Renewable Energy in India: Past, present and future

Posted on November 4, 2011 by


Energy requirement and availability in MU India

World Resource Institute ranks India 109th among the 134 countries in terms of the energy consumed per capita per annum. This rank is even below countries such as Indonesia and Zimbabwe. However, there has been rapid growth in industry and domestic consumption of electricity. Between 1984 to 2011, the demand for electric power increased at the rate of 6.35% per annum and the availability increased at the rate of 6.28%. Given that we started off on a power deficit, the energy deficit and peak power deficit both exist.

A noticeable feature of India’s power sector growth is the increasing role being played by a number of renewable energy technologies. India was the first country in the world to have a dedicated ministry for new and renewable energies (MNRE), having started the work in the early 1980s.

From a grid-connected utility-scale renewable energy technology perspective, the key renewable energy technologies are wind, solar, biomass and small hydro. Other forms such as geothermal and wave energy are still in the experimental stage, yet to reach commercial reality. Renewable Energy Technologies such as waste-to-energy in the form of MSW-to-energy are trying to overcome the operational difficulties and it would take some more time for these to become significant contributors to national energy mix. (Know more about MSW management in India)

Wind Energy

Installed wind capacity in MW IndiaWind energy remains the most widely adopted RE technology in the country today with a commissioned capacity of more than 14,900 MW as of 1 September 2011.

The key enablers that have driven the growth of wind energy deployment in India are indigenization of the technology, emergence of simplified turn-key model, accelerated depreciation benefits, tax breaks on energy business income and attractive feed-in tariffs.

Tamil Nadu is a clear leader in the installed wind energy with attractive wind energy profile. It is followed by Maharashtra, Karnataka, Gujarat and Rajasthan. These states together contribute around 95% of total installed wind energy base in India.

A large number of wind energy generators have registered as carbon credit earning projects under the CDM framework and have earned carbon credits that can be traded in the international market. Over 93 lac CERs (carbon credits) have been issued to the wind projects in India so far. The market value of these carbon credits stands at over Rupees 650 Crores. (Know more about Wind Energy India – Installed base in leading Indian states)

Small Hydro

Small hydro power in IndiaHydro Power is one of the oldest technologies deployed by mankind. The term hydro power includes hydro power generating stations across all sizes. At a national level, Hydro power contributes around 25% of the total installed power generation capacity.  Hydro projects with a capacity of upto 25 MW are classified as small hydro power (SHP) projects. Small hydro power projects are treated as renewable and are managed by the MNRE while the large hydro projects are managed by the Ministry of Power.  Hydro Projects are further classified as micro

hydro (upto 100kW), mini hydro (101 to 2000kW) and Small Hydro (2 to 25 MW).

India has an estimated potential of 15,000 MW of Small Hydro power projects. The 12th plan aims to increase the SHP installed capacity to around 6000 MW. Currently, the total installed capacity from small hydro power projects (less than 25 MW is) 2953 MW and 914 MW of power projects are under development. The installed capacity comprises of 801 projects and 271 projects are in development.

Targets and capacity addition in SHPAn important trend in the small hydro power projects sector is the capacity addition through private sector projects. Driven the liberalization brought about by the Electricity Act, there has been consistent capacity addition in the last ten years as shown in the graph . The private sector accounts for more than 1300 MW of installed SHP capacity. Karnataka has the highest private sector SHP capacity (694 MW) added through 95 projects, other leading states are Himachal, Andhra Pradesh, Maharashtra and Uttaranchal. (Know more about  Power Generation in India : Capacity grows by 37% in four years)

Biomass and Bagasse Cogeneration

At a primary energy level, biomass is the most widely deployed source of energy in the country – contributing around 32% of primary energy – providing energy to almost 70% of the population. For grid connected renewable power generation, Biomass materials  used include bagasse, rice husk, straw, cotton stalk, coconut shells, soya husk, de-oiled cakes, coffee waste, jute wastes, groundnut shells, saw dust etc.Installed Biomass and Cogen in MW

At the current availability of 500 million tonnes of biomass per annum, the surplus availability for biomass based power generation is around 120-150 million tonnes. This provides a potential for 18,000 MW of biomass based power generation capacity. Also the 550 sugar mills in India can provide around 5000 MW of additional power.

