India has ambitious targets for renewable energy growth. As part of its Union Budget 2015-2016, India aims to install 60 GW of wind power capacity and 100 GW of solar power capacity by 2022, which is more than six times the current installed capacities of approximately 22GW and 3GW, respectively.

This important task is made difficult by the government’s limited budget, which is constrained by a large fiscal deficit and multiple development priorities. Since government support is required when renewable energy is considered more expensive than the fossil fuel energy it would replace, there is a need for an objective comparison between the levelized costs of electricity from renewable energy and fossil fuels.

This project investigates not only this comparison but also how much it would cost the Government of India to reach its renewable energy targets. We answer this by comparing the levelized cost of electricity from renewable energy to a baseline fossil fuel in absence of any subsidies – whether explicit or implicit; estimating the total cost of support for renewable energy under accelerated depreciation, which is the most cost-effective of existing policies; and investigating federal policy options to make this support even more cost-effective.

We use the levelized cost of electricity from imported coal as the baseline for this comparison because this is the fuel, rather than domestic coal or natural gas, that renewable energy is likely to replace. While natural gas is the most expensive fossil fuel, it has very limited availability. Imported coal is the next most expensive fossil fuel, and is also projected to account for 18% of India’s total generation, higher than India’s target of 15% of generation from renewable energy by 2020 (NAPCC, 2008).