Now Reading
How China Could Threaten India’s and the World’s Green Energy Ambitions

How China Could Threaten India’s and the World’s Green Energy Ambitions

  • If China is the last man standing in solar photovoltaics, it is reasonable to worry that the world’s renewable energy goals could be subject to unacceptable political risk going forward.

July 24, 2021. It may not be following a linear trajectory, nor does it seem like nearly enough, given the urgency, but there can be little doubt that the world is taking significant action to combat climate change. President Biden has a plan to shift 100% of America’s electricity generation capacity to renewables by 2035 – the world’s most ambitious green energy timeline by far — and is seeking to bankroll that effort with a $1.2 trillion “Bipartisan Infrastructure Framework” bill. The opposition GOP is still obstructing this proposal, but there is some hope that a different iteration of the bill, only marginally less ambitious, will soon pass and put America firmly on the road to a green energy future. Likewise, both China and India, the two other big contributors to CO2 emissions, are also racing ahead to attain less ambitious but equally impressive green energy targets. 

China Aims for Renewables

China is on course to build an additional 1,200 gigawatts (GW) of renewable electricity capacity by 2030, to take its share of renewables to total electricity to 25% by 2030. This is a modest target, compared to America’s, but it was set before recent sharp declines in the price of photovoltaics (PV) and other renewable technologies, and energy analysts are now convinced that current lower equipment prices will enable China to up its renewable electricity capacity by 1,900 GW by 2030 without upping total investments. That would take China’s renewables’ share to 40% instead of 25%. But even this more ambitious forecast may be an underestimate. Solar technology prices are projected to halve again over the next decade, due to innovation and further economies of scale, so the hope is being entertained that the ‘middle kingdom’ will reach 50% of electricity from renewables by the end of this decade. This is a comforting prospect, given that China is by far the world’s biggest emitter of greenhouse gases currently, spewing out 14 gigatons of CO2 equivalent (CO2e) every year, representing 27% of the world’s annual total of 51 gigatons. More importantly, in a business-as-usual scenario, China is forecast to keep increasing total CO2e emissions till 2050, so a more rapid move to renewables could mean, at the least, no further increase in CO2e over current levels. 

Though India contributed only about 2.7 gigatons of CO2e or 6% of the global total in 2020, a mere fifth as much as China, it too has set an ambitious green energy target of creating 450GW of additional renewables capacity by 2030, to attain 40% of total electricity from renewables in that year. To put this in perspective, India’s total electricity grid generated only 380GW in 2020, of which renewables contributed 78 GW. Given its world-beating 100% plus growth rates in renewables in recent years, India’s target seems, on the face of it, realistic. Indeed, it may even be too modest, because, like China’s, it was set before global PV prices dropped sharply during the past 5 years. The new lower prices change the relative economics of solar vs coal so significantly that new coal projects are no longer attractive in India for anything other than load balancing. Utility-scale PV-based electricity from new Indian projects coming on line in 2021 and after, are already being priced at under 2.7 c/kwh, cf. 4c/kWh in the U.S., and at this price, its cost advantage over new coal and gas-based power in India is over 15 %. 

If Indian PV prices are up to 40% higher than world prices, utilities will not have a strong incentive to switch to solar and the whole national plan could come unstuck.

India’s Solar Expertise

India has already demonstrated the capability of building world-scale solar PV utilities – 3 of the 5 largest solar PV plants in the world are currently based in India – and has set aside a huge swathe of the Thar desert in Rajasthan in northwest India, measuring over 35,000 sq. km, for future solar PV expansion. It can thus build dozens of large-scale solar PV plants and still have scope for future expansion. But expertise and space apart, India has the added advantage of robust demand growth. Unlike in the U.S., where electricity demand growth has been almost flat for the past decade and is not expected to grow very much over the next decade, India’s electricity demand more than doubled during the last decade and is projected to almost triple again by 2030 in a best-case scenario, which assumes sustained GDP growth of 7.5 %, or in a less optimistic scenario, double again, at 6% GDP growth.  This robust projected market growth combined with the cost advantage of renewables (even when storage costs are factored in) makes it a distinct possibility that India will get to 50% of renewables by 2030 instead of the targeted 40%. A comforting prospect too. 

