Economic Viability of Renewable Energy in India

MPL 141- TERI-SAS LLM (2020-2021)

Submitted by Group 7
Sakshi Khulve
Yashodhara
Aryaditya Singh
Kumar Sourav
Mayank Sharma

BACKGROUND
Energy Sector of any economy plays a significant role undisputed, such was seen significant
when human development index or HDI was positively co-related to energy consumption 1. Before
1980s, the basket of energy production was dominated by conventional fuels such as coal, crude oil
that contributed in significant rise in the carbon emissions and consequently global warming2, apart
from environmental challenges the hydrocarbon further dominated the economy by fluctuating
prices of fossil fuels due to geopolitical issues3 and immense pressure on foreign exchanges
reserves that effected not only India but the world.
This issues led the emergence of more sustainable world and focused on generation based on
clean energy resources namely Solar, Wind, Tidal, Hydro etc. and India being geographically
beneficial has maintained fourth position in the world and second-highest in Asia, after China, with
35 GW4. With India declared and ambitious goal to set a target of installing 175 GW of renewable
energy capacity by the year 2022, of which different components includes Solar generation of 100
GW, Wind Generation 60 GW, Bio Power of 10 GW and from Small Hydro-power 5 GW.5
India has achieved from 1350MW at the time of Independence to 89,636 MW 6 form
renewable resources and with policies and government actions it has been considered one of the
most favourable investment destination of the world 7 and one of the cheapest source8 for energy for
India’s economy to push green and clean economy.
1 G. Dwivedi, M.P.Sharma, M.Kumar, “Status and policy of biodiesel development in India” 4 (3), International
Journal of Renewable Energy Research,246–254, (2014).
2 Cutler J. Cleveland, Christopher Morris, Handbook of Energy: Chronologies, Top Ten Lists, and Word Clouds
(2014).
3 The Oil Shock of 1970s.
4 World’s top 10 countries in wind energy capacity, Economic Times Energy World, March 18, 2019 available at,
https://energy.economictimes.indiatimes.com/news/renewable/worlds-top-10-countries-in-wind-energy-
capacity/68465090.
5 India plans to produce 175 GW of renewable energy by 2022, Sustainable Development Goals, available at
https://sustainabledevelopment.un.org/partnership/?p=34566#:~:text=The%20Government%20of%20India
%20has,GW%20from%20small%20hydro%2Dpower.
6 Ministry of Power, as on 09-11-2020.
7 India has committed $90 bn renewable energy investment so far: UNEP, Economic Times Energy World,
September 24, 2019 available at https://energy.economictimes.indiatimes.com/news/renewable/india-has-
committed-90-bn-renewable-energy-investment-so-far-unep/71260250.
 The Government of India constituted the Commission for Additional Sources of Energy
(CASE) in 1981 under the Ministry of Science& Technology. The main purpose was to formulate
and implement the policies for research and development of new and renewable energy for
technical process9. The next year in 1982, Department of Non-Conventional Energy (DNES) was
created under the then Ministry of Energy and was allocated the responsibility for CASE. This
department in 1992 emerged as a separate ministry, Ministry of Non-Conventional Energy Sources
(MNES) which for dedicated to renewable energy sources and was the first in the world so to do
10
and was renamed in 2006 as Ministry of New and Renewable Energy (MNRE) as we know
today.11
Ministry of New and Renewable Energy has been bestowed with an objective to increase the
renewable energy contribution in the energy grid of India. MNRE also envisaged to supervises
Energy development autonomous institutes like for Solar Energy- National institute of solar energy,
for Wind Energy C-WET, for Bio mass energy SSS NIRE, For hydropower AHEC and IREDA
which primarily provides financial support to renewable energy projects.
Other departments and Ministries like Ministry of Power, NITI Aayog and Prime Minister
Council for Climate Change also oversees renewable energy projects. With such policy push wind
energy emerged as an investment dominance amongst the renewables due to short gestation period,
low risk investment and better viability of the projects.12

The Powering Indian Wind

India has witnessed a consistent growth of Wind Energy. India’s Cumulative Annual Growth
Rate (CAGR) in wind energy is 7.9% during the forecast period of 2020-2025 which is on par with
the global rate. One of the most valued renewable energy sources worldwide is Onshore Wind
Power which is estimated to witness an addition of 37.7 GW as of March 2020 and the wind power
installations has reached 2.07 GW (FY 2019-20), which is a 31% increase when compared to 1.58
GW in FY 2018-19. Wind power represents 10.1% of the total installed power capacity in India as
of Q1 2020 and offshore sector also gaining momentum.13

