India eyes 1,00,000 MW capacity from renewable sources by 2050

By Dr. Uday Lal Pai
Exclusively for InvestorIdeas.com
posted June 06, 2006

Power cuts are a way of life in India, at least in parts of the country lucky enough to regard them as an interruption rather than the norm. There is a worsening shortage. Over the past decade, electricity generation has grown at a compound annual rate of 5.5%, but demand has grown even faster. Peak demand exceeded supply by 12.1% in the last financial year.

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India has an institutional capacity of 130,000 megawatts, which includes thermal, hydro, nuclear and renewable energy sources. India is talking about adding 500,000 to 600,000 megawatts in the next 20 years.

The Indian Ministry of Power says the country faces an average energy shortage of about 8 percent and a peak shortage of about 12 percent -- reflected in power cuts nationwide. The Indian capital itself faces a shortage of 100 megawatts.

The Indian President A.P.J. Abdul Kalam recently stated that India would have to step up its power generating capacities to 400,000 MW by 2030, more than three times the present capacity of 130,000 MW. This can be achieved through three different sources - including hydel capacity, nuclear power and non-conventional energy sources primarily through solar energy, he said.

The hydel capacity generated through inter-linking of rivers is expected to contribute additional 50,000 megawatts of power. Large scale solar energy farms of 100's of megawatts capacity in certain number could contribute around 55,000 MW. The nuclear power plants should have a target of 50,000 MW of power. The balance has to be generated through the conventional thermal plants through coal and gas and other renewable sources of energy such as Wind power, Biomass, power through municipal waste and solar thermal power.

Renewable energy

The Ministry of Non-conventional Energy Sources (MNCES) is working out a comprehensive renewable energy policy, which envisages that at the current rate of capacity addition from renewable energy sources, around 20 percent of the capacity to be added during the 10-year period spanning the Tenth and Eleventh Plan through renewables.

The Ministry, in fact, hopes to add around 1,00,000 MW capacity from renewable sources by 2050. Currently, 7,200 MW of installed capacity of power generation from renewable sources constitutes 6 per cent of the entire power generating installed capacity in the country.

The Ministry's activities cover all major renewable energy sources such as biogas, biomass, solar energy, wind energy, small hydropower and the other emerging technologies.

Incidentally, MNCES is planning to change its name, replacing the word non-conventional with 'renewable.' The ministry has started internal dialogue for the proposed change in name. "Presently, the matter is only at the discussion stage and nothing has been finalized," MNCES Secretary V Subramanian said.

Shri Vilas Muttemwar, Minister for Non Conventional Sources, informed that grid-interactive renewable power has taken second place to conventional power with an installed capacity of over 8000 MW by this March end that corresponds to over six per cent of the installed power generation capacity in the country, with wind power having reached 4th positions globally.

The Minister added that renewable power capacity is likely to double every five years or so in the future. Consequently, our assessment is that by 2012 around 20,000 MW corresponding to 10 per cent of the then installed capacity would be contributed by renewables. By 2030 renewable power capacity is likely to reach 1,00,000 MW.

India is sitting on a huge reservoir of renewable energy while it is groping in the dark to find a way out of the energy crisis. Wind energy can be harnessed at many places in a country like India where sites having enough velocity of wind, suitable for setting up wind farms, are available. But the Government is yet to realize the potential and initiate concrete measures to tap it. This is an assessment of the current energy scenario by G. Madhusoodanan Pillai, an expert in energy management.

The Wind Power

India is emerging as a major wind energy player, having recorded the fastest growth rate in installed wind energy capacity during the last three years after China.

In 2005, India displaced Denmark as the fourth largest wind energy generating nation in terms of installed capacity at 4,253 MW and clocked an average growth rate of 35.7 per cent during the past three years, the highest after China's 38.8 per cent.

The World Wind Energy Association (WWEA) is of the view that India continues to be the leader among Asian countries in the area of generating wind power. India now ranks fourth in the world in wind power, both in terms of overall capacity (4,430 MW) and additions (1,430 MW).

'India's wind power generation is much more than its nuclear capacity', V Subramanian, Secretary, Ministry of Non-Conventional Energy Sources said. According to him, India produces about 5300 MW (mega watts) of energy through wind power, out of which 3300 mw is supplied by the state of Tamilnadu.

