Consequences of a Hasty Transition to Renewable Energy

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