India’s energy demands will increase more than those of any other country over the next two decades, underlining the country’s importance to global efforts to combat climate change, according to the head of the International Energy Agency.
India’s energy needs are expected to grow at three times the global average under today’s policies, according to an IEA report, as urbanisation fuels a construction spree, consumers increase purchases of appliances such as air conditioners and hundreds of millions of vehicles hit roads.
“The choices made by the Indian government, by the Indian people, will affect the entire world,” Fatih Birol, the IEA’s executive director, told the Financial Times in an interview
India’s energy use has doubled since 2000, with most of that demand met by coal and oil. Energy demand is set to grow about 35 per cent until 2030, down from 50 per cent before the coronavirus pandemic.
Birol said policymakers needed to ensure the next wave of growth is met with renewable energy sources such as solar.
“India is in a position today to pioneer a new model for low-carbon inclusive growth. The nerve centre of climate change is what developing countries do [and] all roads go via India,” he said.
Prime Minister Narendra Modi has set ambitious targets for renewable energy growth, including expanding capacity to 450 gigawatts in the next decade.
Solar energy makes up less than 4 per cent of India’s electricity generation, with coal accounting for about 70 per cent. But solar could catch up by 2040 if India is able to balance its policy goals with real-world constraints.
Covid-19, however, risks denting India’s clean energy transition if it is not brought under control this year. The IEA estimates that Indian energy investment fell 15 per cent in 2020.
The Indian economy is expected to shrink 7.7 per cent in the financial year ending in March, according to government estimates. The health crisis could also increase the dependence of households, particularly those on low incomes, on inefficient energy sources, Birol said. For example, 660m Indians rely on solid biomass such as firewood for cooking fuel.
“India has a huge potential to be the kingmaker in solar electricity, because it is very cheap,” Birol said.
But obstacles to investment in renewable energy sources such as solar persist, including a tricky regulatory environment that creates difficulties over land acquisition and concerns about enforcement of contracts.
“The pace is the issue . . . India is a country where you have strong energy demand growth, rule of law and a strong investment framework. The main issue is to have licensing, giving permission, bringing in investors without falling in the traps of the bureaucracy,” Birol said.
Coal is also expected to continue playing a large role in industry, such as steel production, even as India reduces its dependence on it for electricity generation.
India’s dependence on imported oil is another perennial economic risk and policy challenge. Even under a balanced growth scenario, the country’s fossil fuel import bill is expected to triple over the next two decades.