India Em‘Power’ed.

Benoy Paul Jose

Chennai Business School
10/01/2010
CONTENTS

1. Indian Energy Policy

2. Threats/Challenges

3. Renewable Energy –

Solar Energy

Wind Energy

4. Conclusion
 For four years prior to the onset of the global downturn, India had averaged
close to 9 per cent annual GDP growth. However, the country’s ailing infrastructure
network for power remains a major constraint in sustaining this high growth rate. To
eliminate poverty, India needs to grow at 8-10 per cent a year for the next two
decades, which entails energy consumption growing four to five times. This opens a
wide road for investment in this sector. The main source of power that India is
banking on is hydro, thermal and nuclear energy. The challenge before the country is
to give priority to global concerns on climate change, even as it meets the surge in
demand that accompanies a high-growth path. This opens the way for better
investments in the wind, solar and other renewable source of energy.

The main objective of this study is to capture the opportunities and scope of
renewable energy sources and its application in India. The government long term
plans on this front is also covered. This would help to have a better understanding of
the investment opportunities in India.

India needs to grow at 8-10 per cent for the next two decades if the country is to
eliminate poverty. This will require our energy consumption to grow four-to five-fold.
Our power capacity has to increase from around 170,000 Mw, including captive
plants, to 800,000 Mw or 1,000,000 Mw by 2030. With the full development of
hydropower, an optimistic nuclear development scenario and improved availability of
natural gas, we will need around 500 million tonnes (mt) of oil products, 200 billion
cubic metres (bcm) of gas and around 2,000 mt of coal by 2030. This compares with
an oil consumption of 133 mt, gas consumption of 37 bcm and coal consumption of
about 525 mt (Indian coal equivalent) in 2008. Even with the nuclear agreement, the
nuclear capacity is not likely to reach more than 100,000 Mw by 2030. Our import
dependence may grow as high as 90 per cent for oil, 30 per cent for gas and 30 per
cent for coal. We can reduce this by promoting energy efficiency and renewable
resources.

The fast growing Indian economy with its energy needs increasing exponentially over
the past few years has put immense pressure on the existing power infrastructure. In
recent times the Indian government has realized the gravity of the situation and has
shifted its focus to the power transmission and distribution sector. A key part of the
overall power reform strategy is to relay power effectively and efficiently from regions
of surplus to deficit areas and load centres. The government is pushing ahead
aggressively with its plans to build a national power grid. This is expected to ease
peak-time shortages and make better use of available generating capacity.

INDIAN ENERGY POLICY

The energy policy of India is characterized by tradeoffs between four major drivers:
1. Rapidly growing economy, with a need for dependable and reliable
supply of electricity, gas, and petroleum products;
2. Increasing household incomes, with a need for affordable and
adequate supply of electricity, and clean cooking fuels;
3. Limited domestic reserves of fossil fuels, and the need to import a
vast fraction of the gas, crude oil, and petroleum product
requirements, and recently the need to import coal as well; and
4. Indoor, urban and regional environmental impacts, necessitating the
need for the adoption of cleaner fuels and cleaner technologies.

These trade-offs are often difficult to achieve. For example, the supply of adequate,
yet affordable electricity generated and used cleanly is a continuing challenge
because expansion of supply, and adoption of cleaner technologies, especially
renewable energy, often means that this electricity is too expensive for many
Indians, particularly in rural areas.

Post 2009-10, with the global recovery, India is expected to attain and sustain its
pre-2008-09 growth rates (8-9 per cent). However, infrastructure inadequacies could
prove to be a major constraint in sustaining this high growth rate. To overcome this,
an ambitious programme of infrastructure investment, involving both the public and
private sectors, has been developed for the 11th Plan (2007-08 to 2011-12) period
by Government of India.

