Renewable energy has arrived. In matter of a decade, it has grown
from a fringe player to a mainstream actor in the energy sector.
In the past ten years, installation of renewable energy for
electricity has grown at an annual rate of 25 per cent. It has reached
30,000 MW as of January 2014. During this period, wind power
installation has grown ten times and solar energy has grown from nothing
to 2,500 MW. Currently, renewable
energy accounts for about 12 per cent
of the total electricity generation capacity and contributes about 6
per cent of the electricity produced in the country. Renewables,
therefore, produce more than twice the amount of electricity produced by
all nuclear power plants in the country. In 2012-13, the electricity
produced by renewables was equivalent to meeting the per capita annual
electricity requirement of about 60 million people. More than a million
households in the country, today, depend solely on solar energy for
their basic electricity needs.
The growth of renewable energy has changed the energy business in
India. It has, in many ways, democratised energy production and
consumption in the country. Before the renewable sector became a
significant player, the energy business was all about fossil fuel-based
big companies and grid-connected power—they dominate even today. But
today there is an alternate energy market in which thousands of small
companies, NGOs and social businesses are involved in selling renewable
energy products and generating and distributing renewables-based energy.
This trend is likely to accelerate because of two key policies of the
government.
The first is the Electricity Act, 2003. The Act has opened up the
rural electrification market to decentralised distributed generation
systems. It promotes decentralised generation and distribution of
electricity involving institutions like the panchayats, users'
associations, cooperative societies and NGOs in rural India not under
the purview of distribution companies. In addition, private developers
are free to set up renewable energy based generators and sell
electricity to rural consumers.
The second impetus to decentralized renewables comes from rooftop solar policies of state governments.
States like Gujarat, Andhra Pradesh, Uttarakhand, Karnataka, and
Tamil Nadu have policies to promote solar energy generation from
rooftops of residential, commercial and industrial buildings. The
response to these policies has been highly encouraging. Although the
results of this policy are likely to be realized slowly, the stage for
re-inventing electricity generation with power from rooftop
installations has been set.
In the coming years we could see thousands of energy producers
feeding the grid or supplying electricity to consumers through local
mini-grids. We could also see millions of consumers generating their own
electricity and feeding the surplus to the grid. The fact is we are
just beginning to realize the potential of the renewables to open up the
energy market and democratise energy generation and consumption.
Performance Downturn
But all is not well with the renewable energy development in the
country. In the past two years, renewable energy development has taken a
backseat. Installation of renewable energy has gone down significantly
in 2012-13 and 2013-14, compared to 2011-12. In 2011-12, about 3,200 MW
of wind power was installed. But installation came down to 1,700 MW in
2012-13 and less than 1,246 MW in 2013-14 (till January, 2014). Solar
power installation too has suffered. In 2011-12, 906 MW of solar power
was installed. In 2013-14 (till January 2014) only 523 MW have been
installed.
The status of off-grid renewable energy is even poorer. There has
been little effort by the Ministry of New and Renewable Energy (MNRE) in
the past few years to take off-grid solutions to the country's
unelectrified villages and hamlets. The decade-long Remote Village
Electrification Programme (RVEP) was stopped in 2012. Under RVEP, solar
home lighting solutions were distributed in about 10,000 villages and
hamlets. The programme suffered from poor service delivery and
corruption. It is anybody’s guess how many of the villages electrified
by RVEP still have electricity or how many households are still using
the solar home lighting systems they have received through the
programme. MNRE had to come out with an energy access programme to
replace RVEP. The programme envisaged installing mini-grids for rural
electrification. But this programme has not taken off so far.
Policy flip-flop
The past two years were a complete wash out for the renewable energy
sector in India. Investment in renewables went down from US $13.0
billion in 2011 to US $6.5 billion in 2012. This was largely because of
policy uncertainty—some say paralysis—within MNRE.
