India’s new government that was sworn in on 26 May has roused hopes of an economic revival driven by wide-ranging reforms, including the revitalisation of the country’s somnolent renewable energy sector.
India had once been primed as one of the world’s most vibrant markets for renewables, as the energy-starved country of 1.25 billion started diversifying increasingly into renewable energy. But the decline of this sector was spurred as much by the general recession as by policy uncertainty, an inattentive, even indifferent, Ministry of New and Renewable Energy (MNRE), and the inexplicable withdrawal of incentives and abrupt changes in the macro-economic framework governing the industry. It was only towards the end of its term that the Congress-led government took corrective measures to breathe new life into this business.
Much is now expected of the new government of the Bharatiya Janata Party (BJP) that swept away the Congress in a landslide electoral triumph. It is, after all, headed by Prime Minister Narendra Modi, who owes much of his mandate to the spectacular manner in which he bolstered the economy and business environment of the western state of Gujarat of which he was Chief Minister since 2001.
In 2009, Gujarat under him became the first state to outline a policy dedicated to solar power. This prompted the central government to launch its Jawaharlal Nehru National Solar Mission (JNNSM) the following year. Gujarat’s 860.4 MW of solar capacities installed till 31 January 2014 overshadow even the 666.75 MW of the desert state of Rajasthan. The state is catching up in wind power capacities as well, being currently third, with 3,384 MW, after Tamil Nadu’s 7,251 MW and Maharashtra’s 3,472 MW. Notably, 362 MW of its tally was established within the first 10 months of 2013-14 till January 2014, almost a third of the total 1,175 MW of wind capacities added nationally in that period. India’s fiscal year is from 1 April to 31 March. In those 10 months, Maharashtra added 297 MW and Tamil Nadu, 89 MW.
The development of wind power in India began in the 1990s. The Electricity Act of 2003 formalised grid-connected wind energy by providing for regulatory interventions such as for facilitating grid connectivity, and determining tariff and Renewable Purchase Obligation (RPO).
The independent MNRE, which had made India the only country to have an exclusive ministry for renewable power, has now been merged with the ministries of power and coal to ensure coordinated decision-making and faster implementation of projects. (Newly appointed minister Piyush Goyal intends to visit Gujarat soon to study the best practices of its energy model and his ministry has already started charting “a responsible and comprehensive” National Energy Policy.)
This bodes well for a country that has often seen its industrial and economic growth inhibited by shortfalls in conventional power. Power shortage has devastated India’s business environment, resulting in a GDP loss of US$68 billion - 0.4 per cent of GDP - in 2012-13.
With unreliable coal (and gas) supplies denting capacity targets, renewables found increased favour. Grid-connected renewable power (there is yet very little off-grid renewable) now accounts for 31,692.14 MW – or 12.9 per cent - of the country’s 245,393.53 MW of installed power capacities. At 20,226 MW, wind has a 63.8 per cent share in renewables and solar PV, 2,600 MW (8.2 per cent). Localised off-grid electricity that serves 10,752 of the country’s 640,867 villages includes 255,000 solar street lights, 993,000 solar home lighting systems, 939,000 solar lanterns and 138 MW of decentralised solar power plants.
History of turmoil
Few industries in India have been in such prolonged turmoil as power generation, aggravated by poor planning and poorer execution. Work has been suspended on several thermal power plants across the country on account of volatility in coal costs, wavering fuel linkages and lack of policy clarity. Fuel shortfalls have caused around 20,000 MW of new thermal capacity to lie idle. Peak power deficit - shortfall in supply when demand is maximum - reached 5.4 per cent at 7,556 MW in April 2014. Coal-based thermal power, however, still has the major share in India’s installed capacities, of 145,408.39 MW, or 59.3 per cent.
Though the country is the fifth-largest producer and consumer of electricity, after China, the US, Japan and Russia, more than 400 million of its population have no access to electricity. Yearly per capita electricity consumption has increased to 883.63kWh from 566.69 kWh in 2002-03, but still lags far behind the US’ 12,391.37 kWh, Australia’s 10,392.64 kWh, Japan’s 6,749.73 kWh, Russia’s 5,669.47 kWh and China’s 3,493.79 kWh.
India is also the fifth-largest wind power producer, after China, the US, Germany and Spain. Its wind power industry has matured, being now equipped to provide direct-drive, stall-controlled and pitch-controlled turbines ranging from 250 kW to 2.1 MW and with hub heights and rotor sizes upto 100 metres. More than a dozen international companies now manufacture wind turbines in India and they and their Indian counterparts, almost all from the private sector, have the capability to produce more than 9,000 MW per annum and have upwards of 40 models on offer, including turbines designed for low and medium wind regimes. Turbine prices have always been lower than the global average due to lower labour and production costs in the country.
The sector has, however, been marred by several issues of late, and the National Wind Energy Mission (NWEM) is being launched by the middle of this year to rejuvenate it. The Mission seeks to incentivise investments, ease land clearances and regulate tariffs, but unlike JNNSM, will not involve bidding for projects. NWEM has trailed the Solar Mission because while wind energy progressed well, solar had required a boost.
MNRE estimates the installable wind power potential in India for 50-metre mast at 49,130 MW and for 80 metres, 102,788 MW. Solar energy potential is also enormous. About 5,000 trillion kWh per year energy is incident over India’s land area of 3.28 million sq km, with most parts receiving 4-7 kWh per sq m per day.
Solar milestone
Solar power crossed a major milestone with the addition of just over 1 GW of capacities in the last one year alone, a remarkable build-up over the 47 MW installed in 2010. After a slow start early last year, solar installations are now striding towards the capacity targets of 10 GW by 2017 and 20 GW by 2022.
