India should take a calibrated approach on capacity addition in the renewable energy sector to avoid the risk of unintentionally rendering part of fossil fuel-fired generation capacity redundant, says the mid-term Economic Survey Tabled in parliament on Friday.
The survey warns that if existing capacities become redundant, developers would not be able to repay loans, which would pose new threat to banks already reeling under bad loans.
According to the document, a shift to renewables is likely to render a part of the assets in conventional energy generation plants idle or result in them being used at a much lower level than their maximum technically feasible level given their capacities.
The investments in these plants being sunk, it is no longer possible to recover any returns from them although their useful life is still not over.
It estimated that these stranded assets are estimated as the lost revenues due to the suboptimal utilisation of coal based power generation assets as a result of shift to renewables.
It pointed out that the stranded assets can have implications for the banking system depending on their exposure to the sector.
Accordingly, the report suggests that investment in renewable energy be made in a calibrated manner as social costs are high in promoting green energy.
While investments in renewable energy are crucial for India to meet its climate change goals, such investments be made at a calibrated pace looking into the total cost accrued to the society, the mid-year survey said.
It found that social costs of renewables was around 3 times of coal at Rs 11 a unit.
It said, “The social cost of RE generation as well as the gap between RE and coal reduces as we progress towards 2030. This is because private costs of generation as well as the stranded assets in coal, which account for around 30 per cent of the total social cost of renewables currently, falls to around 2.4 per cent of the total social costs of RE in the year 2030. Overall, cost of stranded assets account for a large portion of discounted social costs for renewables between 2017 and 2030.”
However, it said that since the first goal for India is to provide 100 per cent energy access to its population and bridge the ‘development deficit gap’, all cleaner energy sources needed to be tapped.
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