Having set an ambitious target of 500 gigawatts (GW) from renewable energy by 2030 (see Chart 1), India’s government has implemented policies and legislation in support of the energy transition movement, with the courts having followed suit by upholding the legality of power-purchase agreements.
With renewable energy now much cheaper than coal, adopting green energy, such as solar and wind, to the country’s power grid has already impacted the Emerging Asia nation with almost its entire population now with access to electricity.
Chart 1. India targeting a 500GW renewables capacity
Source: Statista, April 2023.
India’s power problem
With a rapidly growing economy and rising population, India's gross carbon emissions remain high – contributing to roughly 7% of total global emissions.1 Its per capita emissions, however, are comparatively low at 2.8 tonnes of carbon dioxide (CO2) equivalent (tCO2e) with those of the US and China at 17.6 and 9.6 tCO2e, respectively. Though, with an expanding middle class, and an ongoing reliance on coal, India's emission numbers are only likely to increase.
Furthermore, with its current power deficit, India is scrambling to meet increasing power demands given domestic coal shortages amid extreme heat conditions. Frequent blackouts have put pressure on the government to rapidly expand its renewable energy capacity as the country already imports huge amounts of coal, the most carbon-intensive fossil fuel, to supplement domestic supply. Coal imports hit a record high in June 2023 with 25 million tonnes, 19.6 million tonnes from thermal coal – an increase of around one-third compared to the same period in 2021.2
In the push to accelerate renewable energy, the issue of land rights is an area that’s potentially overlooked by many investors. Reputational damage, adverse media coverage, and project delays are all risks that can arise from these land conflicts.
Who owns the land?
With India's ambitious renewables capacity target, vast quantities of land are required for solar farms. To give some perspective, a great deal of farming occurs in India's northwestern state of Rajasthan, where one of the largest solar farms in the world, Bhadla Solar Park, spans almost 35 square miles with a capacity of over 2GW.3
And while solar farming requires a great deal of land, especially in areas where the sun's intensity is highest, it can come at the expense of local communities using it for livestock grazing and farming purposes – both reasons critical to their survival. These common lands, often referred to as orans by locals, have been used for generations by communities with no legal ownership of the land, which is a common practice in India.
Solar farming … can come at the expense of local communities using [the land] for livestock grazing and farming purposes – both reasons critical to their survival.
The Indian government, having classified some of these common lands as wastelands, has only created gaps in providing fair compensation to local communities for its use, which includes sites for renewable energy production. Many farmers who do own land only own small plots and lease more from the government. But these are often informal agreements and therefore, the farmers have limited access to benefits such as credit, insurance, and subsidies. Local communities often cannot afford to pursue legal matters, which results in conflict resolution through informal negotiations, and payoffs.
India's push to digitize land rights records should help drive progress in tackling some of these issues, although the efforts could face headwinds with offline records sitting across various government departments. Consideration should be given in the digitization process to prevent further marginalization of those unable to easily access digital platforms.
Company engagement is essential
Corporate engagement and due diligence are important avenues investors can use to help mitigate risk and facilitate change. Investors can engage with renewable-energy developers and set out clear expectations on land-rights issues, including:
- The company is aware of land-rights risks and has policies to address concerns
- The company ensures that the voices of local people are heard
- The company delivers benefits to local people
We've identified four stages of land procurement best practice:
Figure 1. Best practices in the procurement of land
- Stage 1: Procure dryland or non-agricultural land where limited or no cultivation is being done and located at a minimum distance away from local villages to ensure no risk of relocation or resettlement; any required land status conversions do not lead to loss of livelihoods (especially in a lease model where landowners are compensated on a recurring basis).
- Stage 2: Companies should conduct land title searches that cover the last 30 years using in-house and third-party legal counsel who also carry out due diligence to ensure there's no outstanding land litigation or encumbrance of property.
- Stage 3: Payments to be made directly into landowners' bank accounts, with no cash transactions or transfer of payment via an intermediary; fair and transparent compensation – land purchase price is based on similar market transaction rates, lease rental payments are based on crop yields, paying a premium above income from farming the land with annual increase during the lease.
- Stage 4: Aim to ensure preservation of livelihoods through corporate social responsibility activities, education, skills training, and employment opportunities; promote economic mobility in local communities.
Furthermore, encouraging transparency allows companies to demonstrate they have properly assessed these concerns in their plans. There must be free, prior, and informed consent from existing landowners and land beneficiaries for the approval of such projects. Some companies operating here are acutely aware of these issues and are taking clear measures to ensure land is obtained fairly.
The considerable growth in renewables in India provides investors with a big opportunity to support the energy transition. However, engaging on issues, such as land rights is essential (with some companies being better at this than others). In-depth and ongoing due diligence is also vital.
At abrdn, we regularly engage with the renewables companies we invest in to ensure land has been procured fairly, along with several other sustainability risks, such as water usage and biodiversity. Our engagements across the sector enabled us to identify companies that were not only aware of the risks but have been proactive and open to engaging with investors to address the issue of land rights. For example, some companies lease land from the original landowners and employ the local communities onsite. This not only allows original landowners to retain titles over the land, but also provides consistent income.
Managing risks around land does not simply end at the land-procurement stage.
Managing risks around land does not simply end at the land-procurement stage. Safeguarding the interests of local communities requires companies to establish and maintain sound and long-lasting relationships with landowners and surrounding land beneficiaries. Addressing land-rights issues will benefit the communities that are affected by the transition to renewables and support a more sustainable society. Investors should not underestimate the influence they have in facilitating a just transition.