No energy security, no superpower

Katja Dombrowski, 22 Aug 14
India’s new government plans to reform the energy sector and promote renewables. Photovoltaics and small hydropower can expect greater support.

India has the first energy literate prime minister in its history – at any rate, that is how Narendra Modi marketed himself in the election campaign. He plans to reform the energy sector, put energy security high on his government’s agenda and prioritise the expansion of renewables. The renewables sector is now waiting to see how the advertised boost will be translated into concrete policies.

Modi, who took office on 26 May, came to power on an economic ticket: his nationalist Bharatiya Janata Party, which won an historic absolute majority, promised to increase growth and create jobs. Before the election the BJP’s energy convener, Narendra Taneja, stated in India’s Economic Times that this could not be achieved without radical reforms in the energy sector. “An energy starved nation cannot be a super power,” he said.

The world’s second-largest populace imports about one-third of its energy resources. To decrease this dependence on imports, the BJP plans in particular to increase India’s electricity generating capacity from all energy sources. Coal, accounting for two-thirds of power generation, will remain the number one fuel source, and the government will also retain its nuclear power capacity. However, the BJP stated in its manifesto that it would “give a thrust to renewable sources of energy as an important component of India’s energy mix.”

A principal objective, it said, was to make affordable electricity available to the various consumer groups. During the election campaign Modi claimed that he wanted to govern in the name of all 1.24 billion Indians – especially the poor. This objective therefore applies not just to big companies and urban centres, but also to the 300-400 million households who still do not have electricity. By using solar panels, the prime minister plans to enable every Indian home to run at least one light bulb by the end of his government’s five-year term. The idea is not new: the “Lighting Asia” programme run by the International Finance Corporation (IFC), a World Bank company, is pursuing the same goal and has been operating since 2012. It is financed by the USA and Italy.

Modi had already made a name for himself as a promoter of solar power during his time as chief minister of Gujarat. In 2009 – a year before the central government in New Delhi took action nationally – Modi introduced an incentive programme for the 60 million inhabitants of Gujarat involving a feed-in tariff and tax exemption for solar power. Gujarat now has a solar capacity of 916 megawatts (MW), which is more than one-third of India’s total solar capacity of 2,647 MW. Upon completion, the state’s Charanka Solar Park, with a nominal output of 600 MW, will be one of the biggest solar parks in the world. Modi intends to apply the Gujarat model at national level.

Half of the country’s solar power capacity comes from programmes run by India’s various states; the other half is provided through the Jawaharlal Nehru National Solar Mission, introduced in 2010. As a result of subsidy programmes, solar power is no longer the insignificant resource it used to be, but has become one of India’s most important renewable energy sources. In the financial year 2013/14, which runs from April to April, almost a gigawatt (GW) of new capacity was installed. This equates to a growth rate of 57 percent – a country record for renewable energy sources.

The new government plans to continue and expand the National Solar Mission, the original aim of which was to achieve 20 GW of grid-connected capacity and 2 GW of off-grid capacity by 2022.  The programme is now in its second phase; the feed-in tariff is currently 5.45 rupees (€0.0676) per kilowatt-hour. In addition, the state subsidises projects through the Viability Gap Funding Scheme.

There is also greater support for roof-mounted systems. Several states, including Gujarat, have introduced net metering, which permits self-generated electricity to be offset against electricity used from the grid. The consultancy company Bridge to India predicts that by 2018, the installed capacity of small systems of up to 10 kilowatts (kW) in size will rise from the current figure of 110 MW to 620 MW. Experts consider this market segment competitive even without subsidies: it simply needs to be rolled out nationwide by the new government.

Modi explicitly plans to expand small hydropower. According to the BJP’s manifesto, “Small projects can be set up with local support and without displacement of the local population.” With 3,804 MW of grid-connected capacity, small hydropower is second only to wind as an important renewable resource in India. However, last year’s growth rate was less than five percent. This is expected to rise in future. Overall, hydropower is a significant energy source in India with 43.7 GW of installed capacity and an increase in 2013 of 800 MW. However, New Delhi defines large-scale projects of more than 25 MW as a non-renewable energy source.

