India Allocated 63% Less Funds to Renewables Than Coal-based Power

Despite a global commitment to increase the use of renewable energy and reduce polluting emissions, India allocated 63 percent less budget funds to alternative fuels than coal-based power. Coal is the single largest source of global temperature increase and its burning releases harmful particulate matter.

In the 2019-20 budget announced on July 5, 2019, the allocation for the Ministry of Coal stood at Rs 20,121 crore (around $2.8 billion) while the Ministry of New and Renewable Energy was granted Rs 12,353.81 crore (around $1.7 billion).

Such gaps have existed in every single budget since 2009-10, showed an IndiaSpend analysis of Union budgets over the last decade.

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In the 10 years to 2019, allocations for coal and lignite exploration rose to Rs 600 crore. Allocations for research and development in renewables, including funds for international cooperation, were 90 percent less – Rs 60 crore – in the latest budget.

“India still needs investment in renewable energy of more than US$ 250 billion over the next decade,” said the Economic Survey 2018-19. This implies an annual investment of more than Rs 1.77 lakh crore ($25 billion) for 10 years while the current budget allocates 93 percent less than the target – Rs 12,353.81 crore ($1.745 billion).

The total budgetary allocation in 2019-20 for public sector enterprises (PSEs) engaged in the generation of thermal power – Neyveli Lignite Corporation, National Thermal Power Corporation (NTPC), Coal India and Singareni Collieries – is about Rs 40,000 crore ($5.648 billion). This amounts to a significant 1.43 percent of the total budget that stands at Rs 27.86 lakh crore.

“How can India aim to cut emissions by 2030 when government support is in favour of coal?” asked Nandikesh Sivalingam, programme manager, Greenpeace East Asia. PSEs such as NTPC and Coal India also have investments in renewable energy but these are not on a scale comparable to the coal sector, he added.

Renewables Growth Slowed Down in 2018

In the 2015 Paris Climate Agreement, India had committed to install 175 gigawatt (GW) – a GW is 1,000 megawatt (MW) – of renewables power capacity by 2022. This would have reduced India’s dependence on fossil fuels and helped its fight against air pollution, responsible for one in every eight deaths and the loss of 1.24 million lives in India in 2017.

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But after record growth in renewable power capacity installation over the four years to 2017, capacity addition slowed down in 2018, IndiaSpend had reported on January 24, 2019, ahead of the interim budget presented by the last National Democratic Alliance government.

The main reasons we concluded were: an anti-dumping duty imposed by the government on imported solar modules to aid domestic manufacturing, higher rates of taxation under the goods and services tax (GST) and unclear policy.

As of May 2019, 22 percent of India’s total installed capacity for energy generation comprised of renewable sources while coal, lignite, gas and oil constituted 63.2 percent, according to the Ministry of Power. India also emitted 2,299 million tonnes of carbon-dioxide in 2018, a 4.8 percent increase from the previous year.

“Viability gap funding is another issue,” Sivalingam said. Viability gap funding is the financial assistance provided by governments in the form of grants to support projects that are economically justified but not financially viable.

This kind of support is provided predominantly to attract investments from the private sector. The government provides support to coal in the form of investments into PSEs and there is a need for similar investments in renewables as well, Sivalingam said.

Share of Renewables Rising but so is Coal Capacity

India’s commitments under the United Nations Framework Convention on Climate Change do not reference coal, said Kanika Chawla, director at the Centre for Energy Finance, Council on Energy, Environment and Water. “It only talks about renewable energy capacities and reductions in emissions,” she said.

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Reductions in emissions are a function of greening the energy mix, energy efficiency targets, and so on. In this context, India’s energy transition is unique. “Even though we have a rising share of renewables, we also keep continuing to add thermal capacity,” Chawla said. Here, ‘thermal capacity’ largely refers to coal capacity because around 86 percent of total installed capacity for thermal power is comprised of coal (the rest is oil, gas and lignite).

“There’s a need for the government to put in public money into research and development of new technologies, not just in renewable energy but also in associated services like energy storage,” Chawla said, noting that research and development activities in India have often not received the required attention because the country has largely focussed on applications (such as solar pumps for irrigation).

In terms of budgetary allocation, NTPC is the biggest PSE beneficiary – it gets Rs 20,000 crore of the Rs 40,121 crore given to PSEs (50 percent). This benefits the renewable sector to the extent that NTPC runs its own solar power units, buys renewable power from independent power producers, and sells to distribution companies around the country, Chawla said.

Other Forms of Support Mostly for Thermal Power

Budgetary allocations form only a portion of governmental support for CO2-intensive methods of power generation by PSEs. Subsidies for oil, gas and coal were more than triple the value of subsidies to renewables and electric vehicles in India for the financial year 2016-17, according to a 2017 report of the think-tank International Institute for Sustainable Development (IISD).

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The term ‘subsidies’ in the IISD report encompasses direct budgetary allocations, tax exemptions which include instances where sources of power other than coal are taxed at higher rates, and concessional rates for the purchase of land and for loans, explained Vibhuti Garg, senior energy specialist with the Global Subsidies Initiative.

For example, coal has been kept in the lowest GST tax bracket, which attracts a rate of 5 percent, while solar power is taxed under a valuation methodology – where 70 percent of the value is seen as goods and is taxed at 5 percent and 30 percent is considered a service and taxed at 18 percent. The sector, though, has claimed that the actual ratio of goods and services is 90:10.

The basis for the ratio aside, such rates of taxation are discouraging and would limit the nation’s capability in meeting its commitment to adding 100 GW of solar power by 2022 as part of the ‘solar mission’, said Garg. “These have been categorised as subsidies because they come directly out of the taxpayer’s pocket and are being given to these industries for carrying out their power production and distribution activities,” she added.

Renewables Have a Long Struggle Ahead With Funds

These trends show that thermal sources of power will probably continue to dominate the energy sector while renewables, especially innovations in the sector, will continue to struggle especially with financial constraints.

India's coal-fired power generation capacity is expected to rise by 22.4 percent in three years while NTPC is set to increase its coal-fired capacity from 47.3 GW to 85 GW by 2032, Ghanshyam Prasad, the power ministry’s chief engineer, stated on 31 July 2019. This denotes an 80 percent increase.

As of 2016, Coal India ranked number one and NTPC stood at the 54th position in the global list of 250 companies that are responsible for one-third of global annual emissions of greenhouse gases.

Apart from being responsible for over 60 percent of particulate matter emissions, 50 percent of sulphur dioxide emissions and more than 80 percent of mercury emissions, the Centre of Science and Environment (CSE) reported in 2015, the power sector is also responsible for 70 percent of the total freshwater withdrawal by all industries and the dumping of huge quantities of waste in the form of fly ash.

“Over 1 billion tonnes of ash is lying unused today and to this, over 160 million tonnes are added each year,” CSE said.

The traditional argument for backing coal is that it is the cheapest option for round-the-clock power generation to meet India’s growing energy demand.

But an IndiaSpend analysis in February 2019 had dismissed the argument: With costs higher than solar or wind-based electricity production, and the burden of green taxes, the coal sector is beset by financial difficulties, we had argued.

Poor coal supply, locations distant from coal sources, use of outdated equipment and lack of long-term power purchase agreements were cited in the IndiaSpend report as the main causes of financial stress in the coal sector.

This reinforces the IISD’s observation that based on recent auctions, grid-scale solar and wind are now fully competitive with coal, without the health issues associated with air pollution and greenhouse gas emissions.

(This article was first published on IndiaSpend and has been republished with permission)

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