On an average, an Indian household consumes about 884.84 units of electricity in a year. In the world’s second-most populous country, it is quite difficult to completely depend on conventional energy alone to fulfil the ever-increasing energy requirements.As India looks to meet its energy demand on its own, which is expected to reach 15,820 TWh by 2040, renewable energy as a complimentary energy source is set to play a critical role. India’s total installed renewable power generation capacity (including hydropower) is at 103.06 GW (as of September 2017).

Based on REN21's 2016 report, renewable energy contributed 19.2% to humans' global energy consumption and 23.7% to their generation of electricity in 2015. As for India, it is moving towards meeting its commitments under the Paris agreement on climate change, its renewable energy market is likely to witness a strong growth in the years to come. According to Moody’s, the rating agency that upgraded India’s sovereign status recently, India’s emission reduction commitments under the Paris agreement will lead to a sharp rise in renewable energy capacity.

Renewable energy in India – an overview

Until 2000, the renewable energy sector in India was not effective. Though, one would have seen a lot of renewable energy projects, especially in the wind space, it was mostly used for availing depreciation benefits which were provided by the Government. Companies used to put up windmill projects in the month of September hoping to offset their profits in that particular year. Until FY-12, the government has allowed a deduction of up to 80 per cent, if the windmill project was commissioned before September of a fiscal. The depreciation would be shown on the expense side which ultimately allowed companies to pay lower taxes. Many such wind mill projects were created just to get the tax benefits rather than to genuinely produce energy.

It was only after Independent Power Producers (IPP) entered into the business in 2005-06, the industry started picking-up the pace that too on a sustainable basis. Subsequently, the government also got its policy right to cut down the depreciation benefits and provided ‘generation’ based incentives (GBI) to the energy producers – i.e. the more the energy it generates the more benefits the government will provide.

Today, the Indian renewable energy sector has overtaken the USA to become the second most attractive renewable energy market in the World after China. The country ranks fourth in the world in terms of total installed wind power capacity. It added a record 11.0 GW of wind and solar power capacity in 2016-17.  

As of July 2017, total renewable power generation installed capacity in the country stood at 103.92 GW, which is 31.2 per cent of the total installed capacity. India’s installed renewable power generation capacity (including hydropower) increased at a Compounded Annual Growth Rate (CAGR) of 8.39 per cent from 42.4 gigawatts (GW) in FY2006-07 to 103.06 GW in FY18 (as of September 2017), which is 31.2 per cent of the total installed capacity.


India has the fourth largest installed capacity of wind power and the third largest installed capacity of concentrated solar power (CSP). Hydro power forms the largest source of energy constituting over 44 per cent of the total renewable power generation installed capacity.

The Ministry of New and Renewable Energy, Government of India, has formulated an action plan to achieve a total capacity of 60 GW from hydro power and 175 GW from other renewable energy source (RES) by March 2022, which includes 100 GW of Solar power, 60 GW from wind power, 10 GW from biomass power and 5 GW from small hydro power. This proves to be the major thrust for the sector in India as the market players have sufficient incentives to move to clean source.

FDI picks-up in the renewable energy sector

India has embarked on an ambitious target of building 175 GW of renewable energy capacity by 2022, from just over 30 gigawatts now. This requires a massive funding of about $200 billion. With the increased support of government and improved economics, the sector is set to become attractive from an investor’s perspective and India ranked second in Renewable Energy Attractive Index 2017. In a clear evidence to this, the renewable energy sector in India has witnessed a sharp spike in private equity (PE) flows in 2017. PE inflows into wind and solar power jumped 47 per cent to $920 million — involving nine deals — during January 1 - September 25 this year, compared to $630 million across 10 deals during the corresponding period last year, according to Venture Intelligence data.

“The renewable energy sector, today, contributes only less than 5% of the total energy consumption in India. However, this is likely to grow rapidly and expected to meet 40% of the energy needs of the country by 2030. The important aspect of Renewable energy and why it attracts a lot of PE investments is the fact that it’s a one-time investment and one need not keep investing in the project. Once the unit is set-up, it runs like an annuity model.” says Mr. Santosh Swamy, Executive Vice President – Debt Structuring & Distribution, IL&FS Financial Services on the keen investment interest that this sector is able to garner in the last five years.

Besides investment interests of PE investors, Green Bond is also becoming quite popular in India. Green Bond is a debt instrument, but the only difference is that the issuer of a green bond will have to publicly state that capital is being raised to fund ‘green’ projects, which typically include those relating to renewable energy, emission reductions and so on. Institutional investors and pension funds also have an appetite for such bonds. In fact, a few investment funds have specific mandates from their investors to invest only in bonds which fund green projects.

Green Bond – A diverse investment option
Green Bond acts as a good diversifier in a portfolio though there is no special rebate or offers that comes along with it. Also, Green bonds typically carry a lower interest rate than the loans offered by the commercial banks. Hence, when compared to other forms of debt, green bonds offer better returns for independent power producers.

Internationally, green bonds are quite popular and are certainly picking-up in India too. SEBI has also formed guidelines for issuing Green bonds in India.

IL&FS amongst India’s top 5 in the Wind energy space

IL&FS started its energy business in 2008 through its subsidiary IL&FS Energy Development Company Limited (IEDCL), with an objective to develop, own and operate power generation and transmission assets in India and abroad. Today, it is among the top 5 developers in the country in the Wind space.

“The outlook for the Renewable energy sector is quite bullish. IEDCL is a big-time developer and operator in India in the wind energy sector as we have about 870 MW of operational assets in the 6 out of 7 wind producing states in India.” says Mr. Anand Nair, Senior Vice President – IL&FS Energy Development Company Ltd. (IEDCL).