On this basis, the Ministry of New and Renewable Energy states that the currently installed capacity of renewable energy is 31,707 MW grid-connected and 1,022 MW off-grid, making a total of 32.7 GW. According to the Global Status Report 2014 from the renewable energy network REN21, this puts India in sixth place worldwide. On a per-capita basis, though, the country produces little electricity from renewables: the REN21 report quotes a figure of 20 GW per person for 2013. In Germany, the corresponding figure was 870 GW. The share of renewables in India’s electricity mix, excluding large hydropower, is 13 percent.

The aim of the old government was to achieve 55 GW of renewable capacity by 2017 and 74 GW by 2022. Many people view this as too little. “The first thing the prime minister, Narendra Modi, needs to do is raise the scale of ambition in the sector,” wrote the energy expert and Bloomberg journalist Vandana Gombar following the change of government.

Tulsi Tanti, chairman of India’s largest wind turbine maker, Suzlon, is of the same opinion. In his blog he wrote that the previous target of bringing an additional 15 GW online by 2017 could easily be doubled. India has a wind energy potential of more than 300 GW. “I am confident that India could meet ten percent of its energy needs solely from wind energy in the future,” Tanti wrote.

Wind is by far the most important regenerative resource, contributing 21 GW to the grid. Globally India is in fifth place, behind China, the USA, Germany and Spain. In 2013 it reported the fourth-largest additions, after China, Germany and Great Britain. At rather more than 11 MW – reflecting a growth rate of 11 percent – its additions were not only far below expectations, they were also below the previous year’s figures.

The main reason for this was the expiry of subsidy programmes. Both the feed-in tariff of 0.50 rupees (€0.06) per kilowatt-hour for wind power and the accelerated depreciation for wind turbines ended in April 2012, causing investment to decline sharply. However, at the end of 2013, the government reintroduced the subsidies and made them retroactive for projects completed in the intervening period. Additions of 3 GW are expected in the current year.

At present all of India’s wind power capacity is onshore, but there are plans to move it into offshore generation. A project involving national and international partners that was launched in January under the management of the Global Wind Energy Council (GWEC) is designed to help identify potential sites, draw up guidelines and develop the necessary know-how. The focus is on the states of Gujarat in the west and Tamil Nadu in the southeast. The four-year project, for which the European Union is contributing EUR four million, should set out a possible pathway until 2032. Suzlon, which is among the top ten turbine manufacturers in the world, is interested in the domestic offshore market and has already considered a number of possible sites.

In the current financial year, the company will install a capacity of more than 1,200 MW in India, as Tanti stated in an interview in the newspaper The Hindu Business Line in early June. He said that with the right incentives, the growth of the sector could be accelerated and that small and medium enterprises should receive more support. What is more, “Regulators need to strictly enforce the 10 per cent renewable purchase obligation.” Tanti comes from Gujarat and has enthusiastically welcomed the change of government. Also on his wish-list are more attractive wind power financing models: net financing costs should be reduced from ten to seven percent and financing terms should be increased from 12 to 20-25 years.

However, the BJP does not intend to focus solely on additions. Using energy sensibly and making savings where possible are also among the party’s declared goals. In addition, they want to see improvements in technology, workforce training and infrastructure. The transmission grids are also important: according to Germany Trade & Invest, Germany’s economic development agency , 20-30 percent of India’s electricity is lost en route to the consumer. Another problem is that not all the wind power generated at peak times can be fed into the grid.

A modernisation and expansion programme entitled “Green Energy Corridor” aims to improve the integration of renewables into the grid. The previous government of Manmohan Singh had already earmarked the equivalent of EUR 5.3 billion for the project. Other funding is being provided by international donors, including the German government with a pledge of EUR 1 billion. This major project, covering seven of India’s states, is due to go to tender this year.

Other measures planned by Modi’s new government will be announced in the coming weeks and months. The Prime Minister has already carried out his first reform: one minister now oversees all aspects of energy where there used to be three different departments. The aim is to speed up processes by bringing them under one umbrella, in order to improve the effectiveness of public services and reduce costs.

The new Union Power Minister  is Piyush Goyal, the former treasurer of the BJP. He has already announced that he plans to make things more transparent, more rational and “far more honest” than they have been in recent years. “The story of the transformation of India begins today,” he wrote in a guest article in the Indian Economic Times after the BJP’s election victory – possibly a good omen for the future of India’s energy transition.

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