India has 288 biomass power and cogeneration projects aggregating to 2665 MW. It consists of 130 biomass power projects aggregating to 999 MW and 158 bagasse cogeneration projects with surplus capacity aggregating to 1666 MW. 30 biomass power projects with 350 MW  and 70 Cogeneration projects with surplus capacity aggregating to 800 MW are in various stages of development. In line with the sugar plants, the bagasse cogeneration projects are predominantly in the states of Andhra Pradesh, Tamil Nadu, Karnataka, Maharashtra and Uttar Pradesh. The leading States for biomass power projects are Andhra Pradesh, Chattisgarh, Maharashtra, Madhya Pradesh, Gujarat and Tamil Nadu.  A number of fiscal incentives are available such as central financial assistance, preferential tariffs, capital subsidy, accelerated depreciation and income tax holiday. (Know more about National Bio-energy mission)

Solar Energy

Solar Energy is the driver of all other forms of energy on the planet and it has been in use since ages in various forms. India is a sunny country that receives about 300 clear sunny days a year. The average daily solar radiation incident on India ranges from 4 to 7 kWh/m2. At a theoretical level, solar energy incident on the country, even if converted at a low efficiency of 10% is many times more than sufficient to meet the country’s electricity demand. The energy generated from solar PV power projects commissioned so far accounts for less than 1% of the total energy demand.  The total grid interactive power installed as of end of August 2011 stands at 46.16MW. 50 MW is expected to be commissioned in the next 12 months across the country.

To make solar energy widely adopted and significant component of national energy mix, the Prime Minister has initiated the Jawaharlal Nehru National Solar Mission (JNNSM) with an aim of installing 20,000 MW of grid connected solar power projects by 2022. The first phase of the JNNSM is currently under implementation. The phase 1 of this mission will add 1000 MW of solar power projects by 2013 and take the same to 10,000 MW by 2017, ultimately reaching 20,000 MW by 2022. With this aggressive capacity addition and utilization, the cost of solar power projects is expected to come down to match the cost of generation from other conventional technologies. (Know more about Solar power technology to get funded under National Fund  and  Bidding Strategy for JNNSM Phase 1 Batch 2 )

Solar has a huge potential to be applied in the off-grid and rural applications where the access to grid is limited and not cost-effective. A number of off-grid solutions – mostly in the lighting applications such as solar lanterns are being commercialized and the off-grid solar market will continue to expand as more products addressing specific consumer needs are developed. (Know more about The future of solar)

RE Sector – Going forward

The sector is undergoing significant changes, as it moves ahead in playing a significant role in the energy security for the country. Some of the important changes affecting the RE sector are as under

1. Renewable Purchase Obligation

The Prime Minister’s National Action Plan on Climate Change (NAPCC) includes various missions that position India for a low-carbon growth and climate change mitigation-adaptation. One of the missions is targeted at increasing the contribution of renewable energy to the grid to 15% by 2020. The mission has designated the distribution licensees and large consumers of electricity – such as captive power plants and the open access consumers as obligated entities. These entities must compulsorily procure pre-determined share of their energy consumption from renewable energy sources else face punitive charges that would be used for renewable energy development in the country. This creates a huge market for electricity generated from renewable energy sources – from a compliance perspective as against a voluntary earlier.

The 17th Electric Power Survey has estimated the energy requirement of the seven largest states in the country i.e. Maharashtra, Tamil Nadu, Andhra Pradesh, Gujarat, Uttar Pradesh, Karnataka and Rajasthan at 5.69 TWh of energy by end of this FY.At mandated compliance levels, this would translate to RE requirement equivalent to roughly 40,000 GWh. Taking into consideration capacity constraints, existing renewable energy capacity as well as gradual pick-up in participation of state utilities in the REC market, even at a 10% compliance level, the demand for RECs will be at least 4,000 GWh – equivalent to 40 lakh RECs – at least 30 times the year-to-date issuances. These estimates though rough, point toward depth in demand. Overall, the REC market is based on sound and economic and financial grounds and it is expected to continue to grow. The challenge for the Government and Electricity Regulators will be to ensure that this pace is maintained by ensuring compliance by state utilities and encouraging faster installation of renewable energy capacity. (You might be interested in knowing Implications of the TN RPO amendment)

