What is the issue?
- Urgency to move to renewable energy (RE) in India will have drastically different consequences for different parts of the country.
- As hasty energy transitions can impact jobs and revenues, and create regional disparities, there is a need for gradualism.
What is the current scenario?
- While India’s coal resources are concentrated in eastern and central India, solar and wind resources are concentrated in Western and Southern India.
- Of India’s installed grid-scale RE capacity of about 60 MW, only 3% is located in the eastern and north eastern region.
- Notably, Geography and weather considerations prevent grid-connected RE capacity from being developed in eastern and north-eastern India.
- As RE is likely to gradually substitute coal-based power, this will disadvantage coal belt states in terms of manufacturing and employment.
- In the long term, expansion of RE will hurt not only coal-based power generation, but also diminish the prospects of coal mining.
- Notably, plant load factors (ration of operational to the total capacity) have already plummeted at India’s coal plants, and have created financial strain in the sector.
- Also, coal uptake from CIL has plummeted and the unprecedented situation of CIL having excess coal in its stocks and a shortage of buyers has emerged.
How will this affect the economies of the coal belt?
- Direct impact - There is a broad regional divergence in income levels among States and eastern States have generally lagged behind the rest.
- Adoption of RE and the gradual displacement of coal is likely to accentuate this income divergence through loss employment.
- Also, in the past decade, there has been a sharp increase in redistributive resource transfers to laggard states, which mostly lie along the coal belt.
- This will now have to increase due to the lost royalties and tax revenues.
- Notably, coal mining and its downstream industries have been an important part of states such as Jharkhand, Odisha, West Bengal, and Chhattisgarh.
- Other Impacts - The social multiplier of coal-related activity extends well beyond the mere employment in the industry.
- Private capital herds toward States with fewer governance problems, better business environments, and higher probabilities of quick returns.
- Hence, the PSUs have to fill the investment vacuum in States with bad business conditions as reforming governance structures is a slow process.
- On that note, there is already an increased focus on strengthening the power grids in eastern states and also plans for establishing a gas grid is underway.
- But for these schemes to succeed, over a 100 million customers will have to engage with power and gas markets, which will be slow to come up.
How does the future look?
- While RE is indeed inevitable, the move should be well planned and spaced.
- A balance needs to be struck between economic, political and environmental considerations in the transition towards RE.
- Notably, populist backlash due to hasty energy transitions have contributed to anti-incumbent electoral swings in both America’s and Germany’s coal belt.
- By comparison, India’s coal belt is considerably more populous and electorally relevant and the unrest could spiral to more dangerous proportions here.
- As a gradualist approach has served India well in many other domains — there is no reason to believe that energy is any different.
Source: Businessline
