation, and clean energy.

In India, the largest quantifiable stimulus package is a set of loans for electricity distribution companies, which is focused on helping them pay off their debts to power generators. As explained in detail in the first part of this commentary series, this measure benefits thermal power producers, among whom the largest amount of unpaid dues have accumulated. While some form of intervention was clearly necessary in order to keep the electricity sector financially buoyant, the policy does not attempt to distinguish between sustaining generators that are needed to service core electricity demand and generators that are scheduled for early retirement or may be a form of overcapacity.

India has also signalled strong support to its domestic coal mining and production industry to help reduce import dependence. In recent months, a number of measures have been announced that will permit the commercial mining of coal and hasten new mining and coal production. A significant portion of them is directed at loosening existing environmental safeguards and the vetting processes that are intended to verify the experience of bidders for mining projects. Most of these measures could not be quantified, but commitments to invest in coal transportation infrastructure are, alone, worth over USD 6 billion.

At the time of writing, many fewer commitments have been identified for clean energy. From the central government, this includes two main policies: a provision to allow solar power to be bundled with thermal power, thereby helping intermittent renewables scale up without endangering the grid; and a scheme to green the Indian Railways through efficiency and clean energy measures. At a state level, further measures have been identified in Andhra Pradesh, which introduced a policy to provide free solar power for farmers and a policy to facilitate the leasing of land for renewable energy export. Targeting one of its biggest challenges—air pollution—the Delhi government has introduced the Delhi electric vehicles policy, with large incentives across the various categories of vehicles. Of all these measures, the financial value of only one has been estimated: free solar power for farmers in Andhra Pradesh, at USD 1.2 billion.

Nonetheless, at both the national and international levels, the clean energy sector has witnessed a record-breaking fall in solar tariffs in the past few weeks. Further, it is worth noting that the government has not backed down on maintaining a “must-run” status for renewables, which has left renewable energy developers the least affected by falling electricity demand. Does this imply that we have reason enough to be optimistic about the clean energy transition in India?

What stimulus does the clean energy sector in India need?

CEEW’s Centre for Energy Finance analysis shows that clean energy investment trends remain largely on track, despite the pandemic. This is, in large part, attributable to the policy measures that the government had in place over the last decade to ensure that the entire sector supports the integration of clean power. The responses during and after COVID-19 will be pivotal for maintaining a clear signal that India is backing its clean energy targets. This is particularly important in the light of recent IISD-CEEW analysis showing that renewable energy subsidies fell more than 35% from financial year 2017 to 2019.

With regard to support to the clean energy sector, there is a stark need for the government to reconsider its focus, taking into account changing geopolitical dynamics, the national focus on self-sufficiency, and widespread economic uncertainty. This includes:

1. A clearer strategy on manufacturing: Supply chain disruptions have significantly affected renewable projects under construction, reviving the government’s Make in India plans for the solar manufacturing industry. But previous efforts to boost domestic manufacturing have been reactionary, not serving to efficiently achieve the intended objective. An improved and comprehensive green industrial policy on manufacturing—with interventions targeted at specific identified problems—will be essential to deliver on this ambition. There will be increasing pressure to show that government policies are promoting economic recovery and job creation. Recent CEEW analysis estimates that 10 GW of additional integrated cell and module manufacturing could create 26,000 jobs.
2. Avoiding mixed signals: Recognizing that these are times of diminishing capital, the government should avoid signalling policy support for coal investments that are non-viable, ensuring that investors back the right horse.
3. Innovation: Innovative financial instruments like green bonds and newer business models can help keep investors interested, and the sector needs these now more than ever before.
4. Supporting investments to enable variable renewable energy demand: A recent study by The Energy and Resources Institute (TERI) on India’s targeted levels of renewable power by 2030 (450 GW, as announced by Prime Minister Modi at the Climate Action Summit in 2019) suggests that power system flexibility to deal with the variability of supply will be the biggest challenge for integration of large volumes of renewable energy. Existing measures on strengthening transmission and developing battery storage need to be supplemented with mechanisms to enhance the flexibility of coal and hydropower.

