In India, the micro, small, and medium enterprise (MSME) sector plays a significant role, contributing to 45 percent of the country’s manufacturing output and 40 percent of its total exports. This sector is responsible for approximately 25 percent of the overall energy consumption within the industrial sector (MoMSME 2016).
This paper delves into policies, schemes, and programs geared toward bolstering energy efficiency, fostering the adoption of clean energy sources, and mitigating SMEs’ carbon footprint, whether through direct implementation or indirect facilitation. The existing body of work on the energy transition in SMEs focuses largely on financial and technological impediments, whereas this paper explores the impact of clean energy policy uptake and the resulting benefits for SMEs. This paper undertakes a comprehensive review of the policies announced by the central government and state governments for SMEs over the period 2010–20 and analyzes them by developing a quantitative and qualitative assessment framework. The paper also examines previous policies to learn from ministry officials and state nodal agencies about initiatives in selected states (Haryana, Rajasthan, Gujarat, Tamil Nadu, and Himachal Pradesh) that have helped steer the energy transition in SMEs.
The energy transition entails a shift from fossil fuels to cleaner and more sustainable energy sources, aligning with India’s global commitments to mitigate climate change.
A major conundrum arises from the fact that clean energy technologies have a higher up-front cost than conventional technologies, although over the lifetime of the asset the total costs are lower because the fuel cost is “free” (if it is sunshine or wind, for example).
However, the hurdle is created by the high up-front cost. All or part of this cost to switch, which is the up-front cost, is expected to be borne by the SME.
The research question we are addressing in this paper is to understand the most impactful way in which to offer an intelligently designed subsidy to assist and encourage the SMEs to make this up-front switch faster.
They will do so neither because of the global public good of a cleaner environment nor because their personal investment will help India to reach its NDCs sooner, but only when the economics for their own business become more compelling if they use clean energy.
That is, if they see that a shift to clean energy technology raises their company’s profitability and that its business growth is propelled by energy cost savings and better energy security, then they will be motivated to make that switch.
Accelerating this process across millions of SMEs will lead to an increase in investment in clean energy technologies by SMEs.
Gowthami, T.S., Kajol, and Niharika Tagotra, 2024. “Analyzing the Policy Landscape for Supporting the Clean Energy Transition in Small and Medium Enterprises in India.” Working Paper. Bangalore, India: World Resources Institute.
Key Findings
- Governments, both the central government and state governments, are embracing the shift toward clean energy. This steadfast commitment is clearly mirrored in schemes and programs specifically intended to uphold environmental preservation and encourage sustainable development. These schemes are currently being revised to embrace and advance the adoption of clean energy technologies, energy efficiency, and renewable energy sources.
- A small set of schemes explicitly focus on promoting the adoption of clean energy and energy-efficient technologies and practices through direct financial incentives, grants, or subsidies and technology upgrades. Nevertheless, considerable challenges, such as lack of awareness, exist, necessitating swift action to accelerate the uptake of clean energy solutions. The reduction in subsidies and incentives, especially for schemes directed at clean energy initiatives, is a consequence of multiple factors, such as the impact of COVID-19, economic downturns, market volatility, global political complexities, and surging energy costs. These factors have widespread repercussions for SMEs across different sectors. Currently, SMEs’ priorities revolve around stimulating business expansion and creating jobs as part of their pandemic recovery efforts. This has slowed down the rate of clean energy adoption by SMEs.
- Among SMEs, a substantial awareness gap persists concerning available schemes. Even given sufficient awareness, the procedures for applying for incentives and grants, receiving incentives, and accessing grants are perceived to be burdensome.
- Integration of central schemes with state initiatives amplifies the support provided, boosts adoption, and leads to observable outcomes. Conversely, uptake of stand-alone state-specific programs is limited.
- A comprehensive and robust framework that systematically evaluates the effects and outcomes of the clean energy transition is an integral component of policy and scheme guidelines.
Download the full working paper originally published by the World Resources Institute on June 26, 2024.
The paper, republished under a Creative Commons licence, is part of WRI India’s work on energy.
