Economic Survey: India Should Calibrate Investment in Green Energy

Investment in RE should be made in a calibrated manner as social costs are high in promoting green energy, the Economic Survey has observed. The mid-year Survey, introduced for the first time, has also taken a cautious stand on the impact of encouraging green energy on the banking sector which is struggling to deal with bad loans in stranded power sector projects. 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% of the total social cost of renewables currently, falls to around 2.4% 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% energy access to its population and bridge the 'development deficit gap', all cleaner energy sources needed to be tapped. 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 max 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. It said that in a situation where the banking system is already facing a stressed assets problem, stranding of assets could have a considerable impact. The NPA ratio pertaining to electricity generation was around 5.9% from total advances (outstanding) of Rs 4,73,815 Cr. The total advances to coal sector were Rs 5,732 Cr with a NPA ratio of 19.8%.