Progress in the power sector, with electricity shortages of around 12 per cent (peak
load) and 11 per cent (base load), will be one of the key determinants of future
growth. This has been recognised by the government. As per the government’s
estimate, the power sector is expected to attract around Rs 7.25 trillion in investment
during the 11th Plan period (around 30 per cent of the total $581.68 billion projected
investments in infrastructure by the Planning Commission in the 11th Plan period).
The continuous and steady efforts from the government towards initiating reforms
and liberalising the sector culminated in the following measures:

1. Unveiling of the Electricity Act 2003: The Act brought about several
structural and regulatory reforms designed to foster competitive markets,
encourage private participation and transform the state’s role to that of a
regulator. It set up autonomous state electricity regulatory commissions which
were to develop rules on open access, rationalise tariffs to progressively
reflect cost of supply, reduce cross subsidies, institute strong anti-theft
provisions and protect consumer interest. Electricity trading was to be
recognised as a separate line of business.
2. Increase in efficiency: Efficiency in the generation segment was increased
through introduction of super-critical technology to upgrading the existing
Transmission and Distribution network and penetration of commercial energy
in rural areas to improve the performance and reach of the power sector.
3. Foreign investments: 100 per cent foreign direct investment is allowed in
each segment of the sector [excluding atomic energy] through the automatic
route.
These initiatives have gradually galvanised the
sector and heightened interest due to the enormous investment opportunity.

Transmission

Transmission of electricity is defined as bulk transfer of power over a long

distance at high voltage, generally of 132kV and above. In India bulk
transmission has increased from 3,708 circuit kms in 1950 to more than
165,000 circuit kms today (as stated by Power Grid Corporation of India). The
entire country has been divided into five regions for transmission systems,
namely, Northern Region, North Eastern Region, Eastern Region, Southern
Region and Western Region. The Interconnected transmission system within
each region is also called the regional grid.
The transmission system planning in the country, in the past, had traditionally
been linked to generation projects as part of the evacuation system. Ability of
the power system to safely withstand a contingency without generation
rescheduling or load-shedding was the main criteria for planning the
 transmission system. However, due to various reasons such as spatial
development of load in the network, non-commissioning of load centre
generating units originally planned and deficit in reactive compensation,
certain pockets in the power system could not safely operate even under
normal conditions. This had necessitated backing down of generation and
operating at a lower load generation balance in the past. Transmission
planning has therefore moved away from the earlier generation evacuation
system planning to integrate system planning.
While the predominant technology for electricity transmission and distribution
has been Alternating Current (AC) technology, High Voltage Direct Current
(HVDC) technology has also been used for interconnection of all regional
grids across the country and for bulk transmission of power over long
distances.
Certain provisions in the Electricity Act 2003 such as open access to the
transmission and distribution network, recognition of power trading as a
distinct activity, the liberal definition of a captive generating plant and
provision for supply in rural areas are expected to introduce and encourage
competition in the electricity sector. It is expected that all the above measures
on the generation, transmission and distribution front would result in
formation of a robust electricity grid in the country.

CHALLENGES/THREATS

The measures taken by the government, even though are for a better future, has
many hitches on its way to implementation. The governance in India is a major issue.
The wide and avid geography of India makes the task even more cumbersome,
especially when it comes to transmission and energy theft. Lack of skilled manpower
too is a major issue. Other issues investors would make investors vary are:

1. Slow pace of reforms:

Though various reform measures like the Electricity Act 2003, the National
Tariff Policy, etc, have been put forth by the government to provide an
impetus for growth in this sector, progress in implementing these measures
has been slow. For instance, in the six years since the Electricity Act was
 enacted, only 16 of the 29 states have unbundled (as of August 2009). Also,
open access in T&D is yet to pick up significantly. This leads to a high level of
uncertainty for investors in the sector.
2. Dominance of financially weak state entities:
The power sector is dominated by state-owned entities. These vertically
integrated state utilities or State Electricity Boards (SEBs), many of which
have been unbundled as required by the Electricity Act, account for around
half of the country’s existing generation capacity, around 60 per cent of its
transmission network and around 95 per cent of its distribution network.
These entities have been plagued by bureaucratic inefficiency and political
interference for decades, which have led them into huge losses amounting to
Rs 610 billion, as of 2007-08. These losses have accumulated over time on
account of the subsidies provided to agricultural and household consumers,
and coupled with very high T&D losses (almost 26 per cent, as of 2007-08),
have long kept tariffs out of sync with costs. This causes uneasiness amongst
investors about payment for the electricity they produce, whether it will be
timely, if ever.

