Pulkit Shrotriya, Policy Expert & Senior Consultant to DISCOMS

Abstract:

Energy is a concurrent topic in India, presenting a varied terrain with a wide range of opportunities and challenges across different states. Possessing a quasi-federal constitutional structure, India comprises a federation of states along with a strong unitary government at the center. Therefore, energy, being a concurrent subject, largely falls under the Centre’s legislation. Navigating the trajectory of comparative assessment for various states regarding market attractiveness involves considering multiple factors like resource endowment within a state, demand-supply dynamics, policy and regulatory frameworks, infrastructure and logistics, and energy efficiency. As the world’s third-largest consumer of energy under the global pressure of decarbonization, India offers numerous opportunities for investors to establish a robust market mechanism for the growth of sustainable energy. The diverse energy portfolios of India’s populous states each have their respective pros and cons. Hence, comprehending the market viability of each state necessitates a regressive model, considering energy market attractiveness as a dependent variable of the aforementioned factors.

According to the Renewable Energy Country Attractiveness Index (RECAI) published by EY, India secured the third position in terms of attractiveness in the global renewable energy market, trailing only the US and China. This showcases the country’s ability to attract investors who prioritize ESG globally. Holding a significant position in the world’s energy portfolio due to its substantial contribution of almost 10% in global energy demand growth, India centers itself in the global vision of resource-efficient development to ensure the ecological and environmental health of the planet. To establish the nexus between resource-efficient development and catering to the hefty demand for energy, the country is continuously striving to create a favorable ecosystem through its humongous efforts in the realm of energy security, energy stability, and energy sustainability. Thus, this favorable ecosystem encompasses market attractiveness. In layman terms, market attractiveness refers to the “potential” of states for attracting more investments in energy projects. As energy is a common multiplicative factor of growth for both central and state governments, it has a cascading impact on the country’s overall GDP.

Methodology:

In India’s vast and diverse landscape, using identical assessment parameters across states may not yield meaningful insights. This article delineates the pathways for comparative assessment of various states to understand their market attractiveness. The study focuses on the regressive analysis of energy market attractiveness with respect to all impactful dimensions of various states and unveils those which usually get skipped but have a huge concomitant impact on market attractiveness and hence, must be incorporated in the assessment studies. Following common dimensions should be considered as independent variables for regressing market attractiveness:

1. Endowment of resources within state periphery: Analyzing resource availability and accessibility is crucial; states like Gujarat, Rajasthan, and the southern region show high market attractiveness potential due to ample solar and wind energy resources.
2. Demand-Supply Dynamics of the States: Assessing energy demand-supply dynamics across states is crucial; states like UP, MP, Chhattisgarh, Bihar, etc., face challenges due to limited renewable energy and rely heavily on costly conventional energy and power markets during peak seasons. The inability of DISCOMs to purchase expensive power leads to frequent load shedding, impacting households and industries. This drives demand for affordable energy solutions, enhancing market attractiveness.
3. Policy & Regulatory Framework of the States: The implementation of energy projects within a state largely depends upon the smooth, flexible, and transparent regulatory mechanism of that state. This factor subsets several other indices which must be accounted for while assessing market attractiveness:
   a. Ease of doing business & state’s approach to FDI
   b. Macro-economic stability
   c. Supporting policies for RE absorption
   d. Respective capacity of states to facilitate higher percentages of energy banking
4. Infrastructure and Logistics: The robustness of the entire energy infrastructure and the frictionless logistics for the carriage of resources vitalize the flow of investment for energy projects. This factor is supplemented by the following sub-factors, which are to be examined critically across the states to comprehend their market attractiveness:
   a. Supporting technologies in the infrastructure
   b. Robustness of generation, transmission, and distribution networks
   c. Energy storage facilities
   d. Smart grid technologies like advanced metering, IoT integration, etc.
5. State’s ability to implement energy-efficient practices: Creation of an ecosystem for boosting energy efficiency across sectors like Building, DISCOMs, Transport, Municipalities, and Industries is directly proportional to energy market attractiveness.

Overlooked Dimensions:

As mentioned earlier, some subtle dimensions need to be considered while performing a comparative analysis of states vis-à-vis their market attractiveness:

1. Centre-State Relation: The central government has the tendency of crowding-in investments, catalyzing the implementation of market-friendly policies in the states, and being a dominant stakeholder, the Central Government could legislate over state. For example, the friction between the Central Government and the State Government of West Bengal.
2. Effectiveness & impact of investment across the states: Assessing the impact of invested funds in different states is vital for identifying policy gaps and enhancing market attractiveness. When more impact is created, investment is attracted.
3. Autonomy of Regulators in the state: Although it lays an indirect impact on the market, its analysis could provide fruitful results in understanding political intervention on regulators which could further influence the interest of investors.
4. Environmental stewardship of states: In the current scenario, this dimension has emerged as an important parameter, which must be placed at the core of project planning. Depending upon the states, it has both direct and indirect impacts on market attractiveness.

Brief Analysis

:
As per SEEI 2020 (State Energy Efficiency Index) published by NITI Ayog, BEE & AEEE, Karnataka stands at the top in deploying energy-efficient practices across its various sectors. Additionally, it secured the “A” category for the outstanding performance of its DISCOMs, further propelling the state to the zenith of the State Rooftop Solar Attractiveness Index. This showcases the ambitious and supportive policies of the state energy sector and the impact of all the aforementioned dimensions on the state’s market attractiveness.

Conclusion:

The methodologies of assessment are subject to the territorial variability of states. By comparing all the above-mentioned dimensions across states, firms may make informed decisions about where to invest in India’s ever-changing energy market. One should always dive deep to comprehend the unique characteristics of each state. A greater level of granularity in these parameters would lead to more specific insights being obtained. Therefore, as India navigates its energy transition, comparative assessment of states emerges as a vital tool for unlocking the full potential of its energy markets. By embracing a holistic approach to analysis, stakeholders can harness the diverse strengths of each state, driving collective progress towards a resilient and prosperous energy landscape.

This analysis clearly demonstrates that the accurate assessment of states’ energy capacities and market attractiveness will aid investors in making informed decisions, ensuring the country’s energy security and stability. India’s energy market is not only full of potential for investors but also for the world at large, and it is essential to understand and unlock it with the right approach.