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 of solar radiation energy received on a sure given surface area in a given time , providing an ideal combination for solar power in time), 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 lighting. Some large projects have been proposed, and a 35,000 km² grid area of the Thar Desert has been set aside for solar power projects, sufficient to set generate 700 to 2,100 gigawatts. If fully implemented, solar power would be equivalent to one-eighth of India's current installed power base eighth base. In July 2009, India unveiled a $19 billion plan to produce 20 GW of solar power by s 2020. Under the plan, solar powered equipment and applications would be solar-powered mandatory in all government buildings including hospitals and hotels. The including government aspires to ensure large scale deployment of solar generated power for large-scale both grids connected as well as distributed and de decentralised off-grid provision of commercial energy service India is all ready to launch its Solar Mission under the ervices. 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 5 PWh/year. The daily average solar energy incident out over India varies from 4 to 7 kWh/m2 with about 2,300 3,200 sunshine hours per 2,300–3,200 year, depending upon location. This is far more than current total energy ear, 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 Sl. No. Application segment Solar 1. collectors Off grid solar 2. applications Utility grid 3. power, including roof top 1,000-2000 MW 200 MW Phase I (2010-13)

Target for Phase 2 (2013-17) 15 million sq meters

Target for Phase 3 (2017-22) 20 million sq meters 2000 MW

7 million sq meters

1000 MW

4000-10,000 MW

20000 MW

Government policyThe 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 energy in India. Although a energy 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 coun with country the fifth largest installed wind power capacity in the world. nd

State Tamil Nadu Maharashtra Gujarat Karnataka Rajasthan Madhya Pradesh Andhra Pradesh Kerala West Bengal Other states ther Total

Installed Capacity (as on March 31, 2009) 4301.63 MW 1942.25 MW 1565.61 MW 1340.23 MW 738.5 MW 212.8 MW 122.45 MW 26.5 MW 1.1 MW 3.20 MW 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 (end of 2008) 25,170 MW 23,903 MW 16,754 MW 12,210 MW 9,587 MW 3,736 MW 121,187 MW

Ranking 1 2 3 4 5 6

Country USA Germany Spain China India Italy Total World

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 role in research efforts. The first step in this direction would be to ship set up wind monitoring stations to assess the offshore wind profile of India. o , To summarise, wind power has great potential as an alternative energy source for India from the perspective of both long-term ive 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 the country has to be self the sufficient in order to be competing with the developed economies. The engine of the T economy is run by power segment; hence more importance should be given to this sector than any other. s g The government is already supporting 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 to give multiple impetus to the rt development of this segment. This move is widely seen as an effect of the Copenhagen Climate summit, where India has been dragged to cut emissions by n atleast 20% by 2020. nvestment The increase in investment into the renewable energy segment will bring about the 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 ‘power India 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

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