Other Notable points include;

The tariff structure The tariff structure is defined by the consumer
class and a cross-subsidy structure is used to subsidise domestic and
agricultural users. The higher rates paid by industrial consumers are
insufficient to cover the subsidies provided. This, together with
collection inefficiencies, further augments their losses.

Timely payment Though investments in power projects are backed by
long-term power purchase agreements by the SEBs, the SEBs’ ability
to make timely payment, if any, for their purchases still remains an
area of concern.

3. Land availability and procedural delays in project implementation:

Every power plant requires a large amount of land. Companies sometimes
face agitation from local residents. Typically, delays are common in
hydropower projects, where land is identified based on the availability of
water, and dam construction and evacuation of local residents become
critical. Further, investors also have to go through all the relevant clearances
 from government agencies, such as environment, forests, etc. These are
dealt with by different ministries in the central government, whereas land
acquisition and related matters are a state concern, which prolongs the
process.
4. Shortage of fuel availability and infrastructural bottlenecks:
While reform-based challenges are gradually being addressed, a more
immediate concern for investors is fuel shortage and fuel-related
infrastructure (port and rail) bottlenecks which threaten delay in the
implementation or operation of power generation plants. In mid- November
2009, of the 78 coal-based power plants in the country, around 26 power
plants (33 per cent of the total) had critical stock levels (less than seven days)
with 14 of them (18 per cent of the total) with super-critical stock levels (less
than four days). In addition, related infrastructure bottlenecks, whether at the
port or in the railways, further delay the timely availability of coal. This failure
to arrange and transport the requisite fuel supplies has threatened the
smooth functioning of coal-based power plants and postponed the building of
several others.

These issues are expected to prove a hindrance in

driving investments in line with the government’s expectations for the power
sector.
 RENEWABLE ENERGY

A report launched by the United Nations Environment Program (UNEP) indicates

very impressive trends for India's renewable energy sector. According to the report,
'Global Trends in Sustainable Energy Investment 2009', India's renewable energy
investment grew by 12% in 2008. With an investment of $3.7 billion in just a single
year, India's renewable energy sector appears well on its way to meeting the
ambitious target set by the Indian Government in the 11th Five Year Plan. The plan
aims for the sector to grow to $19 billion from 2008 to 2012, with renewables making
up 20% of the 70,000 MW of total additional energy planned from 2008-2012.

This is extremely positive and will bolster India's global leadership in the transition to
clean, renewable energy. Renewables (including hydro) already account for 34% of
India's current Installed Power Capacity (if nuclear power is included, then 37% of
India's current Installed Power Capacity is "clean"). India is currently ranked fifth in
the world in terms of its wind power generation.
 Solar Energy

India has a high solar insolation (a measure

sure of solar radiation energy received on a
given surface area in a given time
time),, providing an ideal combination for solar power in
India. Much of the country does not have an electrical grid, so one of the first
applications of solar power has been for water pumping; to begin replacing India's
four to five million diesel powered water pumps, each consuming about 3.5 kilowatts,
and off-grid
grid lighting. Some large projects have been proposed, and a 35,000 km²
area of the Thar Desert has been se
sett aside for solar power projects, sufficient to
generate 700 to 2,100 gigawatts. If fully implemented, solar power would be
equivalent to one-eighth
eighth of India's current installed power base
base.

In July 2009, India unveiled a $19 billion plan to produce 20 GW of solar

s power by
2020. Under the plan, solar
solar-powered
powered equipment and applications would be
mandatory in all government buildings in
including
cluding hospitals and hotels. The
government aspires to ensure large
large-scale
scale deployment of solar generated power for
both grids connected as well as distributed and de
decentralised off--grid provision of
commercial energy service
ervices. India is all ready to launch its Solar Mission under the
National Action Plan on Climate Change, with plans to generate 1,000 MW of power
by 2013.