'While Germany, US and Spain are leading in wind power generation, India is fast developing in this sector and is expected to get the third place by next year', Subramanian added.

"Nuclear fuel is just a fashionable term," V Subramanian, Secretary, Ministry of Non-Conventional Energy Sources said. India was the fourth largest country in wind power generation in the world, behind Germany, US and Spain, he said. He expressed hope that India would jump to the third place next year. "Last year we had set a target of adding 1,000 MW. We crossed the target," he said.

While the gross wind energy potential in India has been estimated at 45,000 MW, the technical potential is limited to about 13,000 MW.

According to energy sector experts, wind is one of the largest renewable energy sources in the country, with the fastest growth prospects as well.

Need to push renewable energy concept

The Central Electricity Regulatory Commission (CERC) plans to fix minimum purchase quotas for electricity generated from sun, wind and water in order to promote the use of renewable sources of energy.

Electricity distributors will have to buy a certain minimum percentage of their requirements from such sources, depending on the availability of energy in a region and its impact on retail tariffs.

The central electricity regulator will be fixing tariffs for such power by the year-end. "We will be working out ways to streamline tariffs for power from renewable sources," AK Basu, chairman, CERC.

Meanwhile, Subramanian said there was no plan to make any new legislation to force the State Electricity Boards to buy a minimum percent of the total power purchased by them. "There is no move to force SEBs to buy a minimum amount a non-conventional power," he said.

The India Energy Forum (IEF) had demanded a law to compel SEBs to buy renewable energy to boost private investment in the sector. "The ministry will look into whether a new legislation would be required to force SEBS to buy a minimum quantity of renewable energy when the installed capacity of country's non-conventional energy to at least 20 per cent and generation capacity of 10 per cent of the conventional capacity," Subramanian said.

Facts and Figures

(Source: MNES)

Key factors responsible for growth in this sector include:

Large demand-supply gap in electricity . India is generously endowed with RE resources like solar, wind, bio-mass materials, urban and industrial wastes and small hydro resources . Low gestation periods for setting up RE projects with quick return . Conducive government policies . The large number of financing options available for capital equipment . Increasing awareness among industry that being environmentally responsible is economically sound.

Industrial growth in renewable energy in India

• In India a large domestic manufacturing base has been established for renewable energy systems and products.
• India is the third largest producer of Silicon Solar Cells.
• A level of 11 MW of Solar PV module production per year has been achieved.
• 60 companies are involved in production of various Solar PV products.
• Eight manufacturers/suppliers are involved in production of Small Hydro Power generation equipment.
• Five manufacturers are involved in production of Battery Operated Vehicles.
• 15 companies are engaged in manufacturing of Wind Turbines.
• There are manufacturers involved in production of Sugar Plant/Co-generation equipment and Biomass Gasifiers are being produced by seven manufacturers.
• 33 companies are involved in the local production of Solar Thermal Systems, such as Solar Cookers and Solar Water Heaters.
• There are 15 manufacturers for Improved Biomass Chulha (Cook-stoves) and 14 manufacturers for Biogas Appliances.

(Source: MNES)

Investment opportunities

The annual turnover of the Renewable Energy Industry in the country, including the power generating technologies for Wind and other sources, has reached a level of over $667million.

Shri Muttemwar said that major investment opportunities are waiting in this area to be explored. Regarding alternative fuels like hydrogen, bio-fuel, etc., he said that around 30-40 million tones is aimed to be! generated by 2030 accounting for 20 per cent of fuel needs in transport sector.

The Indian renewable energy industry is diversified and offers strong business prospects. The market in India for RE business is estimated at US $ 600 million and is growing at an annual rate of 20 percent.

The major areas of investment are: solar energy, wind energy, small hydro projects, waste-to-energy, biomass and alternative fuel. The new RE policy of the Government of India (GOI) aimed at generating 10,000 MW through renewable and a non-conventional source by 2012 is expected to further boost the growth rate of this sector.

The annual turnover of the RE industry in India is approximately USD 500 million. The investment in RE is estimated to be about USD 3 billion.