Let's take the case of the solar energy. After successfully
implementing the Phase 1 of the Jawaharlal Nehru National Solar Mission
(JNNSM), nothing significant happened on Phase 2 till the beginning of
2014. The delay of more than a year brought about stagnancy in the solar
industry.
In addition, MNRE announced that states will have to deploy, as part
of their renewable purchase obligations (RPOs), about 60 per cent of
JNNSM Phase 2's target of 10,000 MW of solar energy by 2017; the central
government will support only 40 per cent of the installation. But in
January 2014, MNRE announced its plans to install four Ultra Mega Solar
Power Plants (UMSPP) of 4,000 MW each—all these four plants will be put
up by the Centre. If these UMSPP are installed, they alone will meet
most of JNNSM's targets. Bearing in mind that government programmes are
about targets, if Centre is going to meet the bulk of the target, why
should states be interested in doing more!
MNRE also did major flip-flop on wind power. Government incentives
have played a major role in the wind industry's growth. Till the end of
11th Five Year Plan (FYP), the industry could avail of both accelerated
depreciation (AD) and generation-based incentives (GBI). Then all of a
sudden at the beginning of the 12th FYP, both subsidies were removed.
This led to major reduction in investments in the sector. The removal of
subsidies, though, was not the only reason for the fall in investments:
lack of proper grid infrastructure to evacuate power and delays in
payments by state utilities have compounded the wind industry's
problems.
MNRE has now announced a Wind Mission to ramp up installation of wind
power in the country. It now proposes to bring back both GBI and AD
incentives (GBI was reintroduced in 2013-14). But the question is how
long will this industry survive on AD and GBI? Is there a long-term
sustainability plan for the wind sector?
The biomass sector is in big trouble as well. Under the 12th FYP, a
National Bioenergy Mission was announced to provide 20,000 MW biomass
power by 2022. The mission will promote plantations to achieve its
targets. But the fact is about 60 per cent of the country’s
grid-connected power plants that run on biomass have either shut down or
are on the verge of shutting down. Out of about 118 projects in the
major states—Andhra Pradesh, Chhattisgarh, Maharashtra, Tamil Nadu and
Rajasthan—nearly 72 have shut down.
The reason: rising cost of biomass due to competition within the
biomass power industry and from other industries like cement and brick
kilns. Now biomass industry wants an increase in tariffs. But should we
pay more for power just because we want biomass power or should biomass
power remain in the fray, only when it is economically efficient. If
cement and brick kilns can utilise surplus biomass more efficiently and
outcompete biomass power in the market, then they should be utilising
this feedstock, not biomass power plants. Affordability of energy is as
important as promotion of renewable energy.
It is quite clear that long-term policy perspective and policy
certainty is the key for the sustained growth of the renewable energy
sector. The experience of the past few years show that major changes in
policy and practice are required to make renewable energy a real
solution for meeting the energy needs of the country.
Agenda for change
Develop an integrated policy and plan for the renewables for 2050:
Policies and plans to develop renewable energy have been haphazard. Two
key levels of integration are missing: one, integration of the renewable
energy sector with conventional energy sources and the other,
integration of different sources of renewable energy themselves.
Currently India has five separate ministries for the energy sector:
Ministry of Coal, Ministry of Petroleum and Natural Gas, Department of
Atomic Energy, Ministry of Power and the MNRE. These ministries are only
concerned about their own turf. There is a huge scope for synergies
between different energy sources that can enhance economic efficiency as
well as meet the energy needs of the country. For instance, the growth
of grid-connected renewable energy will depend on the stability of the
transmission grid and need for balancing power in the grid. This can
only happen if there is integration between quick startup power sources
like hydropower and gas and intermittent power sources like wind. Such
synergy can only be developed if plans for each energy source are
devised keeping interlinkages in view.