With about 300 clear sunny days in a year, India's theoretical solar power reception,
just on its land area, is abou
out 5 PWh/year. The daily average solar energy incident
over India varies from 4 to 7 kWh/m2 with about 2,300
2,300–3,200
3,200 sunshine hours per
year,
ear, depending upon location. This is far more than current total energy
consumption. For example, even assuming 10% conversion efficiency for PV
modules, it will still be thousand times greater than the likely electricity demand in
India by the year 2015.
 XITH PLAN PROPOSALS FOR NEW AND RENEWABLE
ENERGY-

RENEWABLE ENERGY FOR URBAN, INDUSTRIAL & COMMERCIAL APPLICATIONS:

While solar water heating, solar passive architecture industrial waste to energy, and
MSW-to-energy have attained a fair degree of technological maturity, their greater
deployment and diffusion still requires subsidy in order to make them
affordable/viable. Focus on deployment in these areas is proposed to be continued
during the 11th Plan through the following components:

Solar passive architecture

Solar thermal systems / devices

Energy recovery from urban wastes

Energy recovery from industrial wastes

Akshay Urja Shops

Renewable energy /solar /eco/ green cities

Jawaharlal Nehru National Solar Mission

The National Solar Mission is a major initiative of the Government of India and State
Governments to promote ecologically sustainable growth while addressing India’s
energy security challenge. It will also constitute a major contribution by India to the
global effort to meet the challenges of climate change.

Based on this vision a National Solar Mission is being launched under the brand
name “Solar India”.

 Importance and relevance of solar energy for India:

1. Cost: Solar is currently high on absolute costs compared to other sources of
power such as coal. The objective of the Solar Mission is to create conditions,
through rapid scale-up of capacity and technological innovation to drive down
 costs towards grid parity. The Mission anticipates achieving grid parity by
2022 and parity with coal-based thermal power by 2030, but recognizes that
this cost trajectory will depend upon the scale of global deployment and
technology development and transfer. The cost projections vary – from 22%
for every doubling of capacity to a reduction of only 60% with global
deployment increasing 16 times the current level. The Mission recognizes
that there are a number of off-grid solar applications particularly for meeting
rural energy needs, which are already cost-effective and provides for their
rapid expansion.

2. Scalability: India is endowed with vast solar energy potential. About 5,000
trillion kWh per year energy is incident over India’s land area with most parts
receiving 4-7 kWh per sq. m per day. Hence both technology routes for
conversion of solar radiation into heat and electricity, namely, solar thermal
and solar photovoltaics, can effectively be harnessed providing huge
scalability for solar in India. Solar also provides the ability to generate power
on a distributed basis and enables rapid capacity addition with short lead
times.

3. Environmental impact: Solar energy is environmentally friendly as it has

zero emissions while generating electricity or heat.

4. Security of source: From an energy security perspective, solar is the most

secure of all sources, since it is abundantly available. Theoretically, a small
fraction of the total incident solar energy (if captured effectively) can meet the
entire country’s power requirements.

 Objectives and Targets of the Mission:

The objective of the National Solar Mission is to establish India as a global

leader in solar energy, by creating the policy conditions for its diffusion
across the country as quickly as possible.
To achieve this, the Mission targets are:

o To create an enabling policy framework for the deployment of 20,000

MW of solar power by 2022.
o To ramp up capacity of grid-connected solar power generation to 1000
MW within three years – by 2013; an additional 3000 MW by 2017
through the mandatory use of the renewable purchase obligation by
utilities backed with a preferential tariff. This capacity can be more than
doubled – reaching 10,000MW installed power by 2017 or more, based
on the enhanced and enabled international finance and technology
transfer.
o To create favourable conditions for solar manufacturing capability,
particularly solar thermal for indigenous production and market
leadership.
o To promote programmes for off grid applications, reaching 1000 MW
by 2017 and 2000 MW by 2022.
o To achieve 15 million sq. meters solar thermal collector area by 2017
and 20 million by 2022.
o To deploy 20 million solar lighting systems for rural areas by 2022.

Target for Target for

Target for
Sl. Application Phase I Phase 2
Phase 3
No. segment (2010-13) (2013-17)
(2017-22)

Solar 15 million sq
7 million sq 20 million sq
1. collectors meters
meters meters

Off grid solar

2000 MW
2. applications 200 MW 1000 MW

Utility grid
4000-10,000
power, 1,000-2000 20000 MW
3. MW
including roof MW
top
 Government policy-
The Ministry of New and Renewable Energy (MNRE) have initiated schemes and
incentives like —

• Subsidy
• Soft loan
• Concessional duty on raw material imports
• Excise duty exemption on certain devices/systems etc.

