Meeting India’s Net-Zero Moment

March 24, 2021

India is in the eye of the energy transition storm. No other country must balance the challenges of implementing so many power sector reforms while expanding energy access to hundreds of millions of people. All of this is happening in a time of unrivaled innovations in energy technologies and rapidly changing business models and economics of energy production and delivery. The International Energy Agency’s (IEA) recently released India Energy Outlook reaffirms this, stating that India is “at the center of global energy demand moving forward.” With understandable pressure to bring bold targets to the table at this year’s UN climate change conference (COP26), India may join other Asian nations in announcing a net-zero carbon emissions target. Leveraging the IEA’s latest scenarios, partner nations need to be prepared to design bilateral energy partnerships that meaningfully meet India’s net-zero moment. For the United States, here are some steps to forge a new partnership.

Re-cast the U.S.–India Strategic Energy Dialogue

U.S.-India energy cooperation has a long history and has seen cooperation on many fronts, including civil-nuclear cooperation, the fossil fuel sector, as well as a focus on renewable energy technologies and grid infrastructure. These efforts have served their purpose well, given the time in which they were operating. However, the changing landscape of energy economics and technological and business model innovation, along with the urgent imperative to act on climate, requires re-casting the pillars of cooperation with some new strategies that will benefit both parties in navigating the transition together.

• Activate a working group on critical minerals and supply chains. According to the IEA, $1 out of every $7 spent worldwide on solar, wind, and energy storage technologies will be spent in India by 2040. Given that India’s new energy security concerns will stem from powering its energy transition, a concern shared by partners making up the Quadrilateral Security Dialogue, activating the recently announced working group focused on developing and processing supplies and supply chains of critical rare earth minerals should proceed immediately. A starting point for discussions could be determining how the United States and allied partners can develop these supply chains, which are currently dominated by China. The dialogue will also require the participation of trade and commerce agencies to chart a pathway of least conflict that ensures equitable sharing of opportunities from the explosion of this new industry.

• Change the coal working group into a working group on the coal transition. There was a time to aid India in the buildup of its coal-powered energy generation assets. But that was when India did not have enough power to meet its demand; coal was the cheapest source of electricity for the country, with no viable alternatives on the horizon; and air pollution, water stress, and climate action concerns surrounding the coal value chain were not as acute. That time is long gone. According to the IEA, the future of thermal coal in India is set to decline to 30 percent of the electricity generation mix, from 70 percent, by 2040. Additional analysis from EMBER suggests that coal-fired generation may have peaked in 2018 and on-grid coal capacity could crest in the next five years both due to the Covid-19 electricity demand shock and India’s commitment to meeting its stated renewable energy and old thermal power plant phasedown targets.

Snapshot of various coal-fired generation scenarios in India.

As it is, the United States does not have a Ministry of Coal to match dialogue with India’s, and its own coal industry has seen rapid decline. While there is of course still a need to engage India’s coal sector in water and air pollution management, power plant flexibility, and efficiency of resource use, a stronger partnership would be one that aid’s India’s coal sector, and her coal-rich states, in making a transition. Such a dialogue could focus on:

• Developing coal transition readiness assessments; establishing an institutional mechanism that will drive an action plan, which should include structuring financial packages and strategies for coal-dependent communities such as securing pensions; establishing new skilling and training programs; and rebuilding communities in decline.


• Preparing business transition plans, informed by analysis such as that started by scholars at Imperial College, for state-owned enterprises such as Coal India Limited, which has already started to diversify its business into renewables, and Indian Railways, which is dependent on coal transport revenue but has itself declared a net-zero carbon emissions target.


• A new U.S.-India utility-to-utility partnership to jump-start the conversation and planning for gradual phaseout of coal for not only state-owned power generation and distribution utilities but also private players such as Tata Power, JSW Energy, and Adani. U.S. utilities devising such plans including Xcel Energy and NextEra could be key partners to involve.


• A regulator-to-regulator subnational dialogue on the matter to dovetail with the utility partnership to create a supportive policy regime that can help coal plants provide flexibility during the time of transition.


• Leaders from coal-value chain dependent states in both the United States and India should be part of the dialogue as they navigate the need to balance state budgets with shrinking revenues from the sector and the need to set up new institutions and regulations to manage the transition.

• Shifting focus of the U.S.–India gas task force. The S.–India Gas Task Force set up in 2017 managed to win industry and regulatory experts’ support to aid in the development of gas market reforms, grid infrastructure, and a gas demand growth strategy. The most important outcome of this task force was its role in helping India launch its first-ever gas trading hub. However, the IEA states that gas as a percentage of India’s energy mix in the best-case scenario will only double from the current 6 percent, indicating that the vision of India transforming into a “[fossil] gas-based economy” is unlikely to materialize. Furthermore, the IEA states that in its Sustainable Development Scenario (as opposed to the Stated Energy Policy Scenario), the revenue unlocked by substituting the oil and gas import bill of the country is approximately $1.4 trillion. This is roughly the amount, the IEA states, needed to finance India’s clean energy transition over 20 years. This calls for shifting the focus of the existing gas engagement strategy with India.

The growing import bill for fossil fuels in India implies significant vulnerability to global energy prices and market volatility.

