The importance of new and renewable energy has been a prominent issue since the Paris climate agreement in 2015. The Paris Agreement aims to keep the average temperature rise below 2°C compared to before industrialization, and to limit the future temperature rise to 1.5°C or less. The main responses to the Paris climate agreement are centered on the active use of eco-friendly energy such as new and renewable energy and policies to support the ecosystem of low-carbon industries. Responding to the global green movement, the Korean government declared carbon neutrality in 2020 and announced policy plans to create a low-carbon ecosystem. However, the small size of the domestic renewable energy market is making it difficult to mass-produce renewable power generation plants. Also, as the international community’s transition to a low-carbon ecosystem is rapidly taking place, Korea needs to actively meet its Nationally Determined Contributions (NDCs) through various overseas cooperation projects if it is to achieve carbon neutrality by 2050. Therefore, it is clear that energy cooperation with developing countries will be needed to explore new markets and secure NDCs through overseas expansion.
Considering India’s recent expansion of the renewable energy market and its active policy supports, India is likely to grow into a major partner for Korea in the renewable energy sector. India is currently active in expanding new and renewable energy to solve its domestic air pollution issue, and the demand for renewable energy is expected to grow in the long term. Currently, India’s renewable energy market is a major market on the global level. Specifically, the volume of India’s renewable energy production is second in the world, right after China.
Therefore, in light of the growing importance of renewable energy and NDC needs, research on India’s renewable energy market is necessary. This study aims to produce a report on India’s renewable energy market and policy implications for Korea-India cooperation in renewable energy sector through analysis of India’s energy and renewable energy market, renewable energy policies and systems, and firm-level cases.
First, this study analyzes the current status of the Indian energy and renewable energy market and the structure of power production using various quantitative data. The supply of Indian energy is composed of domestic production, such as coal and renewable energy, and imports, such as crude oil and coal. In particular, due to India’s rapid economic growth and increased domestic demand, imports are increasing faster than domestic production. This means that the supply of new and renewable energy is increasing in terms of energy supply in India, but the use of non-renewable thermal energy is increasing due to the imbalance between energy demand and supply in India. India’s final energy consumption is changing from direct consumption of new and renewable energy to secondary energy consumption such as oil and power. India’s final energy consumption is mainly focused on the industry, which is relatively larger than housing and home demand. Specifically, the final energy demand in the industry is in coal, and the final energy demand in housing and home lies more in electricity and crude oil than renewable energy. The decrease in direct consumption of new and renewable energy in final energy is based on the current energy situation in India, where it is difficult to produce enough renewable energy and large amounts of renewable energy are converted to power. Meanwhile, Indian electricity is mainly produced using coal, but production using renewable energy sources has recently expanded. In particular, Maharashtra, Gujarat, and Tamil Nadu, where electricity production is active, are actively utilizing renewable energy sources along with coal. In particular, India’s electricity consumption based on renewable energy in the industry, home, and residential sectors is rapidly increasing.
The current status of power generation using renewable energy in India is as follows. Renewable energy generation in India mainly focuses on wind power, solar energy, and bioenergy (Burgas). In other words, renewable energy such as waste or new energy such as hydrogen energy are not the major energy source for power generation. Also, the proportion of solar energy sources is rapidly increasing with the help of expansion of India’s renewable energy generation facilities. Most of India’s renewable energy generation facilities are owned by private agents. India’s renewable energy generation facilities and power generation are active in southern and western India, such as Karnataka, Tamil Nadu, and Maharashtra.
Next, let’s look at India’s renewable energy policies and regulatory systems. The size of the Indian federal government’s clean energy budget is very large even in international terms, confirming the Indian government’s willingness to switch to new and renewable energy. The starting point of India’s current new and renewable energy policy can be said to be the National Action Plan on Climate Change. The National Solar Mission is a representative new and renewable energy-related policy that has been effective so far through upward adjustment of the target. The National Policy on Biofuels is a key policy for the spread of biofuels, and the National Offshore Wind Energy Policy, which began in 2015, is being promoted with the aim of developing and spreading wind power around exclusive economic zones (EEZs). The Hydrogen Energy Mission is a policy introduced in 2020 and is an area that the Indian government is paying new attention to. Electric vehicles are also an area actively fostered by the Indian government. In addition, the Indian government promotes renewable energy generation through the Tariff Policy, introducing mechanisms for renewable energy generation certification and issuing certificates to implement the Renewable Purchase Obligation (RPO) in 2010, while providing incentives to power generation operators. In addition, the renewable energy auction system is also being activated.
The recent laws and systems related to energy, new and renewable energy in India are characterized by the overall marketization. The amended Electricity Bill of 2021, announced in 2021, includes the abolition of the government license system for power distribution operators and the free entry of companies. It also includes fines for distribution companies that do not comply with the RPO and transferring the authority to set renewable energy purchase obligation levels from the state to the federal government to more systematically respond to climate change.
