Indian Clean Energy Sector: The Power of Future

Introduction

Energy resources in India have been under severe pressure due to substantial economic growth in the country, increase in urbanisation, growing prosperity and rise in the per capita income. The imbalance created in the demand and supply has necessitated the Government to plan and implement schemes for augmenting energy supplies. In the country, nearly 80 per cent of the oil is imported, which is an area of concern for the Government with regards to energy security in the near future. However, renewable energy or clean energy may help reducing this gap as well as become a major factor in meeting the energy needs of the people of India.

The growth of clean energy sector in India is immense, as indicated by a recent report by independent consultants E&Y (Ernst & Young Renewable Energy Country Attractiveness Indices, May 2011), which ranked India as the third best investment destination in Renewable energy sector, next only to China and the US. India also permits Foreign Direct Investment (FDI) up to 100 per cent in the sector under the automatic route in Renewable Energy Generation and Distribution projects subject to the provisions of the Electricity Act, 2003. In order to attract foreign investors, the Government has taken several initiatives such as introducing Generation-based incentive scheme for wind power to promote projects under Independent Power Producers (IPP) mode. Further, Jawaharlal Nehru National Solar Mission has been commissioned with 22,000 Mega Watt (MW) target for solar power by the year 2022. The Government has also launched Payment Security Mechanism for Grid Connected Solar Power Projects and Renewable Energy Certificate Mechanism and created Amendment in National Tariff Policy for enabling Solar specific Renewable Portfolio Obligation (RPO).

Power Generation and Capacity

In the previous four years, rapid strides have been witnessed in India with regards to power capacity addition. The installed capacity increased from nearly 1,32,000 MW in March 2007 to over 1,81,000 MW in July 2011, at a growth rate of 37 per cent, according to Mr Sushilkumar Shinde, Minister of Power. Mr Shinde further stated that nearly 40,781 MW was added during the Eleventh Plan that is double the capacity added in the Tenth Plan.

In India nearly 20,556 MW grid interactive renewable power generation has been installed which is 11.5 per cent of total power generated that could be installed from all the sources, according to a release by the Ministry of New and Renewable Energy.

Significantly, solar technologies showcased considerable potential with regards to off-grid energy generation. Such technologies include solar water heating systems and home lighting systems that compromises of solar lanterns, solar pumps, cooking systems as well as small power generating systems. The National Solar Mission has in fact proposed to cover 2,000 MW equivalent by 2022, expect solar water heating systems for which a separate target has been set, i.e. 20 million sq. meters.

The renewable power has become a major medium that has augmented the power generation capacity in the country. As per the Annual Report 2010-11 of the Ministry of New and Renewable Energy, in the first three years of Eleventh Plan period and during the current year till January 31, 2011, during the first three years of the Eleventh Plan period and the current year upto January 31, 2011, renewable power capacity addition has been 8,564 MW, while the conventional power capacity addition has been 28,529 MW, which corresponds to over 23 per cent of the total capacity addition. The graph provided below states the break-up of installed power capacity in the country as on January 31, 2011.

Source: Ministry of New and Renewable Energy

The growth of renewable energy capacity in India in the last decade can also be understood through the below mentioned table. It has been witnessed that around 70 per cent of the total capacity has been contributed by wind power.

*Note – including biomass power, bagasse cogeneration, urban and industrial waste to energy.

Source: Ministry of New and Renewable Energy

Apart from the grid interactive renewable power, Ministry of New and Renewable Energy has ambitious programmes for deployment of off-grid/distributed renewable power and decentralised renewable energy systems for rural applications. The below table provides a summary of deployment of various systems under these programmes.

Source: Ministry of New and Renewable Energy

Indian Clean Energy Market Analysis

Clean energy technologies include renewable energy, hybrid and co-generation, and energy efficiency technologies for power generation, alternative fuels and advanced technologies for transportation. Some of the renewable energy technologies that are focussed here are biomass and biofuels, solar power, wind power, geothermal and hydropower.

Biomass

Plant and plant-derived material is the constituent of Biomass. Some of the sources also includes agricultural residues such as rice hulls or straw, residue from sugarcane production i.e. bagasse, coconut shells, wood chips along with energy crops like switch grass or sugarcane. Biomass could be directly used for production of energy or could be processed into fuels.

