March 27, 2014

Changes Sought in Renewable Energy Policy in India

India can save up to 78 per cent in subsidies provided to the green energy sector by making adjustments to its renewable energy policies, according to a new study.

As per this joint study from Climate Policy Initiative (CPI) and the Bharti Institute of Public Policy at the Indian School of Business (ISB), India’s current wind and solar policies were not as cost-effective as they could be.

“For wind energy, reducing debt cost to 5.9 per cent and extending tenor by 10 years can cut the cost of total federal and state support by up to 78 per cent.

For solar energy, which is more capital-intensive, reducing debt cost to 1.2 per cent and extending tenor by 10 years can cut the cost of support by 28 per cent,” the study says.

However, the report said cost-effectiveness was not the only goal outlined in Indian renewable energy plans. “Other goals, such as maximising deployment given a fixed annual federal budget, incentivising production, and supporting renewable energy without requiring state support, are also important to policymakers,” it said.

“Across these criteria, alternative policies still perform better than current policies. For example, the federal government’s annual budget may be insufficient to provide reduced-cost, extended-tenor debt. If its goal is to maximise deployment given a fixed federal budget in a given year, other policy options, such as interest subsidies are still more attractive than existing policies,” it added.

In particular, for wind energy, compared to the existing generation-based incentive of INR 0.5/kWh, an interest subsidy of 3.4 per cent would be 11 per cent less expensive and support 83 per cent more deployment.

“Although there are no clear winners across all criteria, our analysis presents policymakers with crucial tradeoffs that would enable them to choose appropriate federal policies based on relevant policy goals,” said David Nelson, senior director of research and programs at CPI.

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