Growth needs more electricity

Many states need a new electricity policy that can support high economic growth

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The electricity sector in India is poised at a special moment. Despite what policymakers in India might have desired, thermal electricity capacity has stalled. The data from the Central Electricity Authority shows thermal capacity rose from 100 Gw in 2005 to 300 Gw in 2018, and essentially stalled there. The CMIE (Centre for Monitoring Indian Economy) capex projects completion data similarly shows a stall from 2019 onwards.

The infrastructure financing community in Bombay knows that it is no longer possible to obtain financial closure for a thermal-power plant. We are now in a globally integrated financial system, and the ESG (environment, social and governance) revolution has closed off pathways to finance new carbon-intensive electricity generation, worldwide.

Other than the possibility of something being built with pure government money, there will now be no new fossil-fuel electricity generation plant in India.

We are, then, at a turning point where essentially all capacity growth must come from renewables. The electricity sector is, however, designed for the old world, of thermal domination. When additions of thermal capacity go to zero, this poses problems. Capacity addition in solar and wind is taking place.

The CMIE capex data shows identifiable projects completed from 2015 to 2023-at about 4 Gw a year for solar and 2 Gw a year for wind. This raises concern about the extent to which the electricity sector is on a trajectory consistent with strong economic growth. This perspective helps us understand some of the difficulties seen at the peak demand in summer.

Going under the hood, there is much variation across states. Some, like Gujarat and Rajasthan, have fared well on adding solar capacity. Other important consuming states like Karnataka, Maharashtra, and Tamil Nadu have not.