The central government promotes the installation of solar water heating

systems through a soft loan scheme being operated through the Indian
Renewable Energy Development Agency Ltd and banks. Soft loans at 2%
to domestic users, 3% to institutional users not availing accelerated
depreciation and 5% to industrial/commercial users availing depreciation
are available. Interest subsidy also provided, besides a 5% rebate on
property tax. Capital subsidy is available for installation of solar water
heating systems to registered institutions and commercial establishments.
 Wind Energy

The development of wind power in India began in the 1990s, and has significantly
increased in the last few years. The "Indian Wind Turbine Manufacturers Association
(IWTMA)" has played a leading role in promoting wind e
energy
nergy in India. Although a
relative newcomer to the wind industry compared with Denmark or the US, a
combination of domestic policy support for wind power and the rise of Suzlon (a
leading global wind turbine manufacturer) have led India to become the country
coun with
the fifth largest installed wind
nd power capacity in the world.

Installed Capacity
State
(as on March 31, 2009)
Tamil Nadu 4301.63 MW
Maharashtra 1942.25 MW
Gujarat 1565.61 MW
Karnataka 1340.23 MW
Rajasthan 738.5 MW
Madhya Pradesh 212.8 MW
Andhra Pradesh 122.45 MW
Kerala 26.5 MW
West Bengal 1.1 MW
Other
ther states 3.20 MW
Total 10,254 MW

Wind power accounts for 6% of India's total installed power capacity, and it
generates 1.6% of the country's power.
Leaders in Wind Power –

Installed Capacity
Ranking Country
(end of 2008)
1 USA 25,170 MW
2 Germany 23,903 MW
3 Spain 16,754 MW
4 China 12,210 MW
5 India 9,587 MW
6 Italy 3,736 MW
Total World 121,187 MW

The short gestation periods for installing wind turbines, and the increasing reliability
and performance of wind energy machines has made wind power a favoured choice
for capacity addition in India.

Suzlon, an Indian-owned company, emerged on the global scene in the past decade,
and by 2006 had captured almost 8 percent of market share in global wind turbine
sales. Suzlon is currently the leading manufacturer of wind turbines for the Indian
market, holding some 52.4 percent of market share in India. Suzlon’s success has
made India the developing country leader in advanced wind turbine technology.

The International Energy Agency (IEA) estimates that wind energy will reach 1,100
GW of installed capacity and meet 9 per cent of the world’s electricity production by
2030. In India, the onshore wind potential itself is in the order of 65,000 MW. Given
our long coastline, the off-shore potential is very large too. For India, wind power can
address two long-term strategic objectives: (1) energy security — wind power can
meet 10 per cent of our long-term energy requirements; and (2) climate change
response — with close to zero emissions, it can help abate 2 per cent of our carbon
emissions by 2030. Both these objectives have long-term positive impacts for our
economy and we must act today to make this a reality in 2032.
With an installed capacity of more than 10,000 MW, wind energy dominates the
renewable portfolio mix, taking up about 75 per cent of the overall installed
renewable capacity in India. This makes a significant contribution towards combating
the effects of global climate change, avoiding annual emissions of almost 15 million
tonnes currently.

Factors that have contributed positively towards wind sector

growth:

