Why the power sector in India, is key to it’s growth

While all eyes have been on China and its incredible economic growth in recent years, India has been quietly catching up. Just recently, Apple CEO Tim Cook described the country’s potential as “incredibly exciting”, and it’s a sentiment shared by many. But to live up to this potential, the country's growth is intertwined with the power sector in India.

India’s energy consumption has doubled since the year 2000 and is expected to more than double by 2040, which will account for one-fourth of global increase in that same period. Per capita electricity consumption in the country is less than that of Africa’s and one-tenth of America’s levels. In fact, even though India is the third largest market in terms of gross electricity generation, it still has almost 250 million people without access to power. Rectifying this situation will be critical to ensure India’s economy grows five-fold by 2040 and that policies such as Make in India , Skilling India and Digital India are a success. Energy and electricity growth will therefore become crucial for powering the country’s future.

The national government is aware of the magnitude of this challenge, and in 2014 announced a huge focus on transforming the power sector in India. Only a couple of years after this announcement, there is already evidence to suggest progress is being made: domestic coal production is up, the country’s renewable targets have increased, there’s been a big push for energy efficiency, for example by increasing the use of LED lighting, and financial restructuring programmes have been launched.

The UDAY programme, which was recently launched, could be a game-changer for the country as it is aimed at revitalizing and returning the buying power of the weakest link in the electricity supply chain: the state electricity boards (SEBs). This could result in these SEBs buying 15,000 MW of unsold power in the system today and also providing electricity to 250 million people who do not have access to electricity. The scheme will help the SEBs to bridge the existing latent demand of consumers and the unsold capacity of power developers.

Renewable energy will also play a huge part in India’s economic growth. If India is to reach the target of 40% renewables by 2040, $120-130 billion dollars will be required for the implementation of its renewable energy target of 175 GW by 2022. The magnitude of the task can be gauged by taking a look at India’s entire infrastructure sector debt, which is around $190 billion. India needs to go beyond its restricted financing mechanism and look at more prudent options such as bonds, capital markets and investment trusts or securitized loans.

Infrastructure debt funds and other tools specifically aimed at attracting finance for low-carbon projects and high efficiency technologies, loans for a longer tenure, and attempts to carve out renewable energy as a separate and priority sector are some of the key measures that will help the country ramp up its capacity. Many lenders, specifically non-financial banking companies, are still not providing long-term loans, and tenure is restricted to 12-15 years for the renewable energy sector in India. Institutions under the Ministry of Power should provide longer tenure loans of up to 25 years, matching the asset life and power sale agreement, to make more projects financially viable at lower tariffs and make the sector attractive for investments.

The Modi Government’s reform push to the power sector in India will undoubtedly be the catalyst for the country to become one of the fastest growing economies globally. Electrification will ensure a brighter future for India.

The white paper, Fuelling India's Potential, is available here.