State

Energy Requirement FY12 (GWh)

RPO

RE requirement for FY12 (GWh)

Compliance at 10% of requirement (GWh)

Maharashtra

125,661

7.0%

8,796

880

Tamil Nadu

87,222

10.0%

8,722

872

Andhra Pradesh

89,032

5.0%

4,452

445

Gujarat

85,445

6.0%

5,127

513

Uttar Pradesh

79,268

5.0%

3,963

396

Karnataka*

53,540

7.0%

3,748

375

Rajasthan

48,916

9.5%

4,647

465

TOTAL

569,084

39,455

3,945

Know your RPO here

2. Launch of REC Mechanism

To implement the Renewable Purchase Obligation effectively, the Central Electricity Regulatory Commission (CERC) has launched the Renewable Energy Certificate (REC) mechanism. This mechanism enables the renewable energy generators to monetize their renewable energy in the form of a nationally tradable Renewable Energy Certificate (REC).

Wind and solar energy map of India

As can be seen, the wind energy resources are primarily concentrated in the west and south of the country while the solar energy resource is concentrated in the northwest of the country. Similarly, the small hydro potential in the country is concentrated in states of Himachal and Uttarakhand. Since inter-state trading of electricity is cumbersome and not viable, the REC mechanism enables exploitation of RE resources where they are present by making the REC tradable across the country.

Renewable Energy Certificates, by splitting the electricity sale cash flow into 2 streams, reduce the financial performance risk the RE generators face and allow them to access a market where

Solar and Non solar REC trade

there are potential upsides on the cash realization. REC market is gaining width and depth in the last few trading sessions that have happened. The chart below shows the trades of non-solar RECs at the two designated exchanges – IEX and the PXIL. The graphs below highlighting the trading sessions show that the REC market is gathering both the width and depth. (Know more about Indian REC Market – Why will it remain attractive?)

3. Direct Tax Code

Direct Tax Code will be introduced starting April 2012 and thus the income tax regulations that allowed the accelerated depreciation to reduce the tax liability through wind energy generators commissioning. A significant portion of the capacity addition in the wind sector has happened with retail investors investing from a tax perspective rather than a power business entry. Government has introduced Generation Based Incentives as an alternative to the depreciation benefit that change the incentive structure from the upfront capital cost based to the generation based one. These incentives were introduced to provide level playing field to independent power producers (IPPs) to promote installation of higher efficiency machines with higher generation. The GBI has not been able to provide the expected/required boost to IPPs. With the withdrawal of the AD benefit, it will be critical from the government perspective to provide right and sufficient incentives in one form or the other to make sure that the sector does not suffer.

4. Carbon Markets instability

The last two COPs held at Copenhagen and Cancun have not been able to provide a concrete direction to the future of climate change negotiations and the future of the Kyoto Protocol. Though time consuming and bureaucratic in nature, carbon credit finance has been an important part of the cash flow projections of renewable energy projects across wind, small hydro and biomass. The project developers now need to factor in the risks associated with the pressures on prices of carbon credits in the backdrop of weaknesses in European and American economies and lack of clear cut binding agreement on nations to reduce their carbon emissions. Though there are developments in countries such as Australia and Europe has a taken a target on itself for the year 2020, the implementation of the same remains to be seen in the upcoming Conference of Parties at Durban.

Each of these factors in itself and in combination presents new opportunities and challenges for the sector in India. With the continued support from the Government and investor bullishness on the sector, the renewable sector is bound to reach higher levels of adoption and significance for India’s national grid and energy mix.  (Know more about Renewable Projects in India: What to adopt-CDM or REC?)

Sources

  1. Ministry of New and Renewable Energy
  2. Ministry of Power
  3. World Resource Institute
  4. agneya analysis

For more details contact us at http://www.agneya.in/

International Energy Outlook 2011 – Indian scenario

Shrinking Coal Reserves and increasing power demand – Coal hungry power plants in India

Energy Statistics 2011 – China, India and the USA

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