Recently, the Indian government has provided direct and indirect incentives to producers of green hydrogen and ammonia through the Hydrogen Energy Mission, expanding the room for production activities. In addition, companies are actively entering the Indian electric vehicle market due to the long-term growth prospects of the Indian market, such as an increase in the middle-class population, the possibility of expanding the low-cost electric vehicle market due to battery price cuts, and confidence in the Indian government’s policy will to expand the use of electric vehicles.
India’s Ministry of Power oversees energy legal systems and policies, while the Ministry of New and Renewable Energy is in charge of overall implementation, including the development and spread of new and renewable energy. Currently, the Minister of New and Renewable Energy also serves as the Minister of Electricity, so the importance of new and renewable energy in energy policy can be confirmed. In addition to the federal level, individual states operate agencies in charge of new and renewable energy under the Ministry of New and Renewable Energy, and State Electricity Regulatory Commissions (SERCs) establish state-level regulatory systems and consult with the union government and the other states. The Indian state government’s new and renewable energy policies are aligned with the federal government’s policies, and many of the state’s policies are being promoted in connection with the federal government’s policies or projects of new and renewable energy policy.
India’s trade and investment policy related to the new and renewable energy industries shows a clear trend of protectionism and the tendency to foster domestic industries. In the case of solar cells and modules, which have the largest import volume in the new and renewable energy sectors, the import tariff rate has been raised from 0% to 40% and 25%, respectively. Companies do not appear to benefit from the Production-Linked Incentive (PLI) for high-efficiency solar PV module and ACC battery storage unless they can make large-scale facility investments and meet local procurement conditions, etc. Moreover, PLI does not function effectively as a preemptive source of funds for production facilities because the benefits are provided after the suggested plans are finished. As of September 2022, the selected beneficiaries of the PLI are all companies of Indian origin planning to make large-scale investments.
In addition, this study examined the current status of cooperation between the Indian government and Japan, the United States, the EU (Germany), China, and Korea, together with the major achievements up to date and cases of market entry. Japan, the United States, and the EU (Germany) have recognized India as a strategic partner for energy security and launched a government-level energy dialogue with India to discuss agenda on the development of new and renewable energy in early 2000. The background of the energy dialogue is that the Indian government has begun to consider energy security as a key foreign economic policy of the country since 2000, leading to an increase in the demand for energy technology, policies, and management with major countries.
Meanwhile, major countries are exploring opportunities to enter the market while expanding cooperation with India on renewable energy. Japan, the United States, and the EU (Germany) have signed clean energy partnerships at the government level recently and are discussing areas such as low-carbon power generation, overseas reduction projects, hydrogen energy, and electric vehicles from a long-term perspective. In addition, renewable energy companies in Japan, the United States, and the EU (Germany) are expanding their entry into the Indian renewable energy market. Most of the these are large companies, with the solar and wind (offshore) power sectors accounting for a large portion.
The main areas of entry were equity investment, establishment of joint ventures with local companies, and order contracts. In recent years, many manufacturing plants have been established in India to target domestic market and use their factories as an export base to third countries. On the other hand, India is highly dependent on China as a major supply chain of the global solar market.
Despite recent setbacks to the two countries’ political relations due to border issues, they are cooperating in the renewable energy sector. On the other hand, it was found that Korea had no regular energy-related channels with India at the government level, though cooperation in renewable energy has been discussed at the summit level. In 2015, the two countries set clean energy as a major issue of cooperation and decided to promote exchanges between ministries and agencies. In 2018, they signed a memorandum of cooperation to expand renewable energy projects. In addition, Korea decided to select green energy as an ODA strategy for India in 2022 to support India’s greenhouse gas reduction and actively participate in climate change. In April of the same year, a public-private meeting on decarbonization in the Indian-Pacific Economic Frameworks (IPEF) was held to consider joint response measures.
This study also investigated how market players such as multinational companies in India and Korean local companies evaluate the Indian renewable energy market and their demands on the policy side through in-depth interviews and survey. From the interviews, we found that most companies consider the Indian renewable sector as holding sufficient market potential. Multinational companies pointed out high demand in Indian renewable energy consumption and the government’s supportive policy as major factors for international players to enter the Indian market. Also, most companies responded that the Indian renewable energy market has significant growth potential in the near future, as recent projects from the Indian Solar Energy Corporation (SECI), which exclusively implements central public sector undertakings, are scaling up in terms of the amount of power generation and financing for these projects.
On the other hand, some barriers to the Indian renewable market were identified. Firstly, multinational companies emphasized that newcomers should consider whether they have an advantage in market price on their products since the Indian renewable market has been competitive due to Indian and Chinese companies already dominating market. Secondly, companies identified the negative financial situation of Indian state transmission companies, so called DISCOMs, and the states’ policy discontinuity as factors hindering small and medium companies from entering the Indian market. Lastly, some companies have experienced land-related disputes with the local community as renewable energy projects generally require large sites.
According to the survey results for domestic renewable energy companies, the proportion of small and medium-sized enterprises (SMEs) participating in the survey was very high. By energy source, the proportion of solar power and solar thermal was overwhelmingly high, followed by wind power and biomass.
