Why is International Solar Alliance(ISA) necessary for India’s growth?

India is pegged to grow at 8.8 percent or more as estimated by the International Monetary Fund, which means that its already humongous energy needs are also set to grow. Traditionally, India’s energy mix is dominated by non-renewable sources, and coal can be seen as the “king” of this mix. However, now that position is threatened by renewable energy sources, especially wind and solar, as 2019 seems to be the pivotal year where the Government of India has decided to increase spending on solar power.^[1]

The push is in line with establishing the International Solar Alliance (ISA), a treaty led worldwide initiative^[2] launched by the Prime Minister of India in 2015. The European Union generously funds the initiative through the European Investment Bank (EIB), with France also committing EUR 700 Million for ISA^[3]. EIB in total has invested EUR 640 million in projects in India^[4] to provide clean energy to more than four million households while also save four million tons of carbon emissions. The initiatives taken by the Government of India with the help of the EU might end up setting a path for India to take the clean energy route due to the volatility of oil prices, the harmful effects of coal, and cheaper power options available through wind and solar energy.

The volatility in the international order, especially in the Middle East, might also play an essential role for India to look forward to green energy sources. The recent escalation of political and military hostilities between the U.S and Iran has led India to offset its imports from Iran^[5]. Over the last five years, it had become India’s third-largest supplier of oil. Along with the escalating situation in the Middle East is also Aramco’s stock prices^[6], which Mohammad Bin Salman Al Saud (MbS) wants to be as high as possible, to achieve his ‘Vision 2030’ plans for Saudi Arabia. MbS wanted the IPO valuation to be valued between 1-1.5 Trillion USD, which would have helped get more than 100 Billion USD for the Saudi sovereign wealth fund, which is needed for the plans above. For the valuation to be pegged at 1-1.5 Trillion USD, oil prices have to be set minimum at 70 USD per barrel. The Saudi’s would have to hope that their OPEC counterparts cooperate with them to maintain higher oil prices to avoid the stocks plummeting of Aramco, the crown jewel of the Saud family business enterprise. Once the pandemic recedes and economies finally open up worldwide to their full potential, we can expect the Saudi’s to increase prices which will affect the countries who are still dependent on traditional sources of energy like oil.

An increase in oil prices means that along with the depreciating value of the Indian Rupee against USD might be the push that the renewable energy sector needs. NITI Aayog has recommended that only Electric Vehicles be sold from 2030^[7]. The announcement then might not have been related to the Middle East’s problems but shows a clear indication of a push towards investing in infrastructure to support Electric or Hybrid vehicles. The recommendation also might help shape up infrastructure to generate electricity for these vehicles through renewable sources.

The budget speech by then Finance Minister Arun Jaitley in 2015 announced the target to quadruple the renewable energy output to 175 gigawatts by 2022^[8], with the energy mix being solar, wind, biomass, and hydropower. India seems to take a giant leap in achieving this target. All further plans to build new coal plants have been dropped by private enterprises, focusing on renewables, especially photovoltaics. Recent trends in the power auctions have indicated that electricity rates are cheaper than their non-renewable counterparts^[9] at less than three Indian Rupees per kilowatt-hour, which coal plants cannot match. The new coal power plants and those under construction cannot get profitable Power Purchase Agreements (PPA).

Operational challenges also exist in the photovoltaic sector too. Solar projects worth Rs.16, 000 crores have been affected due^[10] to the outbreak of coronavirus. The same is applicable for lithium-ion batteries, mostly imported from China, South Korea, and Taiwan. India’s imports of lithium-ion batteries have gone up in the last two years, which shows a gradual shift to electric mobility^[11] rather than a disruptive one.

Chinese companies dominate the Indian photovoltaic sector, which has severe geopolitical risks for India. The Indian Government has already enabled a mechanism^[12] to raise tariffs on imports under green energy equipment like solar modules and cells. The rise in tariffs and the outbreak of the epidemic coronavirus, and the reluctance of banks in India to lend money to renewable energy developers are increasingly turning against India’s goals set under the Paris agreement and as the leading champion of the International Solar Alliance.

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1. Edmond, Charlotte. “India Is Investing More Money in Solar Power than Coal for First Time.” World Economic Forum. May 22, 2019. https://www.weforum.org/agenda/2019/05/india-is-investing-more-money-in-solar-power-than-coal-for-first-time/. ↑

2. “Framework Agreement on the Establishment of the International Solar Alliance (ISA).” ISA. 2016. https://isolaralliance.org/uploads/docs/04519cec12c15e9bc80ad92b3cb10e.pdf. ↑

3. Varadhan, Sudarshan. “France to Commit 700 Million Euros to International Solar Alliance.” Reuters. March 11, 2018. https://www.reuters.com/article/us-india-solar-alliance/france-to-commit-700-million-euros-to-international-solar-alliance-idUSKCN1GN0JU. ↑

4. PTI. “European Union Transfers International Solar Alliance Logo to ISA Secretariat.” The Economic Times. May 11, 2018. https://economictimes.indiatimes.com/industry/energy/power/eu-transfers-international-solar-alliance-logo-to-isa-secretariat/articleshow/64128412.cms. ↑

5. Mohanty, Aayush. “US Policy and India’s Energy Needs.” Vivekananda International Foundation. July 15, 2019. https://www.vifindia.org/article/2019/july/15/us-policy-and-india-s-energy-needs. ↑

6. Mohanty, Aayush. “Why Failure of Aramco’s IPO Launch Is Good News for India?” Vivekananda International Foundation. September 18, 2018. https://www.vifindia.org/article/2018/september/17/why-failure-of-aramco-s-ipo-launch-is-good-news-for-india. ↑

7. “Niti Aayog Recommends Sale Of Only Electric Cars From 2030.” June 19, 2019. https://www.carandbike.com/news/niti-aayog-proposes-ban-on-the-sale-of-combustion-engine-powered-vehicles-by-2030-2055038. ↑

8. “Government’s ‘power for All’ Plan through the Budgets.” The Economic Times. January 15, 2019. https://economictimes.indiatimes.com/industry/energy/power/governments-power-for-all-plan-through-the-budgets/articleshow/67537244.cms?from=mdr. ↑

9. Russell, Clyde. “Column: Coal Going from Winner to Loser in Indias Energy Future – Russell.” Reuters. February 20, 2019. https://in.reuters.com/article/column-russell-coal-india/column-coal-going-from-winner-to-loser-in-indias-energy-future-russell-idINKCN1Q90ON. ↑

10. Bhaskar, Utpal. “Coronavirus Outbreak May Impact 3GW Indian Solar Projects worth ₹16,000 Crore.” Mint. February 17, 2020. https://www.livemint.com/industry/energy/coronavirus-outbreak-may-impact-3gw-indian-solar-projects-worth-rs-16-000-crore-11581929747102.html. ↑

11. Gupta, Uma. “Indian Lithium-ion Battery Imports Quadrupled in Two Years.” Pv Magazine International. February 10, 2020. https://www.pv-magazine.com/2020/02/10/indian-lithium-ion-battery-imports-quadrupled-in-two-years/. ↑

12. Bhaskar, Utpal. “Coronavirus Outbreak May Impact 3GW Indian Solar Projects worth ₹16,000 Crore.” Mint. February 17, 2020. https://www.livemint.com/industry/energy/coronavirus-outbreak-may-impact-3gw-indian-solar-projects-worth-rs-16-000-crore-11581929747102.html. ↑