Costly coal has pushed Karnataka to become India’s renewables leader

Leading the way.
Leading the way.
Image: Reuters/Fred Lancelot
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The southern Indian state of Karnataka is now a renewable energy leader.

Over the last one year, it has toppled Tamil Nadu to become the country’s biggest renewable power producer with an installed capacity of 12.3 gigawatts (GW, or 1,000 megawatts). This includes 5 GW of solar, 4.7 GW of wind, and around 2.6 GW of other renewables such as small hydro, biomass, and heat and power cogeneration. In comparison, the state’s coal power capacity is around 9.8 GW.

In 2013, Karnataka, whose capital Bengaluru is India’s tech hub, had a coal power capacity of 6.8 GW, far higher than its clean energy capacity of 4 GW back then.

So, what drove this shift in the electricity mix of the state? The rising prices of coal, coupled with some innovative policies from the government, experts say.

Costly coal

Over the last year, wind and solar power have become cheaper than thermal energy in India. Meanwhile, the thermal power sector is under stress, with electricity tariffs rising due to an increase in coal prices and a shortage of coal.

This has resulted in the country’s power sector shifting aggressively from coal-based power to renewables.

For Karnataka, which was facing a power crunch, moving to renewables seemed like the obvious option. ”There was more demand as compared to supply. (Karnataka) wanted power badly and with low gestation period, and solar fit the bill. That’s why they came out with encouraging schemes that would fill up the demand quickly,” Amit Kumar, cleantech partner at consulting firm PwC, told Quartz.

As a result, there has been a massive push in the state to change its electricity mix, according to a study by US-based think-tank Institute for Energy Economics and Financial Analysis (IEEFA), released on July 24.

“Recent solar tenders in Karnataka have seen near record low bids of Rs2.82-3.06 (per unit), materially below the average Rs3-5 for domestic thermal power tariffs and the Rs4-6 tariffs required for imported coal-fired power,” the IEEFA said in the study. “Given the expensive imported coal-based tariff… distribution companies have a major incentive to contract for new solar and wind at below Rs3 (per unit).”

Generous policies and regulations

In quick time, Karnataka came out with multiple policies that encourage setting up of solar parks, pilot new technologies, and help farmers get into renewable energy generation.

For starters, the Karnataka Electricity Regulatory Commission (KERC) withdrew a slew of surcharges levied on private companies that sell renewable power directly to consumers and not through the state electricity utility. This led to a sharp rise in private power production.

Then, the state devised a unique scheme to acquire land to set up solar plants. Procuring land from farmers for industrial use is one of the biggest problems in India, but Karnataka planned a workaround.

“The constraint usually is the land resource because you need so much land for each megawatt. The government identified pockets of the state where agriculture is not very intensive and not very remunerative. So without going in for land acquisition, they made a very good arrangement of making use of land for a fixed payment for (a) year. It is a partnership between government and farmers,” said MR Sreenivasa Murthy, former chairman of the Karnataka Electricity Regulatory Commission.

This move, in particular, helped develop the 2 GW Pavagada industrial solar park, the world’s second-largest such facility that’s under construction.

There was also a scheme specifically designed to get farmers to produce solar power. Under this, farmers could use government subsidies to switch to solar-powered irrigation pumps and sell the surplus power into the grid.

In addition, the state encouraged piloting new technologies such as the solar-wind hybrid where both windmills and solar panels are put up on the same piece of land. Karnataka today houses India’s first major hybrid plant.

Short-lived glory?

Will Karnataka maintain its lead?

Analysts believe it depends on how rapidly demand grows.

“All this they were able to plan well, execute it well because there was a supply-demand gap,” Kumar of PwC pointed out. ”They will have to plan (for the development of renewables). But in case they are able to meet the demand going forward, you will find the same issues that other power-surplus states face.”

Today, states such as Gujarat or Madhya Pradesh have seen a slowdown in renewable energy growth because of surplus supply and a lack of demand for additional capacity.

Meanwhile, policies that attracted many renewable energy companies to Karnataka are now being rolled back.

“These kind of adjustments are quite to be expected. Once the generation cost of renewables has gone even below the cost of thermal, then of course, some of those highly-favourable (policies) need to be moderated,” Murthy said. In May 2018, the state repealed its order on zero surcharges, and also imposed charges on power developers.