After the launch in February by New Delhi’s independent power producer (IPP) Welspun Energy of its Rs1,100 crore (US$186.4 million) 151 MW solar power plant, hitherto the country’s largest, in the central Indian state of Madhya Pradesh, six state-owned companies are setting up the world’s biggest solar plant, of 4,000 MW, across 48 sq km of salt plains in Rajasthan. The US$4.4 billion project of crystalline silicon PV modules will supply 6.4 billion kW of energy annually, reducing India’s carbon footprint by over 4 million tonnes of carbon dioxide each year. It will be developed in phases over seven years, the first of 750 MW costing US$1.09 billion to be set up in three years.
The project will be 10 times larger than the world’s largest 400 MW concentrated solar power (CSP) plant commissioned in February in California’s Mojave Desert. The US$2.2 billion Ivanpah Solar Electric Generating System comprises three massive generators and 356,000 mirrors covering 8 sq km of land. India has planned four more ultra mega solar PV projects, of 500 MW each, for 2014-15, two in the northern state of Jammu and Kashmir (J&K) and one each in Rajasthan and Gujarat.
New energy model
“The growth of renewable energy has changed the energy business in India,” states the newly released ‘citizen’s report’ on the State of Renewable Energy in India of New Delhi-based policy research and advocacy group, Centre for Science and Environment (CSE). “It has, in many ways, democratised energy production and consumption in the country.” The Centre points out that before renewables gained significance, energy business was all about fossil fuel-based big company and grid-connected power that dominates even today. But now there is an alternate energy market in which thousands of small companies, NGOs and social businesses are involved in selling RE products and generating and distributing renewable-based energy.
The renewable energy sector in India has, however, fared poorly over the past two years. While 6,761 MW of grid-interactive renewable power was added during the 10th Five Year Plan (2002-07) against a targeted 3,075 MW and 14,661 MW was added during the 11th Plan (2007-12) against a target of 12,230 MW, the decline has been visible from 2011-12, when 4,942.90 MW of RE capacity was installed. It dropped to 3,163.17 MW in 2012-13, the first year of the 12th Plan (2012-17). It seems to be on the mend now, with the commissioning of 3,639.82 MW, 84.16 per cent of the target of 4,325 MW for 2013-14. This included 2,083.3 MW of wind energy, or 83.34 per cent of the targeted 2,500 MW, 962.1 MW of solar, or 87.47 per cent of 1,100 MW, and 171.4 MW of small hydro, or 57.13 per cent of 300 MW.
The 12th Plan aims for 29,800 MW of RE capacity addition, 15,000 MW of it wind, 10,000 MW solar, 2,100 MW small hydro and 2,700 MW bio-power, including waste to energy. JNNSM is besides looking to add 20,000 MW of grid and 2,000 MW of off-grid solar applications, as also 20 million sq metres of solar thermal collector area by 2022. Wind, solar, biomass and small hydro projects have been allocated Rs135,100 crore (US$22.9 billion), or 9.8 per cent of the total energy outlay of Rs13,72,580 crore (US$232.6 billion) under the 12th Plan.
“This is not enough,” observes the CSE report. “Largely because of policy uncertainty – some say paralysis – within MNRE,the past two years were a complete washout for the RE sector in India, with investments dipping significantly from US$13 billion in 2011 to US$6.5 billion in 2012.”
This perception is shared by just about all stakeholders in the RE sweepstakes. After a successful implementation of Phase I of the Solar Mission, needless delay in communicating Phase II till beginning 2014 brought about stagnancy in the solar industry. Wind power, too, was derailed by the abrupt revocation of both the Accelerated Depreciation (AD) and Generation Based Incentive (GBI) benefits at the beginning of the 12th Plan. Both benefits had been introduced in 2009 as being complementary to each other.
While GBI was re-introduced a year ago, AD, which had driven 70 per cent of the wind installations, has not been reinstated. The AD benefit, intended to promote wind capacity additions during the initial growth phase and which is still available for solar power producers, had enabled wind farms to claim 80 per cent depreciation of equipment cost. Following its repeal, they can now claim only the standard 15 per cent.
Mahesh Makhija, director of business development (Renewables) at CLP India Pvt. Ltd, the subsidiary of Hong Kong’s CLP Holdings, says AD, alongside the turnkey development of their ventures, attracted high net worth investors not directly in power generation, but who contributed to the initial growth of the wind industry. They, however, opted out after AD was withdrawn. IPPs were expected to move in instead, but prolonged indecision on the continuation of GBI deterred them, too.
Capacity additions suffered as a result, Makhija notes, with several under construction and planned wind projects coming to a near halt as their developers had factored GBI in when finalising their projects and its absence rendered the projects commercially unviable.
“We believe that both AD and GBI schemes can work exclusive of each other,” Makhija stated. Wind projects of 2,021.29 MW had availed themselves of the GBI benefit and 1,830.43 MW of the AD benefit between March 2010 and October 2012. He feels that though GBI has been re-introduced alongside other corrective steps, RE capacity addition in 2014-15 will fall far short of the 5,920 MW targeted capacities for the year though it is likely to surpass that achieved in 2013-14.
With an investment of around US$1 billion, CLP India is the largest investor in India’s wind sector, having built up a portfolio of 12 wind farms of a cumulative capacity of 1,051 MW. It will be investing an additional US$1 billion to US$1.2 billion to raise the total capacity to 2,000 MW by the end of 2016.
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