Is the global fall in electricity demand likely to impact India’s power needs?

As of late July 2020, power demand has recovered and reached the same peak levels seen in July 2019—up from the 25% decline in demand in April and the 10% decline in June. However, experts predict that the true impact on demand is likely to be seen toward the end of the year. At this time, moratoria on loan payments will lift and defaults on payments may occur, reducing economic activity and associated power demand. It is also important to note that data on electricity generation doesn’t include all sources—in particular, it is missing “captive” power, such as when an industry has its own privately owned generation capacity—so it will be hard to have a full picture on recovery in the electricity sector until complete statistics are available.

A recent TERI study predicts that the COVID shock will result in a persistent downward revision to expected growth in Indian GDP for the medium term and, by implication, a persistent downward revision in electricity demand. Even before COVID, demand modelling indicated that additional investment in thermal power plants would be unnecessary, and the 2021 budget had already set out plans to retire some of the oldest, most polluting plants. Now, with the fall in demand forecast owing to COVID-19, there are growing calls to phase out a share of thermal power plants to make space for green power.

Who must pay for the phase-out of thermal power plants?

While some of the recently announced pro-mining and thermal power policies may be seen as a necessary response to changing global geopolitical dynamics and trade owing to COVID-19, it also raises concern about a divergent mindset on the clean energy transition. Other G20 countries have mostly held back on passing policies on coal during this time—apart from China, South Africa, Australia, and Canada. On the other hand, most G20 countries, including India, have passed several policies to navigate their economies through the fall in global oil prices.

A forthcoming CEEW study of the efficiency of existing coal power plants has identified that many of the older plants are more inefficient, but the delivered coal cost for these plants is lower, making them competitive financially. However, by phasing out these inefficient plants, India could see significant annual cost savings, which could then be used to fund the costs associated with phase-outs. This could be by way of paying for the debt service obligations or other costs they are likely to continue incurring, even in the event the plants are retired.

Where does that leave a “just transition”?

Energy transitions are ultimately about people: the ones who make the decisions and the ones affected by those decisions. Politicians care about jobs and political support for climate policies; particularly in fossil fuel-producing countries, action is often influenced by the impact of climate policies on fossil fuel jobs. A “just transition” ensures that decision-makers consider the affected fossil fuel workers and their communities through a process based on tripartite and social dialogue. The agenda must be shared by workers, industry, and governments, then negotiated and implemented in their geographical, political, cultural and social contexts. The Paris Agreement on climate change includes just transition as a key principle.

For India specifically, while the coal industry has negative impacts on the environment and people’s health, in its 50 years of existence, it has become a significant source of government revenues in at least six states for jobs (direct, indirect, induced, and informal) and public services (in the form of schools, hospitals, and other institutions paid for by coal companies’ corporate social responsibility funds). It also promotes local industry in the many districts where coal mining and power plants are located. While estimates of jobs from renewable energy are promising, there will be no one-size-fits-all solution for the entire communities that are directly or indirectly dependent on the coal sector. A University of British Colombia analysis shows that, while adequate solar resources are available in coal mining areas to install solar power plants, to transition coal miners, huge solar capacity is required in each coal mining area. On the other hand, suitable wind resources have little overlap with Indian coal mining areas. If the impact of COVID-19 does open up new conversations on the early retirement of coal power capacity, then now is also an excellent time to start talking about just transition needs over the next decades.

Such conversations should be beginning early and, from a granular perspective at the district-level, shedding light on their specific risks and appropriate resilience measures. Such plans are crucial to ensure that energy transition in India is firmly on a pathway to prioritizing equity and welfare in a post-COVID world. Global experience (be they in the United States or the European Union) shows that, wherever coal industries are declining, just transition policies have taken centre stage in climate debates. The time is ripe for India to start engaging with just transition ideas on a broader scale.