8 Sushma U N ,Like solar, wind power is now cheaper than coal-based electricity in India, available at
https://qz.com/india/1098375/wind-power-is-now-cheaper-than-thermal-and-nuclear-power-in-india/.
9 S.C. Bhattacharya, Chinmoy Jana, “Renewable energy in India: Historical developments and prospects”, 34
Energy, 981-991, (2009).
10 Indu R. Pillai, Rangan Banerjee, “Renewable energy in India: Status and potential”, 34(8) Energy, 970-980 (2009).
11 Ministry of new and renewable energy, http://www.mnre.gov.in/.
12 Tushar Sud, Rajneesh Sharma, Radhika Sharma (Deloitte Touche Tohmatsu India) and Lucy Kitson (IISD), CASE
STUDY: India’s Accelerated Depreciation Policy for Wind Energy, International Institute for Sustainable
Development, available at https://www.iisd.org/system/files/publications/india-accelerated-depreciation-policy-
wind-energy-case-study.pdf.
13 RAHUL NAIR, Wind Installations to Cross 71 GW in 2020 Despite COVID-19 Challenges: GWEC, NOV 09,
2020 available at https://mercomindia.com/wind-installations-to-cross/#:~:text=In%20India%2C%20wind
%20power%20installations,GW%20as%20of%20March%202020.
 Acknowledging the potential, MNRE has the primary responsibility for planning and issuing
policy framework for renewable sector. MNRE has also introduced a generation based incentive
scheme which provides financial incentives up to 10 years linked to every unit of generation. 14This
policy aims to attract investment from both foreign and domestic stakeholders and create a level
playing field for both of them.
MNRE incorporated Centre for Wind Energy Technology (C-WET) which is responsible for
resource management in the country and is the technical focal point for wind energy development
as its assessment through wind resource mapping helps identify more commercial sites for
investment and development.

Understanding the Economics of Wind Power

In 2019, the total new onshore installation was of 54.2 GW out of which 4% is contributed
by India. A total Installation made onshore is of 621 GW out of which 6% is contributed by India.
Stats of New Installation in India: 2191 MW (2018), 2377 MW (2019) & Total Installations in
India: 35129 MW (2018), 37506 MW (2019).15
Even though the capital cost for installing a wind power plant is slightly higher than the
fossil fuels power plants but much lower than a solar power plant. The cost of installation depends
upon the different factors like type of turbine, technology, size and location. The running cost of a
wind farms is very low as the fuels cost is zero and operations and maintenance costs are low too.
Hence, it is important to understand how it all works and what are the necessary components for
power generation.16
 Wind Speed- the wind speed or the average wind speed is the most critical indicator of the
wind potential at a given site. The wind speed at any site is influenced by large number of
parameters e.g. the weather system, local land use, geography of site. The wind speeds at
any location have daily as well as seasonal variations. In India, the monsoon months have
the highest wind speeds.
 Power Law Index- the wind speeds vary with height. The variation in the wind speed with
height is given by the “power law index”.
(V2/V1) = (H2/H1) P
Here V1 and V2 are wind speeds at height H1 and H2 respectively and p is the power law index.

14 V. Khare, S. Nema, P. Baredar,” Status of solar wind renewable energy in India”, 27 Renewable and Sustainable
Energy Reviews, 1-10, (2013).
15 GWEC, Global Wind Report 2019, available at: https://gwec.net/global-wind-report-2019/ (last visited on 11th Dec,
2020).
16 Feasibility study of 100 MW Power Project for ONGC, TERI Org., available at:
https://www.teriin.org/sites/default/files/2018-02/Final%20Report_1.pdf (last visited on 11th Dec, 2020).
  Wind Direction- The variation in wind direction is shown as the ‘wind rose’. The wind rose
and the frequency distribution of wind direction data are used in siting of wind turbines.
 Energy Conversion by the Wind turbine- The wind power density Pd is power in the wind
per unit area (W/m2) of cross section perpendicular to wind direction. The wind turbines
convert this wind power in to electricity through use of blades coupled with shaft and
generator. Different wind turbines have different generation at the given wind speed; the
relation between the wind speed and the output from the turbine is called as power curve.
Wind Turbines- The wind turbines convert the kinetic energy of wind into electricity. The
important components of a wind turbine are:
1. Rotor Blades
2. Aerodynamic power regulation
3. Generator
4. Reactive power control
5. Yaw Mechanism
6. Tower
Therefore, the science of generating electricity from the wind kinetic energy can be understood
from the above definitions and the components required for generating that energy. The amount of
power generation from the Wind Turbine varies from the different aspects of plat such as the height
of the tower, the speed of the wind (different in various terrains), the direction of the wind and the
angel in which it reaches the Rotor Blades.
Since 1980s, the Wind Power Market has evolved and changed according to the market
trends and advancements in the technology leads to decline in the LCOE. We will understand it
through the diagram below:17

