Long-Term Goal-Setting and Planning for Decarbonising the Indian Power Sector – Need for a Coordinated Approach

Executive Summary 

As the 26th United Nations (UN) Conference on Climate Change, also known as the Conference of Parties (COP26), draws closer, the flurry of studies on what India should, or should not, do regarding its international commitments on greenhouse gas (GHG) emissions highlights the importance of both, the process to set long-term goals, and the associated long-term planning to chart a path for the realization of these goals.  

So far India is doing well, and is one of the few countries on a path to fulfilling its commitments for its nationally determined contributions (NDC) for 2030. Since 2010, when the Jawaharlal Nehru National Solar Mission (JNNSM) was launched, there have been unprecedented technological and other changes in the energy sector, particularly dramatic reductions in the cost of renewable energy (RE) based power. The Government of India has responded to these changes by equally dramatic enhancements of the targets for RE generation capacity in the resource mix.  However, the road ahead on the energy transition is going to become more challenging. Therefore, it is important to develop a coordinated approach to both, goal-setting and the associated long-term planning, that is effective and economically sound, so that the energy transition is as smooth as possible, and is done at the lowest cost. 

The focus in this paper is on the electricity sector. Most of the work in India on mitigating emissions has been done in this sector. Examining the long-term goal setting and planning process for the electricity sector should provide lessons and useful insights for other sectors, and for the whole economy. We review how long-term goal-setting and planning are carried out in India at present, identify shortcomings, and recommend changes to make both more effective. Our recommendations are also informed by our review of the experience of two countries with long-term goal-setting and planning—the United Kingdom (UK) and Australia—and the lessons for India from their experience.  

As we look at how long-term goals are set in the Indian electricity sector, several problems come to our attention. First, there is no overarching target in terms of emissions intensity for the sector. (Given that India is a developing economy, it is more appropriate to consider GHG emission-intensity targets for the electricity sector rather than absolute emission targets.) The target for the installed capacity of renewable energy (RE) plants is the closest proxy. Second, there is a profusion of separate targets for almost every resource used to generate electricity. Such an approach reduces the flexibility of distribution companies to select resources to meet their loads, resulting in a non-optimal resource mix, and a higher cost of electricity. The reduced flexibility could also stymie the development and deployment of newer technologies such as battery storage and small modular nuclear reactors. Third, there is insufficient attention to other development goals—domestic manufacturing, import dependence, and employment—when targets are announced. Even when these other goals are considered, ad-hoc measures are taken instead of a well thought out strategy. Fourth, many of the targets are pronouncements but often without an official policy document providing details of the target and outlining the rationale or deliberations behind its selection.   

Planning at the central level will be required to ensure adequacy of the transmission system, and at the local level for the distribution company to ensure adequacy of its network and to serve its remaining customers.

With a greater reliance on markets and privatisation, the nature of long-term planning in the electricity sector has changed, and is now carried out at both the national and local levels. Centralized planning is carried out by the Central Electricity Authority (CEA), and local-level planning is carried out by distribution companies. The CEA brings out the National Electricity Plan (NEP), which should ideally serve as a guide for investments in generation and storage, and should also ensure the adequacy of the transmission system to carry the required loads reliably. India is presently reaching the end of the third NEP (2017–2022). It is important to point out that the establishment of electricity markets, both at the wholesale and retail level, will not obviate the need for planning. Instead, it will make it more challenging. Planning at the central level will be required to ensure adequacy of the transmission system, and at the local level for the distribution company to ensure adequacy of its network and to serve its remaining customers. 

Four steps would greatly improve the NEP. First, it should be an integrated plan, instead of having two parts as is the case now—the transmission part of the plan is developed after the generation part has been finalized. Second, it should consider a much wider range of alternate plausible futures, and address uncertainty in a more comprehensive manner. Third, it should include consultation with a much wider set of stakeholders. Fourth, given the rapid pace of change in the sector and the resulting uncertainty, it should be reviewed in the middle of each five-year period.   