For all these needs, what might India find most interesting from other countries’ experiences?

IISD has developed a list of seven principles that should be attached to COVID-19 recovery measures to ensure a recovery aligned with climate goals for Canada. While India has several other competing priorities that may take precedence, a resilient and comprehensive economic recovery package cannot afford to leave energy transition and climate goals behind either. Despite the impacts of the pandemic, countries such as Germany have remained committed to just transition policies by phasing out coal power by 2038 and allocating resources to the economic transformation of coal regions to compensate coal plant operators. Significant budget dollars have also been allocated to compensating lignite power generators for these planned shutdowns. Regions such as the United Kingdom have shown unambiguous support for clean energy, with the majority of the focus being on energy efficiency and achieving carbon neutrality. Several scattered but commendable measures have also been announced in the United Kingdom to support innovation in emissions reduction, and early-stage green businesses. During this time, many emerging economies are yet to announce major policies on energy that involve significant fiscal expenditure. India’s commitment and leadership in the climate and environment sphere are needed now more than ever to influence countries’ actions in response to the impacts of COVID-19.

Can I access the presentations that were made during the webinar on this theme?

The session was moderated by Christopher Beaton, Lead, Sustainable Energy Consumption in IISD’s Energy Program, and hosted five panellists, who presented on the following themes (presentations are available for download at the embedded links below):

• Anjali Viswamohanan, Consultant, IISD – Global Stimuli on RE v. Fossil Fuels during COVID-19
• Thomas Spencer, Fellow, TERI – Assessing COVID-19 Impacts and the Stimulus Needs for India’s Power Sector, drawing on TERI’s new reports Renewable Power Pathways: Modelling the Integration of Wind and Solar in India by 2030 and Bending the Curve: 2025 forecasts for electricity demand by sector and state in the light of the COVID-19 epidemic
• Karthik Ganesan, Research Fellow, CEEW – Opportunities for Reining in Coal Dependence in the Power Sector
• Kanika Chawla, Director, CEEW – What Does the Pandemic Mean for India’s Clean Energy Ambitions?
• Sandeep Pai, PhD Candidate, University of British Columbia – Just Transitions in Coal Communities

This International Institute for Sustainable Development (IISD) & Council on Energy, Environment and Water (CEEW) three-part commentary series takes a deep dive into how India’s energy sector is coping with the impacts of COVID-19 and what this means for the sustainable energy transition. We explore three key themes.

• Part 1 – Financial Sustainability: Bailing out India’s electricity sector
• Part 2 – Environmental Sustainability: Tracking COVID-19 support for fossil fuels and renewables in India
• Part 3 – Social sustainability: Energy affordability and pricing reform in India

This workstream is linked to global efforts to track government support for fossil fuels and renewables in light of COVID-19, as reported in the Energy Policy Tracker launched in July 2020 by IISD in partnership with 13 other organizations.

Part 1 – Financial Sustainability: Bailing out India’s electricity sector

Download: Impacts of COVID-19 on the Electricity Sector: How can states make the most of the stimulus on offer?

Since India entered lockdown in late March 2020, IISD’s energy program has been tracking, on a weekly basis, the impacts on different parts of the energy sector, demands for assistance from stakeholders, and responses from the government.

Amid the lockdown, the power sector has, so far, been successful in ensuring continued supply to essential services and households. However, it has also faced some of its biggest challenges. Electricity distribution companies (DISCOMs)—who buy electricity from generators and sell it to consumers—were already struggling with finance and performance issues before COVID-19. Now, they sit in a vortex of major risks and losses that have occurred across the supply chain. In order to support economic recovery and to enable a sustainable energy transition, it is essential to stabilize the basic financial viability of the power sector. The central government has already intervened with a major stimulus package worth INR 90,000 crore (~USD 12.1 billion) and proposals to revise core electricity sector regulations—but is it enough?