However, Indian forecasting models are subject to considerable political and price uncertainty. Currently, India has a world-class indigenous wind turbine manufacturing industry that has already built out a generating capacity of 38GW and supplied about 2GW of wind turbines to local utilities in 2020 alone. By 2030, the plan is to add another 160GW of wind capacity from indigenous supplies.  However, the picture is very different as far as solar is concerned. As of this writing, a small handful of Indian firms including Waree Solar and Adani Solar, are building capacity to manufacture about 3 GW/annum of solar cells in the aggregate. These components will presumably be cut and fabricated from imported silicon ingots, given that there are as yet no indigenous manufacturers of silicon ingots. This small output of PV cells will meet less than 20 % of demand, leaving over 80% of demand to be imported – from China, and its satellite manufacturers in Malaysia and Vietnam. Both imported and domestic cells are then assembled into panels by local assemblers, but panel capacity is also currently inadequate, so some pre-assembled panels will also continue to be imported from multiple sources. 

India’s Questionable Strategy

However, in a context of growing tensions between India and China in recent years, India is now determined to create an indigenous supply chain covering all parts of solar PV technology – silicon ingots, wafers, cells, panels, and inverters – and in response to sustained lobbying by a nascent domestic industry, has steepened prospective (effective 2022) tariff protections from the current 14 % to 25 % for cells and 40 % for panels. There is, however, considerable uncertainty if this strategy will work. Tariff protection has proved to be an ineffective protectant the world over, and India’s experience in most other industries has been no different. 

That apart, the small scale of India’s manufacturers in comparison with China’s, which produces 75 GW per year of PV cells currently and will likely double output over the following decade, means that Indian firms will be under continuous price pressure and will keep clamoring for protection. Such protection will only raise prices for Indian users and slow growth. The slowing effect of existing tariffs is already evident in the drop-off of new solar projects in 2019 and 2020.  If future Indian PV prices are up to 40 % higher than world prices, on account of tariffs, utilities will not have a strong incentive to switch to solar and the whole national plan could come unstuck, but lowering tariffs to the point that they stimulate a shift to solar could expose India to political pressures of an unacceptable magnitude. A Catch 22 conundrum indeed. 

See Also

China will remain a dominant player in solar PV manufacture over the next decade and more, based on its domestic demand alone, and could very well displace the few remaining manufacturers in other countries, including the U.S., through simple price competition. Already, eight of the top ten solar PV manufacturers in the world are Chinese firms; the other two are from Canada and the U.S., respectively. China is not just the market leader but leads in the development of new technology too. Thus, in a possible scenario where China is the last man standing in solar PV, it is reasonable to worry that not just India’s, but the world’s renewable energy goals could be subject to unacceptable political risk going forward. After all, the scale of future PV expansions in the major demand centers in the US, India, and even Europe, represents a big chunk of their energy economies and by derivation, their GDP, and they could be unduly dependent on China. 

But the risk is not just to country economies.  The very future of mankind is at stake here, so creative new ways will have to be found to manage such political risk if that is the reality on the ground. One idea to consider is to create an international buying consortium under the agency of the UN or a similar multilateral agency, which negotiates long-term buying contracts with Chinese PV suppliers and then redistributes products to member nations. Contract violation could be enforced by the threat of major sanctions. Such an arrangement insulates individual countries from political risk. This is surely only one of many possible ways of skinning the cat. If the world puts its mind to it, this is not a hard problem to solve. 

(Top photo: Bhadla Solar Park, Rajasthan, the largest solar park in the world)


Michael Neri is a journalist and researcher based in Fort Lauderdale, Florida.

What's Your Reaction?
Excited
0
Happy
0
In Love
0
Not Sure
0
Silly
0
View Comments (0)

Leave a Reply

Your email address will not be published.

© 2020 American Kahani LLC. All rights reserved.

The viewpoints expressed by the authors do not necessarily reflect the opinions, viewpoints and editorial policies of American Kahani.
Scroll To Top