Among the government’s renewable energy overseas expansion support policies, companies mainly utilized the “Overseas Feasibility Study Support System.” When examining the propensity of renewable companies to advance into overseas markets, ‘Lack of institutional support for overseas expansion’ was highlighted among the exogenous factors preventing companies from advancing into overseas markets. In addition, companies are giving priority to the US, India and Vietnam as countries for future expansion both in the short-term and mid-to-long term perspectives.
Meanwhile, according to evaluations of the Indian market, there were opportunity factors such as ‘seeking market exploitation’, ‘discovering strategic cooperation partner’, and ‘market preoccupation’, whereas ‘raising funds for overseas business’ and ‘insufficient market information’ were found to impede entry into the Indian market. In particular, Korean companies pointed out local policy and system issues, such as the complexity of Indian laws or institutional inertia.
Through in-depth interviews with multinational companies and surveys on Korean renewable energy companies, it was found that Korean companies such as solar parts and equipment purveyors positively considered the Indian market in terms of ‘seeking market exploitation’ and ‘market preoccupation’. However, given the high market share of Indian and Chinese companies due to their low prices of products and services, the government’s support system should be better equipped to help Korean companies gain price competitiveness. In addition, a cooperative system to strengthen the network for ‘finding strategic cooperation partners with major local companies in India’ is also required.
Through the various analyses conducted above, we find that Korea-India renewable energy cooperation is necessary. Considering India’s fast-growing renewable energy market, demand, and overseas cooperation with global countries, India’s renewable energy sector can be a potential area of cooperation for Korea. In addition, India has plenty of Clean Development Systems (CDMs) which could be helpful to secure Korea’s overseas NDC reduction. Also, demand for new and renewable energy derivatives products such as electric vehicles, batteries, hydrogen, and secondary batteries in India is increasing, making it possible to conduct various cooperation projects related to new and renewable energy with Korea.
However, there are various obstacles for Korea-India cooperation. Specifically, we could not find any regular cooperation channels between Korea and India in the energy sector, while India’s domestic trade and investment policies for renewable energy market are quite domestically oriented. Also, it is difficult for foreign companies to benefit from the Indian government’s incentives related to renewable energy as the project sizes are relatively large. Price competition in the Indian renewable energy market is also intensifying so that Korean firms, which are mostly SMEs, find it hard to place competitive bids to the project. In addition, the policy support of local governments in India is highly volatile, and financial accessibility is also a problem. To strengthen Korea-India renewable energy cooperation, this study proposes the policy tasks of conducting Korea-India energy dialogue; establishment of Korea-India climate change cooperation agreement; initiation of Korea-India renewable energy pilot projects; and the strengthening of competitiveness for Korean companies.
First, in order to expand the scope of Korea-India renewable energy cooperation, it is necessary to establish a window for discussion between the governments. Through the 2015 and 2018 summits, Korea and India upgraded their level of cooperation, but it is difficult to say that cooperation in new and renewable energy has gained significant momentum. This is because there is no regular energy-related dialogue between Korea and India. Therefore, in order to upgrade Korea-India renewable energy cooperation, it is necessary to establish a Korea-India energy dialogue and operate this channel regularly. In particular, the dialogue can be helpful to discuss future NDC projects and to strengthen energy technology through industrial cooperation in both countries’ public and private sectors. In addition, the Korea-India energy dialogue can be a window to discuss energy security issues in the two countries.
Also, it is necessary to establish a Korea-India climate development cooperation agreement to secure Korea’s overseas NDC reduction goals with India. In order for the Korea-India cooperation project to be recognized as an internationally transferred reduction outcome (ITMO) stipulated in the Paris Agreement, discussions on its contribution to the NDC of the participating parties and the long-term low-carbon development strategy of the participating parties are essential. In particular, considering the case of the Maharashtra Gas Complex Power Plant in India, it is necessary to specify and include the pre- and post-support from India’s central and state to the climate change agreement.
In addition, our study proposes a Korea-India joint renewable energy pilot project. India’s renewable energy market has proven difficult for Korean companies to enter due to the profitability and size of the projects in India. Therefore, we suggest that the pilot project be mainly run by Korean public developers with sufficient overseas business experience. We expect that this pilot project is likely to help improve competitiveness and productivity of Korean firms. Specifically, areas of the project are solar and wind power generation and hydrogen ammonia production, and potential project regions can be Cartanaka, Andhra Pradesh, Rajasthan, Gujarat, Maharashtra and Tamil Nadu.
Finally, our study proposes expanding social financial utilization and improving the domestic financial support system to increase the competitiveness of domestic renewable energy companies. Many firms mainly access funds from the company itself, investment in financial institutions, and project financing from private financial institutions. We suggest green bonds as an alternative source to expand overseas business. A green bond is a special purpose bond issued by multilateral organizations, local governments, private companies, and financial institutions to carry out eco-friendly projects, which can raise large amounts of funds in the long run. Meanwhile, domestic financial support for renewable energy companies is limited to domestic businesses. Therefore, our study emphasizes that the financial support system, which is applied only to domestic businesses in related institutions, should be expanded to overseas business fields in order to solve the financing issues experienced by domestic renewable energy firms.