On June 30, 2020, IISD and CEEW convened 30 participants from India’s energy think tank community to discuss these challenges in a closed-door roundtable. This commentary synthesizes highlights from IISD’s tracking efforts and the roundtable discussion.[1]

DISCOMs Were Already Struggling With High Costs, Poor Billing-Collection and Large Subsidies

India’s DISCOMs have had financial and service performance problems for a long time, and, despite a bailout package in 2015, there have been few improvements. In particular, DISCOMs in many states have outstanding dues on payments to power generators: in IISD and CEEW’s recent review of government energy subsidies, we reported around INR 80,900 crore (USD 10.8 billion) of outstanding dues in late 2019. This grew to INR 1,26,000 crore (USD 16.8 billion) as of May 2020, a 56% increase.

There are many causes, but three stand out at the current time. First, the cost of power procurement has not come down. This is largely due to off-target demand forecasting and surplus power generation capacity. Some states also emphasize the ongoing cost of the first investments in renewables, when tariffs were more than double the conventional supply. Second, DISCOMs continue to struggle with inaccurate and delayed billing, particularly on account of the large growth in consumers under the 2017 SAUBHAGYA household electrification program. Third, electricity tariff structures in many states simply do not cover full costs, including margins to invest in infrastructure and operations. Residential and agricultural consumers, on average, pay far below the average cost of supply. Some of the revenue gap is borne by higher tariffs for industrial and commercial consumers (“cross-subsidies”), some is covered by large subsidies from state governments estimated at INR 63,700 crore (~USD 8.5 billion) in 2019), and the remainder accumulates as DISCOM losses.

High costs and unsteady revenues already represented a lack of resilience in India’s power system—and COVID-19 has brought this into stark relief.

COVID-19 Amplified Existing Risks and Created Specific, New Ones

As illustrated in our roundtable briefing slides, the national lockdown from March 25 exacerbated these existing issues, largely due to a catastrophic drop in power demand—around 9% on average across India in March alone, rising to 23% in May.

For DISCOMs, this resulted in a large decline in revenues, and for various reasons, they were unable to reduce their costs by an equivalent degree.

Among electricity generators, renewable energy enjoys a “must-run” status—DISCOMs have to buy electricity from them before any other source.[2] In recent auctions, the per kWh cost of renewable energy has fallen lower than coal (even including storage), so it would be easy to assume that this would reduce costs for DISCOMs. But in many states, older renewable facilities, built many years ago, are producing power at above the average cost of conventional generation. At the same time, DISCOMs can’t fully reduce costs associated with coal power. DISCOMs’ power purchase agreements (PPAs) for coal are typically split into two parts: first, a “fixed cost” payout, which is due regardless of how much electricity is purchased, and second, a “variable” payout, which is due based on the volume of electricity purchased. This left DISCOMs taking on all renewable power, regardless of whether it was low-cost or high-cost, and continuing to pay fixed charges to coal power plants, even if they were not being used at all.

Among consumers, many households and businesses were struggling with the economic crisis created by the lockdown, not to mention the shift to online payment facilities, and some received assistance. All consumers were offered a three-month moratorium on payment dues during the lockdown, along with the choice, in some states, to pay bills in the form of equated monthly instalments over a three-month period. Industrial and commercial tariffs usually include a fixed and a variable component—but to help businesses cope, the fixed cost charge was waived in some states and deferred in others. Consumers were also offered options to defer payments. Some states, like Maharashtra, announced that tariff hikes would not be implemented as planned. This only increased the short-term pressure on DISCOM revenues.

How Has the Government Intervened, and Will It Be Enough?

Two main central government policy measures have already been announced: (i) an INR 90,000 crore (~USD 12.1 billion) stimulus package and (ii) permission to expand state government borrowing limits.

