Prospects for renewable energy ........

Prospects for renewable energy
KAMESWARA RAO
The future could well look back to 200708 as the tipping point for renewable energy. Two global developments have set nations to re-evaluate their energy strategies — the dramatic re-pricing of fossil fuels and the security threat, and the growing opinion on climate change.
The challenge for India could not be greater. We are the worlds fourth largest consumer of electricity, import about 5 per cent of our coal and 75 per cent of oil, and are increasingly exploring overseas supplies for future imports. Renewable energy forms a bare 3 per cent, is seen as a less reliable source to feed power grids, and needs subsidies to compete. So, is there hope? The higher cost of energy and environmental concerns have brought renewed attention on renewable energy. But the confidence in its future comes from two other factors: new gains in technology, and reforms in the industry structure.
The most expensive of the renewable technologies today, solar photovoltaic, has seen a significant cost reduction (30 per cent drop in the last decade; and is one-sixth of the 1980 costs). Studies suggest that cost reductions are closely associated with volumes produced (the effect of experience curves); and a further 30 per cent drop is forecast by 2012. Perhaps as a sign of our times, in 2007, for the first time in history, more poly-silicon was used for solar power than in semiconductors.
This has a key policy implication for promoting the renewable manufacture chain. The German renewable energy law spurred new investment in wind and solar power (about 60 companies operate in solar power alone, employing over 40,000 people, about 40 times more than a decade back). China encourages manufacture across the solar value chain, from feedstock to systems, and intends to boost local demand by rural electrification policies. The key is to take early steps to build a manufacturing base today to serve power generation tomorrow cost-effectively.
The regulators play an important role in creating the market through RPO (renewable procurement obligation) and by setting preferential feed-in tariffs. In Madhya Pradesh, a recent regulatory initiative in bio-mass has helped attract 260 Mw of investment intent against a practically nil base.
The renewable energy industry is fast professionalising. A fundamental shift is taking place in how renewable energy is managed; graduating from small, off-grid applications aimed at local use to largescale grid-connected projects for mainstream supply. We have seen this across small hydro, biomass, wind, and now witness it in solar (globally, in 1992, 70 per cent of all applications were off-grid; now 90 per cent are on-grid applications). In addition to scale economies, this has helped bring cheaper finance, reduce O&M costs and downtime, and in all, has improved project viability.
Reaching the market is a challenge. Utilities have reservations about renewable power for reasons of reliability, but also for the extensive transmission connectivity it demands. The reforms in electricity and competition are the key. Open access provisions that permit generators to meet requirements and compete for eligible consumers over the grid, helped finance a number of renewable power projects in recent times. It has also led to interest from private equity, and to green companies listing on stock exchanges in India and overseas.
The profile of investors, too, is changing: from largely financial owners of a few assets, to now green companies with diversified portfolios, bringing in new financial, technical and managerial expertise. The mindset of power utilities is changing too: the recent PricewaterhouseCoopers Global Utilities Survey, tracking priorities of power utilities, records “encouragement of renewable energy” as the top-most issue for the first time (up from No. 6 barely three years earlier). Consumers increasingly have a choice; in its 2008 Tariff Order, the Association for the Promotion of Research into the Economy of Carbon introduced an optional “green tariff” of Rs 6.70 per kWh for consumers of all forms of energy renewable energy (any surplus goes to support similar projects).
So, are we on the right track? A lot more work needs to be done. Some states have not set any RPO targets (Uttar Pradesh, NorthEastern states), and in others the targets are rather small (Orissa, Gujarat). In states that have set RPO, the targets are more influenced by use of local factors (such as wind, biomass), while some have no such resources (Delhi). We must broaden the use and trade of renewable power across state boundaries (not done today as regulatory treatment remains at the state level), through renewable trading certificates and a green exchange.
The experience of ultra mega power projects shows that structuring and facilitation can help achieve very cost-effective outcomes. This is a lesson for renewable energy too, given its higher risks and greater preparatory costs. The state agencies must conduct resource surveys, simplify procedures and the approvals process, and run open and transparent bid processes. Our recent experience in hydro power shows that such an approach can bring new investment, jobs, and potentially more revenue to the government.
Natural resources are not unlimited, and efficient use is a policy concern. Today, there are worries of poor use of wind sites, wasted agro residue, under-rated hydro turbines, and such. This calls for graduating the incentive mechanism from being largely input-based (capital subsidies, accelerated depreciation, tax concessions) to a more effective mix of input- and output-based incentives (generation, income-tax breaks). The blend must be such as to help finance projects and improve viability, but also drive efficiency.
The regulators must also take a fresh look at pricing, by moving away from a largely cost-based approach and recognise avoided costs. For example, solar power generation is coincident with demand peaks (both, during the day, and seasonally), and is least effective when the load conditions are generally light.
India has set for itself a target of generating 10 per cent of electricity from renewable sources by 2012. Like other targets we may see this missed, but with the developments set off by energy prices, climate change, renewable technology, and sector reforms this goal may be sooner achieved than many others. The author is Leader Power Practice, PricewaterhouseCoopers
Generating 10 per cent of electricity from renewable sources may be achieved sooner than many other targets
AJAY MOHANTY