At present the installed capacity for generating power from biomass which includes paddy husk as well as bagasse based concoction in the sugar mills is around 1,045 MW and 1,742 MW, respectively. According to National Biomass Resource Atlas which has been prepared by the Indian Institute of Science, Bangalore under a project that is sponsored by the Ministry of New and Renewable Energy, has estimated that the power generation capacity through biomass that includes paddy husk would be 17,536 MW. Apart from this, the surplus power generation capacity of around 5,000 MW from bagasse based cogeneration in the sugar mills has been estimated.

Notably, the Ministry of New & Renewable Energy has been implementing schemes in the Eleventh Five Year Plan for encouraging national for setting up projects for generating power from various biomass residues that includes bagasse as well as paddy husk. The power generation could be based on combustion/ cogeneration as well as gasification technologies.

Solar Power

Solar technologies convert light and heat from the sun into useful energy. Photovoltaic (PV) systems convert sunlight to form electricity as well as thermal systems that collects and stores solar heat received from water and air heating applications.

In a study published by KPMG, a global consulting company, it has been forecasted that solar power could meet nearly 5-7 per cent of the total power requirement of the country by 2021-22.

The country has good potential for solar power as the mainland receives energy equivalent to over 5,000 trillion kWh per year, that is more than the total energy consumption in India, according to Dr Farooq Abdullah, Minister of New and Renewable Energy. Dr Abdullah further stated that total installed capacity of grid connected solar power plants as on August 29, 2011 was 45.5 MW.

The Government has also launched the ambitious Jawaharlal Nehru National Solar Mission in January 2010, that aims at setting up 20,000 MW grid solar power by 2022, in addition to 2,000 MW of off-grid solar power.

Wind Power

Wind power technology helps converting energy from wind into useful power; primary market for the wind power technology has been from wind turbines, that are able to convert wind energy into electricity.

In the country, wind power capacity of 565 MW has been installed in the present year (upto July, 2011) with an investment of around INR 34 billion (US$ 0.7 billion) through the private sector.

The Government has been promoting wind power projects through private sector investment by providing promotional and fiscal incentives such as giving 80 per cent accelerated depreciation or concessional import duty on particular components which are critical for the production of wind electric generators as well as excise duty exemption to the manufacturers. Additionally, the government has also provided a 10 year tax holiday on the income generated from the wind power projects. Further, for installing windmills, loans are available from Indian Renewable Energy Development Agency (IREDA) together with other Financial Institutions. Technical support has been provided as well for wind resource assessment by Centre for Wind Energy Technology (C-WET), Chennai.

Geothermal Power

Geothermal power has been generated by using thermal energy from underground sources, that includes steam, heat stored in rock formations and hot water.

India has huge potential for becoming a leading contributor for generating eco-friendly as well as cost-effective geothermal power by the year 2035. The sector is still in a very nascent stage. However, the country offers various hidden potential through the untapped Himalayan region or Puga Valley in Jammu and Kashmir or Jalgaon in Maharashtra along with Tapovan.

The world report on geothermal energy indicate that nearly 6.5 per cent of electricity generation in the world would come from geothermal energy and India would have to play a bigger role in the coming years in this direction.

Recently it was announced that India's fist Geothermal power plant with an initial capacity of 25 MW will be coming up in Andhra Pradesh's Khammam district by 2012. The country’s first Geothermal Power Purchase Agreement (PPA) was signed between GeoSyndicate Power Pvt Ltd (an incubated company of Indian Institute of Technology, Bombay) and Northern Power Distribution Company of AP Ltd (APNPDC) in this connection.

Hydropower

Hydropower is the conversion of energy embodied in moving water into useful power. It is estimated that hydropower supplies about 19 percent of the world’s electricity.

In India, only 23 per cent of the total hydropower resources have been harnessed so far, prompting the Government to acquire an increasing portion of this additional power from the country’s vast untapped hydropower resources. The energy portfolio of the country depends a lot on coal-based thermal energy and hydropower only accounts of about 26 per cent of the total power generation. The Government has therefore set the target for India’s optimum power system mix at 40 per cent from hydropower and 60 per cent from other sources, according to the World Bank.

