Almost 400 million Indians—about a third of the subcontinent’s population—don’t have access to electricity. This power deficit, which includes about 100,000 un-electrified villages, places India’s per capita electricity consumption at just 639 kWh—among the world’s lowest rates.
The access gap is complicated by another problem: more than three-quarters of India’s electricity is produced by burning coal and natural gas. With India’s rapidly-growing population— currently 1.1 billion—along with its strong economic growth in recent years, its carbon emissions were over 1.6 billion tons in 2007, among the world’s highest.
This is unsustainable, not only from a climate change standpoint, but also because India’s coal reserves are projected to run out in four decades. India already imports about 10% of its coal for electricity generation, and this is expected to reach 16% this year.
India’s national and state governments are taking action to correct this vicious circle of power deficits and mounting carbon emissions. The national government has set a target of increasing renewable energy generation by 40 gigawatts (GW) by 2022, up from current capacity of 15 GW, itself a threefold increase since 2005. Still, renewable sources account for just 3.5% of India’s energy generation at present, so the scale of the challenge is formidable. The cost of meeting it will be high unless the tremendous innovative capacity of India and market reforms can be coordinated to make India a clean energy leader.
This is where subsidies come in. In an earlier blog post , I wrote in support of the Pittsburgh G20 Summit resolution, supported by World Bank analysis, to end fossil fuel subsidies; But subsidies can be used to incentivize the development of renewable energy generation. Along with phasing out the wrong incentives, India’s challenge shows the urgency of bringing in the right incentives to make the shift to renewable energy.
An excellent new study, Unleashing the Potential of Renewable Energy in India , produced by a World Bank team led by my colleague Gevorg Sargsyan, and supported by the Energy Sector Management Assistance Program (ESMAP ), estimates that achieving the Indian government’s renewable energy goals for the next decade will cost $10 - $64 billion in subsidies. The lower-cost scenario is based on developing low-diversity, low-cost renewable energy sources, while the higher-cost estimate is based on a renewable energy mix that is high-diversity, including high-cost sources like solar. Spread over 10 years, the low-cost option is within reach. And if fossil fuel prices continue to rise—free of distorting subsidies— the higher-cost scenarios grow more viable.
But power generation is just part of the challenge involved in exploiting India’s estimated 150 GW of renewable energy potential; the other challenge is transmission and distribution of the power to far flung areas of the country. A $1-billion World Bank loan  approved in 2009 is helping to turn this around. It supports implementation of a plan by India’s national power transmission utility, Powergrid Corporation, to strengthen five transmission systems in the northern, western and southern regions of the country. This will enable transfer of power from energy surplus regions to towns and villages in under-served regions of the country. It will also increase the integration of national grid, resulting in a more reliable system and reduced transmission losses.
By 2050, some estimates put India’s power generation requirements at one terawatt, or one trillion watts. This would be a six-fold increase in India’s current installed power capacity. It is a big challenge. But it is a big opportunity too, for Indian companies, for the creation of Indian jobs, for greater Indian prosperity. Because most of India’s power plants have yet to be built, India has options that many countries can only dream of. Instead of being locked into following a high-carbon energy track, India can lead the way to a lower-carbon, renewable energy path.
India is already home to Suzlon, the third leading wind energy installer worldwide, with almost 10% of the total global market. Other innovative companies in solar energy, biomass energy production, and energy efficiency are growing in India’s vibrant entrepreneurial sector. In addition, India’s waterways offer abundant small hydropower potential that remains untapped because the transmission and distribution capacity is inadequate.