India Grants for Renewable Energy Shrinking Over the Years: IISD-CEEW Study

The Indian government’s subsidies for renewable energy have more than halved in the last four fiscal years, highlighting the need to shift public financial support away from fossil fuels.

Renewable energy subsidies fell to Rs 6,767 crore in FY21 compared to a peak of Rs 16,312 crore in FY17, according to a joint report by the International Institute for Sustainable Development and the Energy, Environment and Water Council. The decline was mainly due to the fall in year-over-year facilities and grid-scale renewable energy reaching cost equality.

However, subsidies for renewable energy and electric vehicles remain nine times lower than those given for fossil fuels, the report said.

Direct and indirect transfers, lost revenue, supply of goods and services below market value and income and price support by regulations were all considered as a grant for the analysis.

That said, support for coal, and oil and gas has also declined, though not to the relative extent of renewables. Coal subsidies fell 17% in FY21 to Rs 12,976 crore, largely due to an amendment to a paragraph in the Environmental Protection Act which identified enforcement of a coal washing mandate as a subsidy.

The authors noted a “big gap” between the current trend of government support and what is required for the country to meet its 2030 targets of installing 500 GW of renewable energy. India will need to deploy, on average, 25 GW of solar and 11 GW of wind annually to meet that goal. According to Parliament’s Standing Committee on Energy, this requires an annual investment of Rs 1.5-2 lakh crore – more than double what it is today.

Recent developments around home manufacturing of solar equipment, decentralized renewables and green hydrogen suggest that subsidies will increase in the future, the report said.

Why It Is Difficult To Detach Public Money And Fossil Fuels

Energy as a sector is a key source of revenue for the different levels of government.

In FY20, energy expenditure for states, central and union territories was 6.9 lakh hours, about 17% of total revenue. 83% came from the oil and gas sector, largely due to central fuel excise duty and a state-level value-added tax. Coal and electricity together accounted for 16%, while renewables contributed less than 1% to the treasury.

The authors said that medium-term revenue from fossil fuels is likely to increase as India’s energy consumption grows considerably. The projected increase in revenue, however, is volatile depending on policy changes to drive clean energy and uncertainty about pace of progress in India’s net zero targets.

“This dynamic suggests the need to diversify revenue sources when investing fossil fuel revenues to increase the supply of clean energy and boost its demand,” it said.

The report called on the Indian government to start shifting public funds away from fossil fuels in a socially responsible manner. And it said that the government no longer has a clear reason to continue to support coal.

“As a fully mature energy technology, coal does not require government subsidies, and there is no scope for support to create public benefits leading to technological cost reductions,” it said.

“Subsidies seem to be driven by a desire to keep electricity affordable, but it’s not clear why this would be most effectively achieved by subsidizing coal — rather, it would be more effective to subsidize electricity directly or create safety nets for vulnerable people, which would be more effective. It’s technology neutral.”

The report also suggests that the government is forcing public energy sector companies to diversify into clean energy and ministries to increase their lending targets for renewable energy.

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