The road to net-zero for India is strewn with challenges, the greatest of them all being reviving the country’s ailing electricity distribution companies.
Climate action: where things stand now
One of the most important and seminal events of this year is inarguably the Conference of Parties, better known as COP26, currently underway in Glasgow, Scotland. The suffix ‘26’ indicates that this is the 26th meeting of representatives from countries that are signatories to the United Nations Framework Convention on Climate Change, the international treaty under which such countries have pledged to take actions against climate change. The Conference of Parties has served as the pre-eminent forum for achieving global consensus on climate action. Notable examples include the Kyoto Protocol adopted at COP3 in Kyoto in 1997 and the Paris Agreement signed by 195 countries during COP21 in Paris in 2015(1).
The goal of the Paris Agreement is to limit temperature rise to 2, preferably 1.5 degrees Celsius, from pre-industrial levels(2). As a follow-up to this agreement, many countries have committed to reducing or eliminating their emissions within a stipulated timeframe, which in most cases is the year 2050. In fact, as of June 2021, a total of 59 countries representing 54% of the global carbon emissions have already committed to net-zero targets. A notable absentee from this list, however, is India, the third-largest GHG emitter in the world. While India has taken considerable strides in advancing renewables – it plans to set up 500 GW of renewable energy capacity by 2030(3) – it has officially shied away from declaring a net-zero target, most likely because of the enormity of the challenge and the uncertainty over potential pathways and associated development trade-offs.
India delivers. Or will it?
Therefore, in the run-up to COP26, all eyes were on India if it would meet the expectations of the international community and get on the net-zero bandwagon. To the surprise of many, Prime Minister Narendra Modi declared that India would strive to achieve net-zero emissions by 2070. This, however, came at a condition: India would require $1 trillion by 2030 from the international community to finance this transition.
Notwithstanding the financing challenge, several other hurdles lay ahead. A key pillar of any decarbonization strategy is the electrification of as many use-cases of energy as possible. For example, adoption of electric vehicles, meeting heating requirements in industrial processes through electric arc furnaces, replacement of domestic gas boilers with electric boilers, and so on. Thus, to make any real progress towards net-zero, all of this additional electricity must come from renewables. While their capacity may be growing, renewables accounted for only ~8.2% of the annual electricity generation in India in the financial year 2020-21(4), primarily because of the intermittency of resource availability. Therefore, it is quite clear that substantial progress needs to be made to increase the share of renewables in the generation mix.
Two significant obstacles persist in meeting this objective: (1) the challenge of integrating fluctuating power generating sources into a system that has been built for decades around fossil-fuel-powered generation plants, which are predictable and controllable by design; and (2) the challenge of successfully delivering the power from the point of generation to the point of consumption. While the former is more of a ‘technical issue’ and can be overcome with technological advancements and improvements in infrastructure, things get complicated when it comes to the latter.
Distribution companies: a weak spot
Delivery of power to the end consumers is the responsibility of electricity distribution companies, or DISCOMs, which are mostly state-owned enterprises in India. DISCOMs traditionally have been the Achilles heel of India’s power sector and are marred by operational inefficiencies and heavy commercial losses (losses in 2019-20 were estimated to be $5B(5). Reasons for these losses include outdated infrastructure, electricity theft by price-sensitive customers, and interference in the tariff setting process. As the DISCOMs run perpetually at a loss, they are unable to make any significant investments in improving their infrastructure, which leads to further losses and this vicious cycle continues.
The government has responded with bailout programs in the past but unfortunately, they have not resulted in any long-term improvements. Tariff reforms and privatization of DISCOMs are the need of the hour but progress on these fronts has been slow. Unless the distribution sector is modernized, any gains made on the generation side will be nullified.
Fixing the distribution sector remains a priority for the Indian government. However, it remains to be seen if its efforts can come to fruition, thereby enabling India to achieve its net-zero target.
Sagun Tripathi (MBA 2023) worked for more than eight years in the energy sector, across different geographies – the US, Germany, and India – and functions – R&D, consulting, strategy, and operations – before coming to LBS. He is passionate about climate action and how sustainable energy holds the power to transform lives in the developing world.