• Stimulus package: The package offers a loan to DISCOMs to pay off generators, on the condition that they and state governments undertake various ambitious reforms. States are required to guarantee the entire loan amount and to ensure that subsidies are paid to DISCOMs monthly or quarterly, instead of once per year. State government departments are also required to install smart meters or prepaid meters in all state government departments to ensure timely payment of electricity dues to DISCOMs. There was a general consensus in the roundtable discussion that, unless DISCOMs have sufficient funds to address root problems, they will find themselves back in the same position a few months down the line. The package is difficult for states, whose finances are already stretched from COVID-19-related shocks. The package has also been criticized by some better-performing DISCOMs as coming at a higher interest rate than loans available from the market.
• Expanding state borrowing limit policy: Permission to expand borrowing limits is also subject to conditions, namely: (i) implementing a Direct Benefit Transfer (DBT) cash transfer system for electricity subsidies in at least one district by the end of the year and (ii) DISCOMs bringing down losses associated with the cost of supply and revenue collection. Piloting a DBT system is a highly challenging reform to achieve by the end of the year, as it includes steps such as linking consumer profiles with bank accounts and tackling ownership and inheritance issues, as elaborated in a recent editorial by Prayas. Similarly, reducing DISCOM losses will be extremely challenging. Considering that states may need to expand borrowing limits for numerous non-energy reasons during this pandemic, linking the expansion of borrowing limits to electricity sector reforms is hard to understand.
• Leeway in process for scheduling power: As of last year, power companies were instructed to not supply power until a bank guarantee or a letter of credit (for the entire value of power supplied) was opened by DISCOMs to guarantee payment. DISCOMs that failed to comply were denied access to spot markets. During the COVID-19 crisis, a reduction of 50% in the guarantee mechanism was allowed. Further, surcharges for late payment have been reduced from 1.5% of bills to 1%, for the period March 24 to June 30, 2020. Again, however, these measures do not tackle root problems and risks for DISCOM revenue uncertainty.

More recently, a number of significant proposals have been made to adjust the national tariff policy and to potentially increase the bailout package to INR 1.25 lakh crore (~USD 16.8 billion).

The status of these proposals is not yet clear. However, this commentary by CUTS International emphasizes the importance of careful implementation of subsidy reform for vulnerable consumers and notes again the important interlinkages with good design and implementation of DBTs.

How Could Assistance be Improved?

In our roundtable discussion, the following measures were discussed as a way to help the electricity sector build back better:

1. Renewed efforts by DISCOMs for metering, billing, and collection efforts: DISCOMs must continue the ongoing efforts to achieve universal metering of all consumers, particularly agricultural and rural residential consumers. In order to ensure timely delivery of accurate bills, DISCOMs need to strengthen their management systems, keep a check on erroneous bills, expand their human resource base, and provide appropriate incentives to meter readers. Billing based on metered units should be mandated to bridge the trust gap between consumers and DISCOMs, which in turn will lead to timely payments. For more details, see CEEW’s latest work on Jobs, Growth and Sustainability: A New Social Contract for India’s Recovery. Moving forward, DISCOMS could prioritize the installation of smart meters in high loss-making areas. For an elaboration on these topics, see the Centre for Study of Science, Technology and Policy’s elaboration of how lockdown has affected DISCOMS in Karnataka and the Centre for Policy Research’s Dr. Ashwini Swain on DISCOM finance problems and why smart metering may be one important piece in the solution.
2. Better target subsidies: Due to poor targeting, DISCOMs in many states are providing subsidies not only to the poor but also to wealthier, high-consuming households. IISD has already set out options for electricity subsidy targeting in India, and, in a few months, will be publishing a major study on how to take a socially responsible, evidence-based approach to targeting based on in-depth research in Jharkhand. It is vital to carefully plan and pilot targeting and cash transfer systems. Serious efforts are also required to depoliticize electricity pricing: as long as tariffs are driven by political factors, DISCOMs will continue to be required to absorb losses, constraining their capacity to provide 24/7 energy access sustainably.
3. Rethink the role of fixed-cost components in consumer billing. DISCOMs have to pay fixed costs to generators—but their revenues have fallen disproportionately because most consumer charges are made up of variable costs. Some kind of adjustment is needed to better align tariffs and billing with a transparent understanding of costs while keeping in mind the implications of a higher fixed cost component on poor households that consume lower power and on the impetus for energy efficiency. This will not just be a short-term issue. Experts predict that the economic fallout from COVID-19 will dampen GDP growth for years, creating a mismatch between demand and capacity. Brookings India has published a paper on the short- and long-term changes that DISCOMs need to make post-COVID-19, which elaborates on the implications of such fixed-cost asymmetries.
4. Let DISCOMs adjust their power procurement costs to match revenues. There are three parts to this recommendation. First, looking to the future and assessing oncoming uncertainties, DISCOMs should consider how to procure power more flexibly than the rigid structures of existing PPAs. DISCOMs should look at spot markets to balance additional demand instead of entering PPAs that they can’t afford. Second, risk must be more reasonably apportioned across the power supply chain and not largely borne by DISCOMs alone. There should be recourse measures under any PPA, such as a force majeure clause, that allows parties to arrive at a renegotiated consensus on power purchase costs during an economic crisis. Third, as suggested by Rasika Athawale of the Regulatory Assistance Project, DISCOMs may want to fast-track the retirement of older coal power plants if a clear medium-term mismatch emerges between demand and supply. This could, for example, involve negotiations over a one-time settlement with debt-equity investors—the equivalent of an exit penalty to leave a lease early. Such negotiations need holistic thinking about other socioeconomic parameters, such as rehabilitation and usage of the assets recovered (such as land) and reskilling of workers, among others.
5. State and central government-owned generation companies should discuss better risk allocation—so that all risk is not clustered on DISCOMs. While India’s policies so far have been geared toward creating investor confidence in the energy sector, there is a need to acknowledge that this is an extraordinary circumstance, warranting a reevaluation of risk apportionment for a temporary period (until the end of the pandemic). For example, investors in generation companies could be asked to take a cut on their return on equity, while banks could be asked to take a cut on the interest rate on loans, particularly if they are already the beneficiary of government efforts to relieve impacts in the banking sector. Regulations for cost-plus-based tariff determination from 2019 to 2024 fixed the return on equity rate at 15.5%. Reports suggest that authorities are examining the legality of reducing the fixed cost component of regulated projects, which could affect this return-on-equity component. Also, state-owned thermal power companies should have the capacity to take on more delays in payments from DISCOMs for power supplied.

Conclusions

The current crisis presents an opportunity for policy analysts to convene and lend a common voice to long-pending structural changes needed in the power sector. Without these, the sector will continue to struggle, even once the COVID-19 crisis is over, and will remain equally vulnerable to future shocks—ultimately undermining energy access, economic development, and a sustainable energy transition. IISD and CEEW’s roundtable discussion aimed to contribute to this by bringing together a number of energy policy think tanks from the state and national levels in India. We hope that the tracking of impacts and the proposed policy interventions will be helpful not only for India but also for other countries whose utilities are struggling with the combined impacts of demand shock and legacy issues of financial unsustainability.

[1] This discussion was held under Chatham House Rule: as a result, individuals and organizations are not cited unless they explicitly requested acknowledgement upon reviewing a draft of this commentary. On that basis, participating organizations included the Regulatory Assistance Project, CUTS International, the Centre for Study of Science, Technology and Policy (CSTEP), Prayas Energy Group and the Institute for Energy Economics and Financial Analysis (IEEFA).

[2] This resulted in an increase in the share of renewable power generation for the months of lockdown as compared to the same months in the previous year. See the Central Electricity Authority’s monthly report for April to see the growth in renewable energy generation in April 2020 as compared to April 2019.

New Delhi, April 16 – India’s renewable energy subsidies fell 35% from FY17 to FY19, while its oil and gas subsidies increased by 65% according to a new study entitled Mapping India’s Energy Subsidies 2020, released today by the International Institute for Sustainable Development (IISD) and the Council on Energy, Environment and Water (CEEW). How the government tackles the COVID-19 crisis and economic recovery will be crucial to determining future trends in the energy sector, experts say.

