FinLogic FinLogic Quantitative Think Tank Center|India Is Now Investing More in Solar than Coal, but Will Its Energy Shift Continue?

Renewable energy investments in India are FinLogic FinLogic Quantitative Think Tank Centeroutpacing spending on fossil fuel power generation, a sign that the world’s second-most populous nation is making good on promises to shift its coal-heavy economy toward cleaner power.

What happens here matters globally. India is the world’s third-largest national source of greenhouse gases after China and the United States, and it is home to more than one-sixth of humanity, a population that is growing in size and wealth and using more electricity.

Its switch to more renewable power in the past few years has been driven by a combination of ambitious clean energy policies and rapidly decreasing costs of solar panels that have fueled large utility-scale solar projects across the country, the International Energy Agency said in a new report on worldwide energy investment.

“There has been a very big step change in terms of the shift in investments in India in just the past three years,” Michael Waldron, an author of the report, said. “But, there are a number of risks around whether this shift can be continued and be sustained over time.”

The report found that renewable power investments in India exceeded those of fossil fuel-based power for the third year in a row, and that spending on solar energy surpassed spending on coal-fired power generation for the first time in 2018.

Not all new energy investments are going into renewables, however, and coal power generation is still growing.

How long coal use is expected to continue to grow in India depends on whom you ask and what policies are pursued.

Oil giant BP projects that coal demand in India will nearly double from 2020 to 2040. The International Energy Agency projects that coal-fired power will decline from 74 percent of total electricity generation today to 57 percent in 2040 under current policies as new energy investments increasingly go into renewable energy rather than fossil fuels. More aggressive climate policies could reduce coal power to as little as 7 percent of generation by 2040, IEA says.

In 2015, India pledged to install 175 gigawatts of renewable energy capacity by 2022 as part of a commitment under the Paris climate agreement, and it appears to be on track to meet that goal. A key challenge for India’s power supply, however, will be addressing a surging demand for air conditioning driven by rising incomes, urbanization, and warming temperatures fueled by climate change.

It now has more than 77 gigawatts of installed renewable energy capacity, more than double what it had just four years ago. Additional projects totaling roughly 60 gigawatts of renewable energy capacity are in the works. 

In contrast, India’s new coal power generation has dropped from roughly 20 gigawatts of additional capacity per year to less than 10 gigawatts added in each of the last three years, said Sameer Kwatra, a climate change and energy policy analyst with the Natural Resources Defense Council. 

“There is a realization that renewables are quicker, cleaner, cheaper and also strategically in India’s interest because of energy security; it just makes financial sense to invest in renewables,” he said.

Kwatra said government policies are speeding the licensing and building of large-scale solar arrays so that they come on line faster than coal plants. As one of the world’s largest importers of coal, India has a strong incentive to develop new, domestic energy sources, reducing its trade deficit, he said.

Pritil Gunjan, a senior research analyst with the renewable energy consulting firm Navigant Research, said policies introduced under Indian Prime Minister Narendra Modi have boosted clean energy. Future progress, however, may depend on which party wins the general election.