Several U.S. companies such as GE Power Systems, Solar Wall, NRG System, Alstom Power, Astro Power, Shell, Duke Solar and Sundanzer play a major role in the Indian market.

Looking for Canadian participation

India is keen to see a growing Canadian participation in its power sector, especially for developing and harnessing the country's hydropower potential. "India is looking forward to an increased Canadian participation in developing and harnessing the hydropower potential and development of transmission and distribution infrastructure," Union Minister for Power Minister Sushil Kumar Shinde said.

He invited Canadian investments and technology in hydropower generation, modernization of existing power generation units and modernizing power transmission and distribution networks.

Canada could also help India by providing a variety of tools and solutions pertaining to energy audit, energy conservation, demand side management, communication and renewable energy sources, he said.

However, the rising demand for power resources in India has brought into vogue new energy and energy-efficient technology companies amongst private equity (PE) players and VCs. In India, VC and PE players are looking at new projects in the energy space with special interest in renewable energy. Last week, VC and PE firm, Bessemer Venture Partners invested in Chennai-based Shriram Group company's engineering services arm. Shriram EPC will fund its expansion plans for windmills, to acquire new technologies and to consolidate its position in providing energy solutions. Similarly, NRI businessman, Sivasankaran also announced an investment in the wind energy sector.

Earlier, ChrysCapital had pumped in few millions in wind power company, Suzlon, and more recently, Reliance Capital and Temasek had bought 20% in power invertor major, Su-kam for $10m. According to Nainesh Jaisingh, India head, Stanchart PE, people are already talking about $100 a barrel realistically and there's going to be a major global thrust on alternative fuels in that kind of a situation.

It's the latest in investment strategy that is catching on the world over and ABN Amro is among the early movers in India. The Netherlands-based ABN Amro Bank has promoted a global private equity fund for investing in renewable energy and clean technology, which will take off in September '06. Confirming the development, Herman Mulder, the senior executive vice-president of group risk management, co-chairman of ABN Amro Bank, said, "The e150-200m fund will be used for financing infrastructure projects that are environment-friendly.

However, the exact proportion of the fund that would find its way into the Indian market has not been decided as yet."

Conclusion

The absence of a national policy on renewable energy is hindering the development of the domestic renewable energy sector, according to The India Energy Forum (IEF). The forum apprehends that the generation target of 20,000 MW by 2012, from the existing 6,000 MW set for this sector, is unlikely to be achieved unless a national policy is immediately put in place to attract private investments from within the country and abroad.

Incidentally, a policy draft is still pending before the Government for finalization.

The IEF has recommended that legislative measures be taken for the statutory purchase of at least 10 per cent of the renewable energy generation at discounted rates by power distribution companies.

This apart, producers of renewable energy should be permitted to sell energy to any person. It is suggested that aggregating facility be provided to assist small-size renewable energy projects to market their power to big monopoly buyers, by establishing a Renewable Energy Trading Company (RETC), somewhat akin to Power Trading Corporation (PTC), and also permit the private sector to trade renewable energy.

India cannot survive forever with more than 80% dependence on foreign energy sources like crude oil and natural gas. India's future growth depends on availability of cheap alternative fuels.

India should seek to achieve "energy independence" in 25 years to free itself from the need for costly fuel imports, President A.P.J. Abdul Kalam said. "By the year 2030, India should achieve energy independence through solar power and other forms of renewable energy, maximize the utilization of hydro and nuclear power and enhance bio-fuel production," . Kalam said in a speech on the eve of the country's 59th Independence Day. India's demand for fuel is rising as an expanding economy boosts demand for power and spending by consumers on cars, motorcycles and trucks. The nation is Asia's third-biggest oil consumer after China and Japan.

Disclaimer
Dr. Uday Lal Pai is an independent columnist for this web site. Dr. Uday Lal Pai  may hold long or short positions in any of the stocks mentioned in this article and those positions can change at any moment. InvestorIdeas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp, InvestorIdeas is not affiliated or compensated by the companies mentioned in this article. Dr. Uday Lal Pai  is a freelance writer. Nothing in the articles should be construed as an offer or solicitation or recommendation to buy or sell any specific products or securities. Past performance does not guarantee future results.

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