Furthermore, India is about to release a national hydrogen energy mission. The possibilities of leveraging gas infrastructure assets to distribute and use renewable-energy-produced “green” hydrogen could be the best way to help India’s energy transition while still providing a role for India’s oil and gas industries in the transition and without suffering huge losses from investments made in gas infrastructure. The market creation possibilities for green hydrogen will likely increase, as this fuel could be a way to decarbonize the industrial sector. This calls for broadening the discussion and focus of the current U.S.-India Gas Task Force to include hydrogen-sector stakeholders, including industries such as cement and steel that can decarbonize through the use of this fuel.

Establish a Platform to help Electrify Everything

The IEA states that in order to meet electricity demand over the next 20 years, India will need to add a power system the size of the European Union to what it has now. Demand will surge thanks to millions of households purchasing new appliances, for example, air conditioning units. In addition, as hundreds of millions of more vehicles are added to Indian streets, India’s oil imports will swell to meet over 90 percent of its demand. With the success of the Saubhagya Initiative, which helped extend utility networks to virtually all homes across the country, a commitment to electrify everything (and do so efficiently) could help mitigate India’s pollution footprint while saving the country billions of dollars annually. In addition, it would help state-owned utilities spur new business verticals and stimulate much-needed demand to purchase electrons through the newly expanded service areas. A new platform made up of various partner nations, industries, and experts to help India electrify everything would:

• Align India’s overlapping “gas-based” and “electricity-based” economy strategies;


• Accelerate transportation electrification and expand electric vehicle charging networks;


• Electrify cooking and other household appliances (particularly in rural areas);


• Support the deployment of bulk-procured behind the meter storage solutions and rooftop solar projects;


• Maximize electrification of and energy efficiency in industrial and agricultural processes; and


• Integrate electrification, energy efficiency, and demand response strategies for the country’s building space, which is expected to double in size in the next two decades.

Innovation

India has several bilateral energy research and development collaborations with countries around the world. To establish the knowledge economy of the emergent energy sector, particularly of those technologies upon which India will rely to meet its net-zero ambitions, countries like the United States should ensure they support joint R&D efforts in the following five areas: solar technologies, wind technology, energy storage, electric vehicles, and hydrogen. In addition, helping create innovation ecosystems at the state and local level are critical to leveraging India’s vibrant research ecosystem, venture capital networks, and industries.

• In its scenarios, the IEA suggests thermal coal will converge with solar in making up 30 percent of India’s electricity generation mix by 2040. With such a significant portion of its energy system to be powered by solar, and significant capital expenditure on the technology in-country as well, India will want to maintain an edge in innovations in this sector.


• India already has a robust wind technology manufacturing industry and was an early leader in installing large capacities of wind power. As it ventures into the deployment of offshore wind turbines and repowering of old turbines, having a robust research and development collaboration in this sector is in India’s interests. It could be supported by collaborations with energy agencies in places like New Jersey and New York, which have designed large offshore wind projects with reasonable tariffs that also paid for port revitalization (another of India’s interests). A partnership on wind technology could also include helping India set up a world-class wind turbine design and testing facility like the ones established in Massachusetts or South Carolina so domestic-made turbines need not travel thousands of miles for testing needs.


• Energy storage and electric vehicles. Leveraging India’s established automotive industry and its early success in electric vehicle innovation, joint R&D efforts in this space will dovetail with its transportation electrification agenda. On energy storage, the IEA states that by 2040, India will be one of the biggest markets for energy storage technologies because of its grid flexibility needs. Thus, partnering with India on this technology is critical in supporting its energy transition ambitions. One way to do so would be to help establish battery innovation centers like the one called for in Karnataka’s electric vehicle and energy storage policy in 2017.


• Establishing connected innovation ecosystems. Certain geographies, like California, have all the right ingredients for spurring technological innovations and new business models that push the energy transition forward. Yet these ecosystems were not created overnight, and they require strategic partnerships between research institutions, industry, government, and finance. Indian states should learn from their peers in how to establish such ecosystems. It may require the birth of new government departments like the New York State Energy Research Development Authority (NYSERDA) and the Massachusetts Clean Energy Center (MassCEC) or new funding vehicles like the California Clean Energy Fund (CALCEF).


• The IEA states that in order for India to decrease dependence on coking coal, vital in heavy industrial processes such as the manufacturing of steel and cement, it will need substantial fuel substitution solutions, like green hydrogen. Herein lies an opportunity for foreign collaborators to engage with Indian public and private institutions in the activation of its hydrogen sector.

Partners in Energy Transition

Energy has always been a key pillar of U.S.–India cooperation. The focus of this partnership has always shifted to match India’s needs, be it civil-nuclear cooperation, helping improve thermal power plant efficiency, supporting the growth of the renewables industry, or meeting domestic gas demand. Now India might be on the verge of taking a leap with its energy transition sooner than many expected, and at a tempo some might consider risky. But officials know that the risks of inaction and the opportunities that are unlocked from taking the leap are even greater. The recommendations explored here not all-inclusive for how a country like the United States might partner with India’s energy transition. Indeed, there are many more government and non-government partners that can offer a “whole of U.S.” engagement with India on the matter. These recommendations offer a template for how to take that leap with India and meet its net-zero moment.

Kartikeya Singh is a senior associate (non-resident) with the Wadhwani Chair in U.S.-India Policy Studies and the Energy Security and Climate Change program at the Center for Strategic and International Studies in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2021 by the Center for Strategic and International Studies. All rights reserved.