Climate: Clean energy needs a carbon market

India is witnessing an emerging market for clean-energy assets, driven by increased interest from businesses and investors in renewable power projects. However, challenges such as oversupply, valuation issues, and the need for a robust carbon market to support clean energy transitions are critical for achieving climate goals.

Current Scenario in the Clean Energy Market:

• Buyers' Market for Clean Energy: An oversupply of clean energy assets, such as those from Siemens Energy, Shell, and Renew, is resulting in weaker valuations. Investor interest in greenfield projects indicates a capacity addition of 69GW in 2023-24, surpassing the annual 50GW target for 2030 goals.
• Financial Risks: The oversupply and lack of secondary demand for renewable assets pose financial risks, potentially leading to unsustainable investments without significant market interest.

Challenges in the Power Sector:

• Mismatch Between Capacity and Demand: Despite a total installed capacity of 418GW, with a significant portion from thermal and renewable sources, India faces power shortages during peak demand due to over-reliance on coal and inefficiencies in integrating renewable energy.
• Infrastructure and Policy Issues: The existing power infrastructure, compounded by state-run distributors' inability to charge profitable rates, hinders effective power supply. Political factors and inadequate pricing signals further exacerbate the issue.

Solutions and Policy Implications:

• Need for a Carbon Market: To bridge the cost gap between renewable and carbon-heavy power plants, establishing a carbon market is essential. Carbon pricing can incentivize private investments in clean energy, promoting a shift away from emissions.
• Role of Government: The government must play a significant role in funding and directly investing in clean energy projects. Enhanced subsidies and state mandates are necessary to attract private investment and support the transition to a sustainable energy infrastructure.

UPSC Mains Questions:

Q. Discuss the challenges and opportunities in integrating renewable energy sources into India's existing power grid. How can a carbon market support this transition?