India's Subsidy Support For Renewable Energy Shrinking Over The Years: IISD-CEEW Study

The Indian government's subsidies for renewable energy has more than halved over the last four fiscals, highlighting the need to shift public finance support away from fossil fuels.

Renewable energy subsidies fell to Rs 6,767 crore in FY21 compared with a peak of Rs 16,312 crore in FY17, according to a joint report by the International Institute of Sustainable Development and the Council on Energy, Environment and Water. The decline has been mainly due to a fall in year-on-year installations and grid-scale renewable energy achieving cost parity.

Yet, subsidies for renewable energy and electric vehicles remain nine times lesser than those given out for fossil fuels, the report said.

Direct and indirect transfers, foregone revenue, provision of goods and services below market value and income and price support through regulations have all been considered as a subsidy for the analysis.

That said, support for coal, and oil and gas also declined, although not to the relative extent of renewables. Coal subsidies fell 17% in FY21 to Rs 12,976 crore, mainly due to an amendment to a clause in the Environment Protection Act that identified enforcement of mandate of coal washing as a subsidy.

The authors noted a "large gap" between current trend of government support and what is required for the country to meet its 2030 targets of installing 500 GW of renewable energy. India will need to deploy, on average, 25 GW of solar and 11 GW of wind every year to meet that target. According to a Parliamentary Standing Committee on Energy, that requires annual investments of Rs 1.5-2 lakh crore—more than double of what it is today.

Recent developments around domestic manufacturing of solar equipment, decentralised renewables and green hydrogen suggest that subsidies will increase in the future, the report said.

Why It Is Hard To Decouple Public Money And Fossil Fuels

Energy as a sector is a key source of revenue for the different levels of the government.

In FY20, energy revenue for states, centre and union territories was at Rs 6.9 lakh crore, around 17% of the total revenue. 83% it came from the oil and gas sector, largely due to central fuel excise duty and state-level value added tax. Coal and electricity together formed 16%, while renewables contributed less than 1% to the exchequer.

The authors said medium-term revenue from fossil fuels will likely increase as India's energy consumption grows considerably. The forecasted increase in revenue, however, is volatile depending on policy changes to push clean energy and uncertainty about pace of progress in India's net-zero targets.

"This dynamic suggests the need to diversify revenue sources while investing revenue from fossil-fuel sources to augment the supply of clean energy and incentivise its demand," it said.

The report has called on the Indian government to start shifting public finance away from fossil fuels in a socially responsible way. And it said, the government had no clear reason to continue supporting coal anymore.

"As a fully mature energy technology, coal does not require government subsidies, and there is no scope for support to create public benefits by driving technological cost reductions," it said.

"Subsidies appear to be motivated by a desire to keep electricity affordable, but it is not clear why this would be most effectively achieved by subsidising coal—rather, it would be more efficient to subsidise electricity directly or create safety nets for vulnerable people, which is technology neutral."

The report also suggests that the government mandating energy public sector companies to diversify into clean energy and ministries to increase their lending targets for renewables.