1. Fiscal incentives like accelerated depreciation and feed-in-tariffs for the wind
sector made it popular amongst investors looking for new ventures. There
has, however, been some criticism from various quarters that despite the
installed capacity being close to 10 per cent of the total generation capacity in
India, actual generation remains quite low. This can be attributed to capacity
getting installed at relatively low-potential wind sites and inadequate O&M
measures. In this context, the generation-based incentive scheme announced
by the government is a step in the right direction. It will incentivise generation
and result in higher efficiency.
2. The renewable purchase obligations made it mandatory for state utilities to
procure power from renewable sources like wind. Many state governments
have come out with wind power policies that allow for wheeling, banking and
third-party sales.
3. Wind power is much closer to grid parity, the point at which it becomes
competitive with grid power, when compared to other renewable technologies
like solar. Given the rising cost of conventional fuels, the high power deficits
prevailing in the country today and the relatively shorter gestation period for
wind power projects compared to conventional power projects, various states
are now keen to promote this power source.
4. The emergence of Indian manufacturing players like Suzlon has catapulted
India into the league of major wind manufacturing countries. A manufacturing
base in the country provides the capabilities for long-term scalability and cost
efficiency of wind power in India.
 While the progress made by India is very encouraging, there is
still a large untapped potential from onshore as well as offshore wind farms which
needs to be harnessed. This calls for a renewed effort from all the stakeholders
involved to address certain key challenges facing the wind sector.

Key challenges facing the sector:

1. Wind Sites- The most important challenge is access to good potential wind
sites. With good wind sites becoming scarce, there is intense competition for
the remaining sites. Moreover, the process of acquiring land itself is quite
cumbersome and leads to inadvertent delays. In contrast, it needs to be noted
that once constructed, the actual turbines in a wind farm occupy only about 1
per cent of the land area taken by the whole development. This means that
agriculture or other activities can continue right up to the base of the turbine.
Therefore, minimising cumbersome procedures to facilitate speedy
implementation is the need of the hour. As a special case, the government
needs to step in and clearly define criteria or guidelines for land acquisition
and rehabilitation specifically for the wind sector.
2. Regulatory uncertainty - There have been instances in the past of state-level
policies that have undergone change during the course of the project life.
Moreover, wind energy due to its unpredictability cannot be forecast or
scheduled, unlike other conventional fuels. This limits the possibility of trading
wind power. The guidelines relating to trading and transmitting wind power
need to take this characteristic into account.
3. Huge Investments - Strengthening the transmission grid to accommodate new
wind power capacities requires investment and needs to be done with priority.
The regulatory framework at the state level to develop these capacities and
share costs between wind power generators and other grid users needs to be
balanced and equitable. Suitable mechanisms to fund these investments,
such as for example a cess on conventional generators or large consumers,
should also be explored so that the state transmission utilities are not
overburdened.
4. Domestic R&D capability - needs to be strengthened. Offshore wind farms are
the next big thing to happen in the wind sector. There is a lot of research
happening in this area globally. A report by ODS-Petrodata estimates that
global offshore wind capacity could reach 55 GW by 2020, up from the
 1.5 GW installed currently. Given the enormous size of the opportunity, India
cannot be a laggard on this front. India needs to be proactive and take a
leadership
ship role in research efforts. The first step in this direction would be to
set up wind monitoring stations to assess the offshore wind profile of India.

o summarise,, wind power has great potential as an

To
alternative energy source for India from the perspective
ive of both long-term
long
energy security and as a response to the call for action on climate change. By
2050, according to IEA estimates, wind power could help India abate up to
100 million tonnes of CO2. That would be a significant contribution indeed.

CONCLUSION

The government of India has very ambitious plans for the power segment in the
country. They have woken up to the harsh reality that tthe
he country has to be self
sufficient in order to be competing with the developed economies. The
T engine of the
economy is run by power segment; hence more importance should be given to this
sector than any other.

The government iss already supporting

g the ventures in the renewable energy
segment via subsidies, loans and grants. Recently the government has declared
another subsidy for the segment, which is an effort
rt to give multiple impetus to the
development of this segment. This move is widely seen as an effect of the
Copenhagen
n Climate summit, where India has been dragged to cut emissions by
atleast 20% by 2020.

nvestment into the renewable energy segment will bring about the
The increase in investment
necessary emissions cuts that India is required to do and also will drive the economy
econ
at a faster pace. Thus no longer can any ‘super power’ put a halt to India’s
India ‘power
filled’ growth.
References –

www.reuters.com

www.en.wikipedia.org

www.mnes.nic.in

www.wwindea.org

www.ieawind.org

www.business-standard.com

www.business.mapsofindia.com

www.finance.indiamart.com

www.sparta-ventures.com

www.planningcommission.gov.in