Investment and Financing of Clean Energy

India has been ranked as the third best investment destination in renewable energy sector, next only to China and the US, according to a report ‘Ernst & Young Renewable Energy Country Attractiveness Indices, May 2011’, released by Ernst & Young.

Wind energy is the fastest growing renewable energy sector and the foreign direct investment (FDI) inflow in the sector has been increasing over the years. Significantly, an investment of about INR 49 billion (US$ 1.1 billion) has been received as FDI equity inflows in the renewable energy sector during the last three years and the current year, till June 2011. The year wise data has been provided below.

Source: Department of Industrial Policy & Promotion (DIPP)

Further, India expects investments to the tune of US$ 55 billion (INR 2,606.74 billion) by 2015 in the renewable energy sector which is expected to produce 35 giga watt (GW) of power, according to Mr Debashish Majumdar, Chairman and Managing Director, Indian Renewable Energy Development Agency Ltd (IREDA).

Private equity investment in renewable energy sector picked up pace in the country from 2004. Independent Power Producers (IPPs) in this sector appear to provide attractive investment opportunity for private equity funds as a result of policy and regulatory developments such as generation-based tariffs, renewable energy tariffs and the national solar mission. Companies such as Auro Mira Energy, Greenko, Orient Green Power and Green Infra have been cited in the report as some of the IPPs which received funding from investors such as IDFC PE, Axis PE, Baring PE and Global Environment Fund.

It is envisaged that a power generation capacity of around 3400 MW (grid-interactive) and 130 MW (off-grid / captive) from various renewable energy sources, mainly wind, solar, biomass and small hydro, will be added in the country during the current financial year 2011-12. The same would require capital investment of the order of around INR 290 billion (US$ 6.3 billion), including INR 145 billion (US$ 3.2 billion) in wind power, INR 25 billion (US$ 0.5 billion) in small hydro power, INR 30 billion (US$ 0.6 billion) in bio-power and INR 90 billion (US$ 1.9 billion) in solar power. Additional investment of about INR 10 billion (US$ 0.2 billion) is envisaged in deployment of decentralised renewable energy systems/devices like biogas plants, solar water heating systems and SPV lighting systems in remote villages/hamlets.

Corporate Initiatives

Various corporate and multi-national companies are also showing heightened interest in the clean energy sector in India and have been undertaking various initiatives and investment plans. Some such initiatives are highlighted under:

• International Finance Corporation (IFC), the financial arm of the World Bank, will invest US$ 15 million (INR 710 million) in Shalivahana Green Energy Ltd, the Secunderabad-based biomass power firm. The investment will assist the company in developing 200 mega watt (MW) of biomass power projects.
• Reliance Power Ltd (RPower) aims to earn INR 50 billion (US$ 1.1 billion) from carbon credit from the three ultra mega power projects (UMPP) of 4,000 mega watt (MW) that the firm is developing.
• Tata BP Solar India Ltd, a joint venture of Tata Power and BP Solar, became the first company to install and commission a megawatt scale solar power plant under the Rooftop and Other Small Solar Power Generation Plant scheme under the Jawaharlal Nehru National Solar Mission (JNNSM).
• Alstom-led consortium has won a contract worth over INR 18.4 billion (US$ 0.4 billion) to build India's first variable speed pumped storage hydro power plant.
• Birla Surya Ltd, a part of the diversified Yash Birla Group, is set to invest US$ 1.2 billion (INR 56.8 billion) over five years to set up an integrated facility for fabrication of multi-crystalline silicon wafers and the processing of solar photovoltaic cells.
• The International Finance Corporation (IFC), a member of the World Bank Group, is investing US$ 4 million (INR 189 Million) in India's Sapphire Industrial Infrastructures Private Limited to implement the country's first large-scale grid-connected thin-film solar plant.

