Economic and environmental effectiveness of renewable energy policy instruments: Best practices from India

Renewable Energy (RE) has been identified as a key tool to counter climate change and enhance energy security. Countries across the globe have been promoting this sector by several policy measures. However, limited research has been undertaken on the economic and environmental efficacy of RE policy instruments, especially in context of emerging economies like India, which have witnessed substantial capacity addition and have set ambitious targets to de-carbonize their economy. This paper identifies 25 innovative practices followed in India which have enabled accelerated RE capacity addition with minimal financial obligations. These include energy entrepreneurship, energy democratization, private sector participation, hedging and apportioning RE procurement, use of auctions with stringent participatory norms, creditworthy counter-party, leverage of risk capital by developmental institutions, regular revision of tariffs, environmental cess on polluting industries, long-term RE purchase trajectory and incentivizing green power output. Results indicate high financial impact of instruments (support of US$ 3–5/MWh over applicable tariff) which gets neutralized when tax inflow is considered. Lower carbon abatement cost (US$ 3–6/tCO2eq) depicts high environmental efficacy. The paper shares best practices from India in terms of efficient use of RE policy enablers, which may be contextualized in other emerging economies as per the local requirements.

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