Renewable energy in IndiaRahul Bhargava17th January 2013

Energy and the Environment

Renewable energy urban planning, resource management and envi-ronmental technology

The developing world is witnessing continued population growthand rising energy demand1 from the accompanying accelerated eco- 1 http://en.wikipedia.org/wiki/

Energy_policy_of_Indianomic growth. Existing producers and distributors, in India, canaddress some of the demand. While the shortfall has been evidentfor long, substantial progress has not been made for certain externa-lities, deficiencies in policy, planning and execution that have heldback the sector and these will continue to be hurdles though increa-sing economic costs of non-renewables, falling manufacturing costs,efficiency gains and technology transfer will put wind in the sails ofrenewables2. 2 http://www.ren21.net/

globalstatusreport/REN21_GSR_

2010_full.pdf

Consumer price of electricity in India in 2020 estimate

Electricity consumption increased 10.36% from 501.977 Billion Units(BU) / TWh in 2007-08 to 553.995 BU / TWh in 2008-09. The latter isa projection of electricity sold to end-consumers and other countries.Residential sales accounted for 24% of the total sales in 2008-09.Electricity consumption in the domestic sector has increased thefastest amongst sectors at a CAGR of 9.8% from 1970-71 to 2008-09

3. 3 http://mospi.nic.in/Mospi_New/

upload/energy_stat_2010_pdf/table_

section_6_es10.pdfThere are several subsidies that distort the consumer price of elec-

tricity in each State where Electricity Boards are responsible for ge-neration, transmission and distribution of electricity in their States4. 4 Power exchange http://www.

iexindia.com/; projections for2020 with assumptions, http://www.slideshare.net/manasij_

kar/pv-grid-parity-in-india

Some of these subsidies are likely to reduce by 2020, while other sub-sidies, for rural and agricultural consumers, may not reduce. Energyintensity is high relative to developed countries at 0.129 KWh in2008-09 and may reduce as has been the trend since 1999

5. Loss of 5 http://mpra.ub.uni-muenchen.de/

16774/1/MPRA_paper_16774.pdfelectricity during transmission declined to 26.76% in 2008-096 and

6 http://mospi.nic.in/Mospi_New/

upload/energy_stat_2010_pdf/

analyticalhighlights_es10.pdf

this is the prevailing trend.Production capacity is 167 GW in November 2010

7.7 http://www.powermin.nic.in/indian_

electricity_scenario/introduction.

htm

Electricity prices in India depend on prices of energy commodi-ties, namely, petroleum products, LPG, coking coal, coke and lignite.There are significant distortions in the prices of these as a conse-quence of Government controls though these are likely to be signi-ficantly reduced in the coming decade. The price of electricity hasalmost tripled in Rupees since 1993-94, the WPI for electricity was

renewable energy in india 2

275.9 from a base of 100 with 1993-94 as the base year8. 8 http://mospi.nic.in/Mospi_New/

upload/energy_stat_2010_pdf/table_

section_8_es10.pdfWith increases in local generation capacity and a more efficient

grid, reductions in subsidies for domestic users, high growth andincreasing domestic demand (10% CAGR), residential electricityprices are likely to be between 10 and 20 US cents or between 4 and 9

Rupees in 2020.

Type 2010 2020 Projection

Thermal 108 3/8 GW 183 1/2 GWHydro 37 3/8 GW 57 + import 7 GWNuclear 4 3/4 GW 9 1/2 GWRenewable 16 3/4 GW 35 GW

Total 167 GW 292 GW

Table 1: Electricity generation capacityin 2010 and 2020. Note, there are signi-ficant delays in delivery by Governmententerprises in relation to Ministerialplans and projections. 100GW in addi-tional capacity are planned for the 11th

and 12th five year plans, that is till 2017,but the 11th plan capacity addition goalwill not be met by a large margin.

Case Study

Market strategy for a European EPC-contractor for India

At a contract level, several risk mitigation strategies should be consi-dered. Instead of traditional EPC contracts, Engineering, Procure-ment, Construction Management (EPCM) contracts9, should be adop- 9 http://www1.fidic.org/resources/

contracts/epcm_loots_2007.pdfted, where possible. While in an EPC contract, a single contractoris responsible for all engineering design, construction and procure-ment, under an EPCM contract, a third party constructs the project,such as an Indian partner, based on propriety technology and processengineering designs provided by the European company.

To be price competitive in India, the European company mustsource as much material locally as possible and engage engineerswho are familiar with local conditions, either through a third-partyspecialist vehicle or by partnering with an Indian concern.

The European company should enter into contracts with esta-blished buyers in India, who have large and experienced in-houseteams, who can assist the former. Delays, disruptions, property andworks damage claims should legally be the responsibility of theIndian concern, where contractually permissible. The European com-pany should be liable for performance of the design, preparation ofthe budgets and estimated duration of work, managing procurement,administration of trade contracts, co-ordination of the design andconstruction between trade contracts.

Where the project includes patented processes, designs and assis-tance with commissioning, from the European concern, these shouldbe provided though a specialised supplier under a separate techno-logy and licensing agreement directly with the buyer.

renewable energy in india 3

An EPCM contractor must plan to provide updated cost estimatesto the buyer as soon as they become apparent. The European concernshould advise the buyer on required insurance. It is often the casethat the buyer takes an all encompassing insurance policy that co-insures all project participants.

The European concern must make allowances for adapting to theIndian market. It is often the case that managerial and technologycapability and expertise are at hand with an Indian concern but themarkets have not matured or priorities are misplaced or there is alack of vision. On the other hand, there are certain areas, the mate-rial sciences, for example, where Research and Development has notprogressed significantly in comparison to capability outside India, forlack of funding or high barriers to entry in underlying technologiesand cost. There is also some aversion to commercialisation of tech-nologies developed at Government research labs while R&D budgetsin private establishments are disproportionately low by internationalstandards.

Long term competitiveness can be better assured by identifyingand patronising researchers and research groups in India for develo-ping products targeted at developing and low-income countries forbootstrapping and to prove competence before engaging in leading-edge research to improve the parent’s products and processes. Posi-tive commercial outcomes can be accelerated by establishing a centrefor excellence with cutting edge facilities, and visiting experts andresearchers. Locally sourceable material substitutes and patentableincremental improvements should result fairly quickly.

In the short-term, the European concern should have a dedicatedknowledgeable and capable team in India, as working with geogra-phically remote partners from the get-go is difficult for the buyer.Into the medium term, the European concern should license its tech-nology and processes. Their international execution experience andknowledge of best practices will be invaluable in arriving at realisticdeadlines. Through time, the complexities of the Indian market canbe understood better and a fully independent subsidiary can be setupto go it alone.