17 Chetan Krishna, Ambuj D. Sagar and Stephen Spratt, The Political Economy of Low-carbon Investments: Insights
from the Wind and Solar Power Sectors in India, (January, 2015), available at:
https://opendocs.ids.ac.uk/opendocs/bitstream/handle/20.500.12413/5590/ER104ThePoliticalEconomyofLowCarbo
nInvestmentsInsightsfromtheWindandSolarPowerSectorsinIndia.pdf?sequence=1&isAllowed=y (last visited on 11 th
Dec, 2020).
There has been a fall in global weighted-average of total installed cost of onshore wind projects by
“72 %” from 1980s to present, which is from USD 5179 to USD 1473. The factors behind the
decline the in the global weighted-average LCOE include:18
The improvement in Turbine technology has lead to be one of the factors for declining cost
of production as the “increased turbine sizes and swept areas, the process of optimizing the rotor
diameter and turbine ratings, i.e. the specific power, has led to increased energy yield and thus
project viability for the asset owner, depending on site characteristics.” The other factor is that the
“Impacting costs of manufacturing and installation (with the reduction in the number of turbines
required for a project due to the higher turbine ratings).” The improved O&M practices have lead to
cost reduction which is increasing competition in the market. And the most important factor is that
the “competitive auctions is leading to further cost reductions, as it drives competitiveness across
the supply chain, from development to O&M, both at a local and global scale. For turbine
manufacturers, the supply chain has also moved to support regional hubs and countries to minimize
labour and delivery costs, further improving competitiveness.”

Demand of Wind Energy in India

In the words of economist Jeremy Rifkin “India is the Saudi Arabia of renewable Energy”.
With the increase in economic development of the country, the demand for energy will rise. Since
18 IRENA, Renewable Power Generation Cost(2019), available at:
https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2020/Jun/IRENA_Power_Generation_Costs_2019
.pdf (last visited on 11th Dec, 2020).
the demand for clean India, digital India, make in India and so on is increasing the demand for wind
energy also steps up.19 India ranks fourth in the world when it comes to onshore wind market by
installations and having a wind capacity of 37.5 GW. Also keeping a track of rise in energy demand
it is estimated that this demand is set to double itself in next ten years. The capacity of renewable
energy, India is set to target is 450 GW of which 140 GW is wind energy based generation. 20 In the
wind energy sector around 75% to 80% wind energy equipment’s are made in India. Also the
exports regarding wind energy are around $ 500 million per annum.21
The economy of a country to a great extent also depends on its energy demand. In the year
1990 to 2010 this demand for energy has increased at a rate 6.4 % in India. India relies heavily on
fossil fuels and thermal energy to meet its energy demands. As a result of overwhelming demands
these conventional sources of energy are depleting at fast rate. Pollution and depletion are two of
the causes that led scientists to find such source of energy which can be renewed as well as cause
less damage to the environment. Therefore it became necessary to promote energy like wind energy
which is a clean energy and also cheaper compared to other forms of energy. 22 Wind energy has
huge potential and this is evident from its rapid increase in cumulative global capacity reaching 539
GW at the end of 2017 representing 10.7% of cumulative market growth.23
Demand for wind energy will be supported by the government of India to meet the
requirements of RPO (Renewable Purchase Obligation). Also the demand is supported by NAPCC
(National Action Plan on Climate Change) which in June 2008 recommended a target of renewable
energy mix in the overall energy procurement by utilities at 10% by 2015 and 15% by 2020. CERC
has also implemented a mechanism of RRF (Renewable Regulatory Fund) in 2013 for wind projects
of ten megawatt and above which requires them to forecast and schedule their power generation on
a day ahead basis.24 The government of India has set a target of attaining 60 GW of renewable

19 Dr Manoj Kumar, Future of wind Energy in India, SSRN-ID2727320.PDF (last visited Dec 6, 2020).

20Wind Industry & COVID-19: India Wind Energy Market Outlook & Impact of COVID-19,
https://gwec.net/webcast-on-wind-india-wind-energy-outlook/ (Last Visited on Dec 4, 2020).

21 Anshul Joshi, Budget 2020: wind energy industry wants government to raise discount on export duty on wind
turbines, ET ENERGY WORLD, Jan 31, 2020,
https://energy.economictimes.indiatimes.com/news/renewable/budget-2020-wind-energy-industry-wants-
government-to-raise-discount-on-export-duty-on-wind-turbines/73812641.

