In News:

India’s energy policy is undergoing a structural transition as the rapid expansion of Artificial Intelligence (AI) and accelerating climate change reshape electricity demand, supply chains, and governance priorities. The traditional focus on access, affordability, and energy security is expanding to include decarbonisation, climate resilience, digital-era demand, and strategic autonomy, reflecting the changing contours of economic growth and technological transformation.

Key Trends Shaping India’s Energy Policy

• AI-Driven Electricity Demand: The rapid growth of AI and data centres is generating round-the-clock, gigawatt-scale electricity demand, compelling both Union and State governments to rethink renewable capacity addition, grid modernisation, and large-scale energy storage planning.
• Climate Change Pressures:Increasing heatwaves, floods, and extreme weather events are pushing policymakers to decouple GDP growth from carbon-intensive energy, aligning energy policy with India’s 2070 Net Zero commitment.
• Global Green Transition Dynamics:Rising dependence on critical minerals, concentration of renewable manufacturing, and friend-shoring strategies are influencing India’s industrial and strategic energy choices.
• Shift in Energy Governance:Energy governance is moving from a resource-centric approach to a systemic, multi-sectoral framework integrating climate policy, digital infrastructure, industrial strategy, and geopolitics.

Major Emerging Trade-offs

• Coal Economy vs Clean Energy Transition: Coal continues to support livelihoods of nearly 3.5 lakh workers, contributes significantly to state revenues in Jharkhand, Odisha, and Chhattisgarh, and underpins railway freight earnings. Simultaneously, India hosts six of the world’s ten most polluted cities (2024), creating a sharp tension between employment security and climate commitments.
• China-Dominated Green Supply Chains vs Strategic Autonomy:China controls around 80% of global solar module production, 95% of polysilicon and wafers, and 80% of lithium-ion battery processing. While imports from China enable rapid and low-cost renewable deployment, they increase strategic vulnerability, tariff exposure, and supply-chain risks.
• AI Data Centres vs Renewable Infrastructure Constraints:Proposed AI hubs by global and Indian firms demand 24×7 clean power. However, India’s grid-scale storage, pumped hydro capacity, and inter-state transmission networks remain inadequate, pushing some states to extend thermal power generation, thereby undermining decarbonisation goals.

Structural Governance Challenges

• Fragmented Institutional Framework:Energy governance is dispersed across multiple ministries—Power, New and Renewable Energy, Coal, Mines, and Commerce—with no single coordinating authority.
• Policy Incoherence:Industrial incentives promote data-centre expansion, while grid reforms and storage deployment lag behind, creating mismatches in policy objectives.
• Centre–State Divergences:Differences over coal phase-down, land acquisition, renewable corridors, and tariff structures slow capacity addition and infrastructure rollout.
• Inadequate Financing and R&D Models:Public sector–led approaches are insufficient for capital-intensive and R&D-driven sectors such as battery storage, offshore wind, and green hydrogen.
• Weak Policy Alignment:Poor alignment persists between climate commitments, PLI schemes, and technology missions related to AI and semiconductors.

Implications for India

India faces the risk of new energy insecurity if renewable and battery supply chains remain import-dependent. Rising AI-driven electricity demand may increase reliance on fossil fuels, undermining India’s Nationally Determined Contributions (NDCs). Slow expansion of grids and storage could deter investments in AI, electric vehicles, semiconductors, and aerospace, while a poorly managed coal transition may trigger regional unemployment, fiscal stress, and political resistance. Fragmented governance could delay India’s ambition to become a global AI and advanced-technology hub.