Attracting finances for India’s green energy transition points to a market failure, which results from the difference in the perceived and real risk of investing in sustainable infrastructure in developing countries, said Arunabha Ghosh, CEO of the Council on Energy, Environment and Water (CEEW). He also serves on India’s G20 Finance Track Advisory Group. In an interview to businessline, Ghosh emphasised that the key is to reduce this difference. Excerpts:


How would you describe India’s clean energy transition?

India’s energy transition journey, over the last two decades and especially in the past decade, has been about acknowledging that it is not one but multiple energy transitions that are happening — not sequentially, but simultaneously. It is the first major economy in the world that is trying to chart these paths in a simultaneous fashion.

Numerically, it means that in 2015 when the SDGs were announced, we had the largest number of people without electricity access in the world. From then till now, we have wired at least 100 per cent of the households. The same applies to clean cooking energy such as LPG penetration, and to clean energy deployment (non-fossil fuel capacity).

Third thing, which is particularly worth noting, is that in any country the energy sector has very complex political economies. Even in a country like India there are a lot of unsolved legacy issues such as financial health of power utilities, subsidies and fiscal burden. All these legacy issues continue and yet in this transition we have been able to demonstrate that you can start designing and implementing new energy markets that are designed more on market principles, that can follow transparent auctions, foster competition, reduce cost and scale up fairly rapidly.


What are the challenges that India faces in this transition?

India is now the world’s largest country by population, which means that aspirations for basic human development inputs of education and health, and livelihoods will be there as drivers, but also the macro-economic imperatives of building cities, infrastructure that requires more energy. So, how do we keep delivering exponential rates of energy, while every incremental new electron or molecule of energy is relatively cleaner than the last one.

Second challenge is that even if you are able to maintain policy momentum and targets, are you able to attract investment at that scale. Our estimation is that clean energy, mobility and green hydrogen targets for this decade alone creates an investment opportunity of $500-550 billion (India). Entire exposure of the banking sector to power infrastructure is about $160 billion. So, how do you get three times that number going into the economy?

Third is related to materials, whether it is steel or copper or critical minerals. This is not something that is entirely in India’s control, but India will have to engage as the country that will have the fastest growth in energy demand at least for a major economy over the next two decades.


The Achilles heel of India’s clean energy transition is funding. What is the solution?

The Achilles heel is not lack of finance. It is that we have a market failure, which is the delta between perceived and real risk of investing in sustainable infrastructure in developing countries and emerging economies. Economics would suggest that capital should flow from regions which are capital rich to poor ones, and labour should flow in the opposite direction. We don’t see that happening. Instead, we see that India gets less than 3 per cent of global clean energy investment even though it is already the world’s fourth largest clean energy market, and all of Africa gets less than India, even though it now has the largest number of people without access to electricity. In economics it is called the Lucas paradox.

So, the Achilles heel that has to be sorted out is not the volume of finance, and not meeting a $100 billion goal. It is how I reduce the delta between the real and perceived risk and how do I reduce the real risk itself? That can only happen if I am using public capital intelligently. If I take multilateral development banks as one source of public capital then an intelligent use of that capital is not to use that money to pay for a direct project, but to de-risk 20 such projects. That requires institutional change and reform.


India’s distributed RE initiatives have not delivered intended results. Your thoughts?

First, we have to change our mental models where distributed energy is often thought of as an afterthought in our energy planning worldwide, not just in India. Also, where we think of it as a substitute for, as an alternative to centralised grid connected power. Distributed does not necessarily mean off-grid. It can be grid interactive.

It can therefore be a complement to the centralised grid. It can be a source of reducing transmission losses, solving land acquisition problems and not just in India. It takes 7-10 years now to permit a wind turbine in Europe. So, at that pace you are never going to build out the clean energy infrastructure in the centralised way at the scale that is needed for both meeting energy aspirations and decarbonising goals. So, that mental model itself has to change.


How can it become a viable option?

One, is the supply side approach, by just thinking about what are the sectors where I can make this happen. When I wrote the 2015 article, I think the potential just from solar irrigation was 20 GW, which still exists. But, there are other supply side approaches. India doesn’t have large contiguous land parcels. The supply side approach is that then you find roof tops, canal top, pond top, etc. You can segment the distributed energy market into multiple markets. There is also, I feel what is missing is the demand side, which will come from consumer understanding on what distributed energy can do for them. So explaining to the consumer the opportunity and return of investment, etc is one part of solving for the demand side. Lowering their overall cost creates another incentive structure. The most important thing that will trigger on the distributed energy side is the end consumer financing. When you do all of that the demand side starts fitting in.