Renewable Energy Holds Promising Future in India

Apr 18, 2008 - Anupam Tyagi - RenewableEnergyWorld.com

Ghaziabad, India [RenewableEnergyWorld.com]

Photo: Andy Swapp

According to the 11th New and Renewable Energy five-year plan proposed by the government of India, from 2008-2012 the renewable energy market in India will reach an estimated US $19 billion. Investments of US $15 billion will be required in order to add the approximately 15,000 megawatts (MW) of renewable energy to the present installed capacity. The government of India has planned a subsidy support system of approximately US $1 billion in government funds. This amounts to adding renewable energy capacity at 1 Watt per US $1, with potential subsidy support of US $0.07/Watt.

The Indian government has also set specific targets for renewable energy: by 2012 it expects renewable energy to contribute 10% of total power generation capacity and have a 4-5% share in the electricity mix. This implies that growth in renewable energy will occur at a much faster pace than traditional power generation, with renewables making up 20% of the 70,000 MW of total additional energy planned from 2008-2012.

From 2002 to 2007, there was 3,075 MW of renewable grid-tied power planned, but the actual capacity addition exceeded 6,000 MW by 2006. A large share of this was the result of exceptional growth of wind energy in India. Wind energy is expected to add more than 10,000 MW of additional capacity by 2012, followed by small hydro (1,400 MW), co-generation (1,200 MW) and biomass (500 MW).

In the past five years, the government of India had withdrawn subsidies for grid-tied solar power because its costs were not considered viable. Plans for a 140 MW Integrated Solar Combined Cycle plant at Mathania, Rajasthan were canceled after an unfavorable technical and commercial review. But recently this sector has experienced a turn-around, with new technologies and manufacturing capacity in India (See Scaling Up Solar in India.) With the success of grid-tied solar electricity in other countries, and new state-level initiatives for feed-in tariffs, the outlook for this segment is now positive. The government has set aside US $50 million to subsidize solar power when its costs match those of small hydro.

Financial assistance is available in various forms, such as direct installation subsidy, feed-in tariffs, tax rebates, and low interest loans. Increasingly Indians are seeing a shift away from subsidizing installed capacity and towards subsidizing power generation with feed-in tariffs and tax rebates. For example, for wind energy there is an income tax exemption for 10 years, 80% accelerated depreciation, sales tax exemption, and excise duty exemption.

Preferential tariffs are being worked out at the state level. While the new framework for supporting renewable energy generation is evolving, most of the direct subsidy has thus far been designed for installed capacity.

Projects in the states in northeastern part of India and the hill states of Jammu & Kashmir, Himachal Pradesh and Uttaranchal currently receive the best support, with subsidies there 20% to 50% higher than in other states of India. Some of the highest direct subsidy rates have been announced for installation of grid-tied wind and small hydro, and off-grid solar photovoltaic (PV) projects. The present subsidy for 1 MW grid-tied wind is $625,000 and for 1 MW grid-tied small hydro it's $375,000. See the chart below for more information.

Source: Anupam Tyagi

The Ministry of New and Renewable Energy has identified renewable energy R&D as an important factor for developing this sector. R&D subsidy is 100% of a project's cost in government R&D institutions, and 50% in the private sector. The R&D subsidy for the private sector may be enhanced for initial stages of technologies that have longer time-horizons.

Subsidy support is for firms with majority Indian stake. Firms with foreign majority stake can take advantage of subsidies if they have local Indian partnersv or if the R&D they provide is at lower costs and in shorter time than R&D provided by firms in India. Foreign firms can also received R&D subsidy support in exceptional cases when the larger national interest is evident and is served by that firm. Many Indian firms have foreign R&D collaborations or financial stakes in foreign R&D firms.

In the past a significant proportion of allocated funds have gone underutilized, possibly due to lack of availability of suitable projects and procedural delays. One area of concern is the lack of bankable projects in bagasse-based cogeneration and urban waste-to-energy space. In these cases, 50% of the direct subsidy amount will be given upfront, with the other half being distributed after the completion of the project.

With maturing technologies and integrated business models in renewable energy business, the suitability of projects is likely to improve, resulting in higher utilization of available government funds and faster market growth. This has been the case of wind energy in India. Integrated installation, operations and repair contracts are common in the wind energy business. This has provided a viable and investor-friendly business model.

Thin-film solar production is expected to lead to the development of PV-based electricity generation. Technologies in the wind, bio-mass, waste-to-energy and small hydro markets are at the venture capitalist stage, waiting for funding to begin commercialization and scaling up of thier projects.

Policies at state and local levels, like feed-in tariffs, tax incentives, technical training, financing mechanisms and revenue recovery can go a long way in building a successful renewable energy market in India. Improvements in energy efficiency can reduce recurring cost of energy using technology that is often priced even higher than the cost of renewable energy. This will make investments in this sector attractive.

Building renewable energy infrastructure also requires mapping the natural resource base. In a continuing effort to build the information infrastructure for renewable energy, GIS (geographic information systems) mapping of renewable sources will continue with government funding. In addition, classification and rating of potential location sites is considered a strategically important area. To realize the estimated total potential of 85,000 MW of renewable energy in India, keeping renewable energy business in-sync with international standards is important. Therefore, equipment-related subsidies and incentives are often made contingent upon meeting international standards.

The Ministry of New and Renewable Energy in India has also provided funds for town and city level renewable energy planning. This local information infrastructure, comprising of local awareness, urban design, laws and smooth functioning processes, is an important step towards integrating renewable energy into economic life, and improving power delivery in the last kilometer. In addition to improving investment opportunities, this may also bring about greener, better designed and less polluted cities. With the expected growth in this sector, the availability of technically trained personnel may become a hurdle for further growth in the coming years. Thus, an opportunity exists for educational and training institutions to introduce new courses, curricula, and training for students to work in this emerging job market in urban and rural areas.

Anupam Tyagi is a RenewableEnergyWorld.com Indian Correspondent based in Ghaziabad, India.