He further added, “We have formed a joint venture with Orix Corporation, Japan to develop 1 GW of installed Wind power capacity by the end of this fiscal year. We aim to double this to 2 GW capacity in the next three to five years. All efforts are going to be focused to ensure we have additional capacity of 200 – 250 MW every year to accomplish our target.”

Though the outlook for the sector is highly optimistic, the renewable energy sector as such, is not without challenges. While on one hand, the Government is setting-up ambitious target for this sector, on the other hand, the procurement tariff has gone down considerably and is not justifying the sector’s growth capacity. Earlier, the power procurement agreement (PPA) used to be between Rs. 3.50/- and Rs. 5.00/- whereas with the introduction of reverse bidding process, the rate now hovers around Rs. 2.60/- which is almost half the cost. Industry experts, however, feel the undercutting which is prevailing in the industry may not be sustainable in the long term.

“We are on a ‘wait and watch’ mode and are selective about the participation in the bidding process. We don’t want to be too aggressive and participate in a bid just for the sake of building capacities. We are also looking at alternative avenues, especially in the private sector space where there are a lot of entities who want to have their own captive consumption models. We are looking at private PPAs and not keen on state utility PPAs.” reveals Mr. Nair.

Emerging trends
In the last five years, there has been a tremendous growth in the renewable energy sector in India. A lot of advancements have happened in the storage space as well with clear focus on moving away from Lithium batteries to high profile storage technologies.

In the Solar space the modules have become more efficient. Suppliers are creating modules that can generate output more than their older traditional modules. With output from the modules have gone up multifold, it is believed that technological advancements have paved way for the reduction in tariff.

As for the Wind energy, the technological advancement happened with the increasing of the height of the turbine. Earlier, the turbines used to be in the range of 70 – 80 metres tall. Whereas now, the height of turbines has gone upwards of 100 metres and goes up to 120 metres. Understandably, in the Wind space, the higher you go, the potential to generate is more as the Wind will always be at its peak in higher altitudes.

Also, in the past, machines have had the capacity to produce only up to 250 kW. However, the latest equipment can generate up to 2 MW, which has 8 times higher potential. The Centre for Wind Energy Technology (CWET) agency is helping to identify high wind velocity places where these new machines can be installed and increase the productivity. So, continuous re-engineering along with modern techniques in the renewable space will help India achieve its energy target.

Renewable energy vs Conventional energy
It is almost impossible for renewable energy to replace the conventional energy space in India. Instead, renewable energy will complement the conventional energy. However, the green energy contribution from the current level will go up, say from the present 5% to say up to 40%.  

Top 5 States in India with highest renewable energy installed capacity


S.No.

State

Renewable energy capacity

Conventional energy capacity

1.

Tamil Nadu

7154 MW

10438 MW

2.

Maharashtra

4497 MW

24105 MW

3.

Gujarat

4042 MW

21294 MW

4.

Karnataka

3571 MW

6648 MW

5.

Rajasthan

3360 MW

8310 MW

*Source:http://greencleanguide.com

Wind and Solar are the two major energy sources in the renewable sector. The Biomass and the co-generation are not a great success in the country.

 

Solar Glitters
As per the World Energy Outlook report, India has substantial solar potential around 750 GW (based on the assumption that 3% of wasteland in each state can be used for solar power projects, plus an assessment of the potential for rooftop solar). The government is aiming high and working towards enhancing large scale as well as small scale industries to ramp up in solar energy production, such as rooftop solar.  India is also expected to expand the growth of its solar market by 90% this year. The government on its part announced many incentives which will help in completing the existing solar projects. This represents almost three times India’s total installed power capacity today.

“The recent surge in capacity additions in solar energy is due to de-risking of projects and favourable policy support available in India. Energy producers would always be prepared to take risks in technology and resources front, but the Government’s efforts, in recent times through Solar Parks, to mitigate the project construction risks and the off-taker risks have certainly helped the solar energy space grows big time.” says Mr. Sajay, Executive Vice President – Solar Business Unit, Siemens Gamesa India.  

Hybrid System
The Government of Andhra Pradesh has recently proposed to develop a 160 MW solar-wind hybrid project with battery back-up facility. Significantly, this is the first such project to be developed in the country. For a country like India, Hybrid model would certainly help to fully use the potential of renewable space.

Mr. Sajay reckons, “Wind-Solar hybrid power plants ensures optimal utilization of infrastructure in terms land, transmission lines and substations thus providing higher plant load factors and consistent output. Adding storage solutions, further enhances the system performance, improve grid quality and optimizes the generation for better revenue. But it will make a lot of economic sense only when a policy is in place.”

5 interesting facts on Solar Energy:

  1. India has added 9 GW of solar power just in the last two years.
  2. India’s solar generation capacity has expanded by 370% in three years.
  3. By 2040, coal will no longer be a major source of power in India.
  4. India has the world’s largest single location solar power plant located in Kurnool, Andhra Pradesh. It has the potential capacity of 1000 MW. With 900 MW already commissioned, it outpaced the 648 MW of solar park in Tamil Nadu.
  5. Government of India targets installing 40 GW of rooftop solar and electrifying 18,000 villages by 2022.

Decoding the cost benefits between renewable and conventional energy
Traditionally, the cost of producing renewable energy used to be very high. Earlier, for producing 1mw of solar energy it used to cost Rs. 17 crore. But now, it has come down to Rs. 5 - 5.5 crore. However, 1 MW of coal project would cost Rs. 6 crore. This gives an impression that renewable is comparatively cheaper. However, under renewable energy, 1 MW capacity would yield only 30% of the energy, whereas, the conventional energy would yield 100% energy. But then again, there is no recurring cost involved under the renewable energy source.

As long as both the forms of energy complement each other and benefit the country as a whole to achieve its target, the minor cost difference between them would not make much of a difference.

 

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