The study emphasizes that the health and economic crisis caused by COVID-19 will influence subsidy expenditure. The crash in world oil prices and the government’s economic stimulus packages will be key factors shaping the energy sector in the upcoming months.

“Rising oil prices and initiatives to promote clean cooking were the main drivers of growing support to fossil fuels since FY2017,” said study co-author Vibhuti Garg of IISD. “After the COVID-19 crisis, petroleum product subsidies will undoubtedly fall significantly in 2020 and other energy markets will be shaken. Fossil fuels are already being taxed more to help plug holes in revenue. Government stimulus needs to first help people cope, but stimulus for the energy sector must avoid new fossil fuel subsidies that lock in air pollution and greenhouse gas emissions for years to come.”

The authors of the report note that there were already signs that support for renewable energy would increase again, but with the shocks from COVID-19 it is now critical to stay on track.

“Policy decisions such as the solar safeguard duty and tariff caps on auctions meant that there was a slow-down in new capacity addition and as a result lower state subsidy outgo as well,” adds Karthik Ganesan, CEEW. “Before the current crisis, a number of new, large clean energy subsidies were announced, like KUSUM, Phase 2 of Rooftop Solar, and FAME-II. Resources post-Covid-19 will see an unprecedented crunch. It presents a good opportunity for the government to rein in specific fossil fuel subsidies while creating more fiscal room for promoting renewables and other welfare schemes.”

According to the report, in the last six years, India has shifted significant public resources toward clean energy. Since 2014, fossil fuel subsidies have fallen by more than half, while subsidies for renewable energy and electric vehicles have increased more than three and a half times. Experts believe the long-term ambitions can still be maintained.

The report flags that coal subsidies are one opportunity for reform. Estimated at INR 15,456 crore in FY2019, they have remained largely unchanged for the past six years. The researchers emphasize that the combined costs of subsidies and the social impacts of coal—such as premature loss of life and lost work days from air pollution and greenhouse gas emissions (GHGs)—significantly outweigh government revenues from coal taxes and surcharges paid to Indian Railways.

Another focus for reform highlighted by the study is the large share of subsidies going to electricity transmission and distribution. Government support for this sector amounting to INR 79,671 in FY2019 and should be better targeted to providing help to those who need it most. The experts underline that, to date, large bailouts for the sector have been ineffective at reducing the magnitude of these subsidies.

This report further finds that one of the smallest recipients for subsidies was the electric vehicles sector. Although subsidies for electric cars have grown over 11 times since FY2017, researchers note that continuing to raise ambition on clean transport will be important to meet India’s targets for 30% of new vehicle sales to be electric by 2030.

“Over the past few years, India has stood out for its incredible steps forward with renewable energy deployment,” said Christopher Beaton of IISD. “There are uncertain times ahead, and the first priority has to be health and helping people meet their essential needs. At the same time, we can’t lose sight of ambition for a clean energy transition. The recent INR 8 hike in excise duty for petrol and diesel is one example of how these two things can be aligned. Fossil fuel subsidy reforms could free up more resources for social welfare and inclusive economic recovery.”

First reactions to the report

“This study shows the real, social, cost of coal in India. By subsidizing polluting fossil fuels, the country is suffering from another health crisis: air pollution. Financial relief packages need to take into account the long-term health effects of the energy choices we make today.”

Dr. Maria Neira, WHO Director, Department of Environment, Climate Change and Health

"The report has brought out a holistic view on India's energy transition pathway and different kind of subsidies support provided to the Indian energy sector and their trends. The recommendations made in the report are extremely progressive and provide impetus to promoting clean energy and better utilization of subsidies. The report will greatly facilitate policy-making in the energy sector"

Amitabh Kant, CEO of NITI Aayog