Clean Energy Policies

The Government’s support for the Indian clean energy sector is also evident in the number of initiatives announced in the Union Budget of 2011-12 for promoting and developing clean energy and technologies. Some of the key measures include:

• Planned launch of National Mission in hybrid and electric vehicles
• Allocations of INR 4 billion (US$ 0.08 billion) from National Clean Energy fund for speeding up The National Mission for a Green India
• The budget of the Environment Ministry increased by around INR 3 billion (US$ 0.06 billion)
• Extension of Tax holiday for the power sector by one year
• A budgetary provision of INR 12.1 billion (US$ 0.3 billion) has been made for numerous clean energy programs for the Ministry of New and Renewable Energy

Further, the Government has taken several measures to facilitate private sector participation in setting up of the renewable energy projects which include the following:

• Fiscal and financial incentives for grid as well as off-grid/ decentralized systems, such as, capital/ interest subsidy/ generation based incentive, accelerated depreciation, nil/ concessional excise and customs duties;
• Generation Based Incentives Scheme introduced for Wind power and Solar Power to attract private investment by Independent Power Producers not availing Accelerated Depreciation benefit.
• Directives under Electricity Act 2003 to all States for fixing a minimum percentage for purchase of electricity from renewable energy sources;
• Preferential tariff for grid interactive renewable power in most potential States following the provisions made under the National Electricity Policy 2005 and National Tariff Policy 2006; Uniform guidelines by Central Electricity Regulatory Commission (CERC) for fixation of such preferential tariffs being issued every year.
• Amendment in National Tariff Policy to enable Solar specific RPO;
• Payment Security Mechanism for Grid Connected Solar Power Projects under the Mission;
• Wide publicity on the use and utility of renewable energy through electronic and print media, etc.

During the year 2010-11, the Ministry of New and Renewable Energy took up several new initiatives to make renewable energy devices and systems reach out to meet the electricity and energy needs of people in different parts of the country. These new initiatives include:

• Solar Mission Operationalised:

  The Ministry issued guidelines for new grid projects through NVVN, small grid projects through IREDA, off-grid solar applications; and technical performance and domestic content requirements of solar projects, to operationalise the Solar Mission.

• BOOT model for Cogeneration Projects:

  21 Bagasse cogeneration projects have been taken up through BOOT (Build, Own, Operate, Transfer) model in cooperative sector sugar mills set up by Special Purpose Vehicle (SPV) or an Independent Power Producer (IPP) in the states of Punjab, Maharashtra and Tamil Nadu.

• Solar Cities/Green Buildings:

  The Ministry operationalised the GRIHA rating scheme. Independent Society “ADARSH” established by Ministry for implementation of rating system. Government has mandated that new Central government and PSU buildings would go for minimum GRIHA – 3 star rating. Ten Cities to be developed as ‘Pilot Solar Cities’, Four Cities will be developed as ‘Model Solar Cities’ and 50 new Small townships/Campuses being promoted as green Renewable Energy townships under the Solar Cities Programme.

• Micro-hydel scheme:

  The Ministry has sanctioned support for 3547 water mills in 9 states. So far 1414 water mills have been setup. The Ministry also sanctioned 28 micro hydel projects (up to 100 kW) under the new scheme announced in February 2009.

Conclusion

The country in the recent years has emerged as an economic powerhouse as well as an environmental leader in the global arena. With the progress of the Indian economy, the country is also required to look into producing more energy for providing quality living conditions to its people. India is in fact blessed with huge resources of renewable sources of energy such as wind, solar, biomass and hydro energy. In fact, it has been found that the technical potential of these renewable energy resources may exceed the current installed generation capacity.

India is the fifth largest consumer of energy in the world and it is projected that the country would surpass Japan and Russia to become the third biggest energy consumer globally by 2030. Thus, in order to fill this growing need, investments in renewable energy sector have been rising. According to ‘The Global Trends in Renewable Energy Investment 2011’ report prepared for the United Nations (UN) by Bloomberg New Energy Finance, India witnessed a 25 per cent increase in spending in renewable energy sources, with investment reaching US$ 3.8 billion (INR 175.9 billion) in 2010.

India is also the only country in the world that has a ministry, the Ministry of New and Renewable Energy, dedicated to the development of renewable energy. The initiatives taken by the government along with the efforts of the corporate sector would help in accelerating the development of renewable energy sources in the country and help in meeting the energy needs of the people of India.