There are also serious shortcomings in long-term planning by distribution companies. Resource planning is not a part of the lexicon of the Indian power sector, and is poorly understood by distribution companies and regulators. At best, the focus is on sufficient generating capacity to meet peak loads—without much consideration of long-term system costs, an optimal resource mix, or risk management. A concerted effort will be required: (a) to increase awareness about the value of resource planning; (b) to develop a regulatory framework for resource planning; and, (c) to train staff of distribution companies and regulatory commissions on the practices of resource planning. 

Once there is sufficient expertise to carry out effective resource planning in distribution companies, it would be best for each state to have an emissions-intensity target for the electricity sector, derived from the emissions-intensity target for the national economy. One option for such a target could be in terms of grams of CO2-eq emissions per kilowatt hour (kWh) sold.1 State targets could be ratcheted down over time, to reduce the sector’s emissions-intensity.  

Each distribution company would need to develop and implement resource plans to meet the emissions-intensity target for its state. A difficult question is how to divide the national emissions-intensity target between states? There are some options we list in the paper, but the choice from those options requires a separate discussion.  

Until recently, planning in the electricity sector did not include building resilience into physical infrastructure, because it was felt that the power sector had well-established engineering rules and processes to cover that aspect. With the increasing number and severity of extreme weather events, not just in India, but across the world, the unthinkable has become the new normal. Planning for such events is important not just to prevent damage to the physical infrastructure, but also to factor-in vagaries in supply, as generation from renewable energy (RE)—wind, solar, and hydro—is directly linked to weather and climate. We cannot afford any longer to label these extreme weather events as unforeseeable; we must prepare for them in our planning processes. Planning, for making the power system more resilient, will not be easy because building-in resilience adds costs. Therefore, to mitigate costs and to find the optimal type and level of resilience that should be built in, long-term planning will require detailed and accurate information about the type and severity of climate risk that an area is likely to face.  

We recommend the following approach for the setting of long-term goals and associated planning, as India navigates its transition to clean energy in the electricity sector. 

• An autonomous and credible agency and a long-term target. We suggest that an autonomous and technically well-respected agency be assigned the responsibility for determining targets for emission intensity or net emissions. This agency could be either a new agency or created from an existing one, such as the CEA, with an expanded mandate to cover climate change issues for all sectors. The same agency should set the target year for complete decarbonisation of the electricity sector. The target year should be based on modelling and analysis of multiple plausible futures to set an ambitious but achievable target. Consultation with a wide-ranging set of stakeholders, and transparency about the assumptions and rationale for the selected target, should be an integral part of the process. 
• Shorter-term planning periods with targets. The period between now and the target date for complete decarbonisation of the electricity sector, should be divided into shorter periods of five years each; each with its own interim targets. These interim targets should be set for the maximum permissible emission-intensity of electricity sold, and stated in terms of grams of CO2-eq per kWh of electricity sold. The interim targets, possibly differentiated by state, should apply to all load-serving entities (LSEs). 
• Five-Yearly National Electricity Plan (NEP) with mid-term review. At the start of each five-year planning period, CEA should develop a NEP that represents the optimal path to reach the target of complete decarbonization. The NEP should identify the required augmentation and upgradation of the transmission grid to ensure transmission adequacy and reliability of the power system. The NEP should be an adaptive plan with signposts and decision-points, and should ideally also serve as a guide for investments in generation and storage. 
• Effective resource planning by distribution companies. Currently the main LSEs are distribution companies, but if and when retail competition occurs at a significant level, retail suppliers would also be LSEs. Targets for emission intensity instead of amounts of specific resources (RE, hydro, etc.) would provide flexibility to distribution companies to procure the optimal resource mix for their specific mix of consumers and load profile. However, in order to take advantage of this flexibility, the distribution companies will need to carry out effective long-term resource planning. As mentioned earlier, power procurement and resource-planning practices of distribution companies have very serious shortcomings as of now. A very significant effort will be needed to enhance the resource planning capabilities of the staff of distribution companies.   

• Effective monitoring by the independent agency. Monitoring the progress of reductions in emission intensity will be critical to India’s success in decarbonising its electricity sector. The independent agency (discussed in the first point above) should be tasked with: (a) monitoring annual progress; and, (b) suggesting corrective actions at the end of the five-year periods.