22 Prem K Chaurasia, Siraj Ahmad, Wind Energy Development & Policy in India: A Review,
https://www.sciencedirect.com/science/article/pii/S2211467X19300379 (last visited Dec 6, 2020).
23 Id.
24 Demand outlook strong for wind energy in the long run: ICRA,
https://economictimes.indiatimes.com/industry/energy/power/demand-outlook-strong-for-wind-energy-in-the-long-run-
icra/articleshow/21400898.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst (last visited
Dec 7, 2020).
energy in the form of wind energy by 2022. The government has set up an objective of having forty
percent of its installed electric capacity driven by non-fossil fuels by 2030. Another factor adding to
accelerate the growth of wing energy in India are the wind electric generators. The demand and
development of onshore wind energy also enhances as it provides a lot of employment opportunities
in wind energy sector. For instance for each megawatt capacity, five times equivalent jobs will
create in initial years, for manufacturing, construction and installation. Government is also
encouraging use of wind energy by providing various financial incentives such as accelerated
depreciation, compromise in custom duty and loans from various financial institutions.25
On the basis of power capacity, the wind tower generating less than two megawatt holds a
twenty percent market share of India onshore wind energy. Based on wind capacity the market is
divided into various segments based on high wind speed, medium wind speed and low wind speed.
Amongst these the high wind speed are anticipated to lead the market as they are run by turbines
which individually generate 2.3 megawatt of energy. Based on regional segment the south India
region due to Andhra Pradesh, Rajasthan and Karnataka have finalized regulation for intra state
transmission of wind power. The rising concern for clean energy will also witness noteworthy
growth in other segment.26
Another feature which has influenced the demand for onshore wind energy is its cost
effectiveness. The advantage of having onshore wind energy which also increases its demand is that
it is one of the most affordable renewable energy source. Electricity generated from onshore wind
turbines costs half of that of off shore wind energy and a quarter of the costs of solar photovoltaic
panels. Nuclear power is also slightly costlier compared to onshore wind turbines. However it is
slightly costlier compared to fossil fuels.27

The Economics of Land Acquisition for Wind Power

When we look at things from an economic point of view, the first thing that comes to mind
is the cost. Now, in its very crude form cost can be understood as the resources required for the
successful completion of the task at hand. Some costs are easy to account for, for example, costs
incurred in order to buy the turbine, lease the land, etc. They are easy to estimate and pretty
straightforward.
The price consumers pay in the end for wind power is not the same as the total cost accrued
to the society for wind power. So the true cost, in this case, includes both the tangible and intangible

25 India Onshore Wind Energy Market- Industry Analysis and Forecast 2027: By Power Capacity, Wind Capacity,
End-Use, Application, Grid Connectivity and Region, https://www.maximizemarketresearch.com/market-report/india-
onshore-wind-energy-market/44534/ (last visited on Dec 5, 2020).
26 Id.
27Onshore wind energy: what are the pros and cons?, https://www.theguardian.com/environment/2012/sep/25/climate-
change-windpower (last visited on Dec 9, 2020).
aspects of installing a wind power project. So, it can be empirically summarised as, cost to produce
the energy + cost to the society = True cost. Energy production is a precursor to so many things that
exist in the economy, example power factories, power auto-mobiles, etc. We shall confine ourselves
to the tangible economic aspects of the power projects using wind as the renewable resource, as in
the price of land, compensation, installation charges etc.
Wind energy comes under non-conventional energy and is considered to be the most
environmentally friendly way for producing energy; it gets a tax break of 80 percent as depreciation
during the first year. Every other investment over Rs. 1 lakh is taxed by the government.
Banks provide 70 per cent of the project cost as loans at 9 percent interest for installation of
wind energy. The minimum cost of installation works out to Rs. 1 crore for a 250 kW wind turbine.
It requires an individual to bring in Rs. 30-35 lakh in advance, while the balance amount can be
funded through loans from banks.
State electricity boards are the bodies the energy is sold to. In the first year of operations,
almost fifty percent the amount that individuals invest, close to Rs. 14 lakh, can be collected as
revenues. These earnings can be used to pay off part of the loan so taken as well.
Cost incurred for the operation, maintenance and insurance works out to Rs. 40,000-50,000
a year. Wind turbine manufacturers give a one-year warranty on an installed turbine.