Similarly in the MNRE itself, each wing is concerned with its own
territory. The ministry has a sub-sector approach and vision. The solar
wing has a national solar mission to ramp up solar installation by
22,000 MW by 2020. The bioenergy wing is working on a national bioenergy
mission. The wind energy division does not want to be left behind. So,
it has proposed a national wind mission to reach 100,000 MW wind power
installation by 2022. We should not be surprised if there is an
announcement of a small hydropower mission as well. The fact is ministry
does not have a vision for a holistic development of the renewable
energy sector.
This is leading to inconsistent policies, opportunities for
interlinkages between various sources of renewable energy are missing
and the ministry is not utilising its limited resources optimally.
For reasons of economic efficiency, better utilisation of
infrastructure and environmental protection, India needs a long-term
policy to integrate the different sectors of energy. This policy should
specify the role of renewable energy in addressing the needs of energy
access and energy security.
Be ambitious: Installation of renewable energy in India, especially
grid-connected solar and wind, has always exceeded government targets
and expectations in the past. In fact, one can argue that government has
been quite pessimistic about the role of renewable energy in meeting
the energy needs of the country.
The Integrated Energy Policy, 2006 had projected that in the most
optimistic scenario, by 2031-32, India will have 30,000 MW of wind and
10,000 MW of solar power. The policy had put its faith in the biomass
sector and had projected installation of 50,000 MW biomass power based
on plantations and production of 15 million tonnes of bio-diesel and
ethanol every year, by 2031-32. The expert group that wrote this report,
projected 11 future energy scenarios for the country and estimated that
renewable energy would contribute only 0.1–5.6 per cent of the total
primary energy consumption in the country by 2031-32.
The 12th Five Year Plan (FYP) document has projected a fourfold
increase in the installation of renewable power by 2021-22. But despite
renewable power reaching 100,000 MW by 2022, the share of renewables in
total commercial energy use will remain under 2 per cent in 2021–22.
According to the plan document, the share of renewables in electricity
generation will rise from around 6 per cent in 2012 to 9 per cent in
2017 and 16 per cent in 2030.
The resource allocation in the 12th FYP reflects the priority
accorded by the government to renewable energy. The total plan outlay
for the energy sector during 2012-17 is `10,94,938 crore. The outlay for
the MNRE is Rs 33,003 crore or about 3 per cent of the total plan
outlay for the energy sector plan. The amount allocated to the
Department of Atomic Energy—that contributes barely 2.5 per cent of
total electricity production in the country—is Rs 66,590 crore—more than
double that of the MNRE.
Both the Integrated Energy Policy and the 12th FYP are not ambitious
enough. While the Integrated Energy policy had projected 30,000 MW wind
power installation by 2031-32, wind installation in the country has
already reached 20,000 MW. Solar installation too will exceed the
projections by many times.
The fact is the price of renewable energy (especially solar) is coming
down and the price of fossil fuels is going up. India is, today, more
and more dependent on imported fossil fuels and this dependency is
growing every year. As per the 12th FYP, by 2021-22 imports will meet as
much as 36 per cent of all the commercial energy demand in the country.
India will depend on imports to meet 82 per cent of its crude oil and
27 per cent of its coal requirements by 2021-22.
The fact also is that climate change is palpable and is now hurting
India’s poor. India cannot ignore climate change and will have to start
putting plans in place to reduce carbon emissions. All these require
that we must be more ambitious about renewable energy.
Renewables are expensive compared to fossil fuels today but will be
cheaper tomorrow. The benefits of moving to renewables are immense –
energy security, climate protection, reduced pollution and health
benefits for people.
Renewables for energy access: India has done well on grid-connected
renewable energy, but has lagged behind on decentralised solutions. The
biggest social and economic impacts of renewable energy will be in
providing clean energy to the energy poor. Presently 400 million people
in the country have no access to electricity and hundreds of millions
more get electricity for only a few hours. Decentralised renewable
energy can provide basic energy access to all. This can be done by
adopting a cluster-based approach.