Apart from natural calamities and disasters, jobs, displacement of large amount of people can be
due to:
 Developmental work like construction of dams, power plants, reservoirs and irrigation
canals
 Infrastructural projects like flyovers, bridges, roads etc.
 Transportation related activities like roads, highway, canal etc.
 Power plants, oil exploration, mining activities, pipelines like HBJ pipeline and other energy
related projects
 Agricultural projects such as those related with the conservation of wildlife like national
parks, sanctuaries and biosphere reserves. 28

Some primary examples of mass displacement include but are not limited to the displacements that
happen as a result of mining activities that involve bombardment of large areas, construction of
dams etc. The nuclear crisis in Japan is also one of the prominent happenings that had led to such a
displacement.

28 Resettlement and Rehabilitation: reasons, issues and objectives,

http://www.cukashmir.ac.in/cukashmir/User_Files/imagefile/DIT/StudyMaterial/EVS/Resettlement%20and
%20rehablitation.pdf (last visited on Dec 9, 2020).
 The primary issues that are associated with mass displacement include the lack of basic
infrastructure facilities and loss of livelihood, people have to undergo an entire phase of severe
stress because they more often than not fail to secure a job as soon as they reach a new place of
residence. Other struggles include that of finding a good locality to dwell in and carry out day to
day activities.
Increase in health issues is also one of the repercussions, which is a result of loss of
nutrition, which in turn is the by-product of loss agriculture and forest based occupations and the
fact that they cannot rely on the herbal remedies they were accustomed to any more.
Loss of identity is often overlooked but is a sad reality of the displacement that takes place,
the shift in culture for someone residing in tribal areas or a part of tribal community is very drastic
and this often leads to exploitation of these communities.

Conclusion
As we have inferred, compared and understood, wind energy has the potential to be a major
player in satisfying the energy of a growing India in the centuries to come. As the energy demands
of the country increase, the reliance and harvesting of wind energy will also increase as it provides
the cleanest possible way of generating electricity. The high initial costs more than get covered up
with the passage of time as there are no other expenditures that are associated with conventional
fuels with respect to their environmental impact and additional costs.
The starting expenditure of setting up a wind turbine farm can be compared to setting up a
power plant that runs on a fossil fuel like coal. Where a thermal plant requires constant supply of
raw material with an unbroken supply chain, such issues do not exist with renewable sources of
energy. Wind power allows us to harvest energy without any transportation delay or environmental
degradation it may cause.
The economic viability of renewable energy, especially wind energy lies in its sustainability
and long term usage. There is no risk of running out of “fuel” and the infrastructure at most requires
periodic maintenance and the occasional upgrade to meet the power needs. The overall costs, when
put in context to the actual cost of running such a project, cost of transmission, manpower employed
and the impact on natural resources and environment is significantly less than that of any fossil fuel
energy production project. It eliminates negative externalities like air and water pollution while
providing positive externalities that further boost their economic viability.
The Government of India, under its obligations to the international community and its
domestic policies has been pushing towards an economy and country that is reliant on renewable
sources for its energy needs. The National Electricity Plan and concerned ministries like the MNRE
have been working tirelessly to provide sufficient policy and infrastructural support for wind energy
projects along with other renewable energy projects. The coming centuries will see a boom in the
renewable energy sector, both in the market and policies and the groundwork is already being done.

References
1. S.C. Bhattacharya, Chinmoy Jana, “Renewable energy in India: Historical developments and
prospects”
2. V. Khare, S. Nema, P. Baredar,” Status of solar wind renewable energy in India”
3. Indu R. Pillai, Rangan Banerjee, “Renewable energy in India: Status and potential”
4. GWEC, Global Wind Report 2019
5. Chetan Krishna, Ambuj D. Sagar and Stephen Spratt, “The Political Economy of Low-
carbon Investments: Insights from the Wind and Solar Power Sectors in India”
6. IRENA, Renewable Power Generation Cost (2019)
7. Dr Manoj Kumar, “Future of wind Energy in India”
8. Anshul Joshi, “Budget 2020: wind energy industry wants government to raise discount on
export duty on wind turbines”
9. Prem K Chaurasia, Siraj Ahmad, “Wind Energy Development & Policy in India: A Review”
10. India Onshore Wind Energy Market- Industry Analysis and Forecast 2027: By Power
Capacity, Wind Capacity, End-Use, Application, Grid Connectivity, and Region.
11. Onshore Wind Energy: What are the pros and cons?,
https://www.theguardian.com/environment/2012/sep/25/climate-change-windpower
12. Resettlement and Rehabilitation: reasons, issues and objectives,
http://www.cukashmir.ac.in/cukashmir/User_Files/imagefile/DIT/StudyMaterial/EVS/Resett
lement%20and%20rehablitation.pdf