The government needs to incentivise setting-up of small renewable energy
plants with the same model it employs for grid-connected large solar or
wind plants. These mini-grid projects should be provided with a
feed-in-tariff (FiT) or Viability Gap Funding (VGF), like grid-connected
projects. The difference between what consumers in the villages are
willing to pay (say equivalent to the replacement cost of kerosene) and
tariff discovered through the bidding mechanism can be financed through
VGF or FiT.
Entrepreneurs should be encouraged to decide their own mix of
renewable energy to achieve the lowest price for a pre-defined service
quality. Such projects can be made grid interactive. When the grid
reaches villages, the mini-grids can be used to export power to the
grid, as well as import from it depending upon growing needs or
deficits.
This programme cannot be driven by MNRE. It will only succeed if
states drive it. MNRE, however, will have to setup the regulatory
framework, operational and performance guidelines and secure resources
to support states in implementing this programme.
If operationalised, this model will revolutionise the way power is produced and consumed in India.
Thousands of renewable energy based mini-grids can promote millions
of small businesses and social entrepreneurs to create local jobs and
build local economies. And, this will bring down the price of renewable
energy too.
From subsidy to grid-parity: Renewable energy has grown in the country
on the back of government subsidies, incentives and tax exemptions.
Though these incentives are very important to jump-start the sector,
there must be a long-term plan to progressively reduce subsidies and
allow renewable energy to reach grid-parity. Reverse bidding has done
very well in the solar sector and subsidies have reduced over time. The
solar example can be emulated in other renewable energy sources like
wind. Similarly, subsidies should incentivise performance and not
physical achievements. In this regard, the move to reintroduce
Accelerated Depreciation for the wind sector must be thought through
carefully. Accelerated depreciationbenefits given to other renewable
energy sectors should also be evaluated.
Rationalise and enforce RPOs: RPO was amongst the policy measures
used to mandate renewable procurement by state electricity boards, open
access and captive consumers. Most states introduced their own targets
in 2010, but none of them have enforced this mandate. In fact, Rajasthan
Electricity Regulation Commission has reduced its RPO target from 8.5
per cent to 6 per cent. Tamil Nadu Electricity Regulation Commission
reduced its RPO target from 14 per cent to 9 per cent—this, despite the
state utility drawing 9.5 per cent of its electricity from renewables.
There must be a guideline for states to fix RPOs. Currently, different
states have different thumb-rules to fix RPOs. Secondly, there is a need
to enforce RPOs. This will give big impetus to the growth of the sector
and also lead to development of renewable energy in all parts of the
country, not just in a few regions.
Green norms for renewable energy: Renewable energy projects can have
major ecological impacts if they are installed without proper
environmental assessment and management. For instance, the impact of
wind power on forest ecology can be very high. However, wind projects
are being installed in forest areas without going through any
environmental impact assessment (EIA). So far, 4,000 hectares of forests
have been diverted for wind power development and majority of this is
only in two states, Maharashtra and Karnataka. Many of these wind power
projects are coming up in the eco-sensitive Western Ghats.
Similarly, small hydro projects (SHP) are exempted from EIA. Multiple
SHP on a single river can completely destroy a river's ecology.
Guidelines for setting aside ecological flow for rivers and undertaking
cumulative impact assessment, therefore, become very important. Large
solar projects too have environmental impacts—they are land and water
intensive. These issues should be addressed before setting-up large
solar plants.
There is now a growing consensus within the environmental community
about the necessity of proper environmental regulations for the
renewable energy sector: it should be subjected to the EIA process.
Today, renewable energy is small. But it will grow. If we don’t have
environmental safeguards now, the ecological impacts of this ‘clean’
energy source might become unmanageable.
Lastly, renewable energy must benefit the local community. Communities
must have the first right over the electricity from renewables and they
must benefit from the installation of renewable energy on their land.
These we think are the ways ahead for the sustainable growth of renewable energy in India.
