Book Review: State of Renewable Energy in India: A Citizen’s report
Book Review
State of Renewable Energy in India: A Citizen’s report
Centre for Science
and Environment, New Delhi. 2014.
Price: Rs.690.
Climate
Change debate and green enthusiasm have given a great impetus to Renewable
Energy worldwide. Although India was
hardly a culprit in Greenhouse Gas emissions, with abysmally low per capita emission of CO2 of
1.2 tonnes in 2010, compared to 4.6 for China and 19.1 for USA, in absolute
terms its emission was noticeable at 1,000 million tonnes, compared to 6,200 for China and 5,600 for USA. The erstwhile high GDP growth of China and
India—during global downturn—and the resulting implications for energy
consumption and contribution to global warming, have brought international
pressure on China and India to reduce nonrenewable energy consumption by
increasing the portfolio of renewable energy on the one hand and energy
conservation on the other. While China has embarrassed the West by taking the
money available from Western Europe under clean development mechanism, and
using it to subsidize development of low cost solar cells, outcompeting the US,
India has been relatively dumb and follows the Western dictat in increasing the
portfolio of renewable energy at the cost of large hydro—which has been
attenuated by environmental opposition—and domestic coal, both of which are
available in plenty, but forbidden to develop. It is in this context, the book by CSE has
become relevant.
The book is a valuable reference about
facts on what is happening to Renewable Energy adoption in India. The facts are interwoven with opinion on and
commentary on what is happening on the ground.
While the book is fairly authoritative in its descriptive role, it is in
this latter aspect, of being prescriptive, in dealing with commentary on policy, that the book is
ambivalent, torn between loyalty to the Renewable energy cause on the one hand
and loyalty to sound economic principles—like cost competitiveness, economic viability to
the nation and financial viability to the user—on the other. The cause of this ambivalence is the
ambiguously defined trade-offs between environmental benefits and economic/
financial costs of renewable energy. Conventional energy like coal based or large
hydro electricity, is cheaper for user organizations like electric utilities and
are sought after, while renewable energy sponsors like the Ministry of New and
Renewable Energy have a mandate to promote Renewable Energy which is costlier
than conventional energy on market terms, but may be overall more beneficial in
terms of carbon emissions. The fact that
Energy is in the concurrent list, makes implementation of policies even more
difficult, since Central Ministries cannot implement policies by themselves,
they need the cooperation of States.
When it comes to States’ attitude to Renewable energy, there is an
interesting dichotomy between policies and their implementation; States have supportive policies for renewable
energy and impressive targets are laid;
at implementation level, they recognize that the user organizations like
State owned electric utilities are already making losses and imposition of high
cost renewable energy on them will make them further financially weaker. So, there is a lack of enthusiasm at
implementation level. For instance
Gujarat envisaged 3000 MW of solar energy by 2014, but stopped with 860 MW, due
to high Feed-in-Tariffs of Solar, which were as high as Rs.15 per kwh for the
first 12 years, for plants that came up before January 2012 and Rs.9.98 per
kwh, for plants that came up after January 2012. That the bureaucrats and regulators suffer
from serious information asymmetry and lack of innovation is seen from the fact
that the feed-in-tariff itself came down significantly when it was the bid
parameter, to Rs.7 per kwh. However,
even at this tariff, Solar imposes a burden of Rs.7,000 crores on State
Utilities which are already financially weak.
The simplistic advantage of high solar insolation is offset by a very
low capacity factor, of 18 to 20%. (The
book wrongly uses the term Plant Load Factor, for solar plants; wrong because the term PLF is relevant only
in a situation where capacity is mostly available, but the load may or may not
be available). The irony cannot be
missed, viz. while Rajasthan and Tamilnadu are the two States with maximum
solar insolation and targets, their electric utilities also have the highest
and second highest financial losses (of Rs.11 and 8 thousand crores
respectively in 2009-10. This seems to
suggest that if you embrace green, you cannot avoid turning red in balance sheet.
The book highlights the poor implementation of
State Programmes, as a failure of enforcement.
A more charitable explanation would
be “bowing down to the market realities!”.
Besides, the high cost of manufacture has
killed the domestic solar industry; not
even the Government’s support in terms of ‘domestic component requirement’
(DCR) could save it. The Chinese and
even the US SPVs have a lower cost than the Indian manufactured solar
equipment. There is a $100 difference
per kw between imported and domestic solar cell, which amounts to about 10%
cost advantage for imported solar cells.
The Government must learn this lesson: that if Government does something
against the market, in terms of protecting the industry, exactly the opposite
consequence will result. Government
mandated Domestic Component Requirement (DCR) for Concentrated Solar Power
(CSP) technologies; so, the cost
conscious developers simply avoided it and opted for Solar Photo Voltaic (SPV)
technologies, where there was no such restriction. Government killed domestic CSP industry,
whereas it actually wanted to nurture it.
The authors have highlighted the
fact that this is a high technology industry, with barriers to entry and
economies of scale, but we have a market structure with too many equipment
suppliers who cannot compete effectively with the manufacturers in China and
US. How does this happen, many firms
entering a market where there is no intrinsic profitability. This happens because, Government policies and
subsidies make an economically unviable industry into a financially viable
industry. And when the Government
realizes its mistakes and makes mid course corrections, like removing
accelerated depreciation benefit, the industry will cry hoarse saying they are
introducing policy uncertainty! Thus we
see a spectacle of private equity players entering this industry, only to make
money out of Government’s policies and not because of intrinsic viability.
Economics of solar and wind
electricity: Solar photovoltaic
(SPV) power at present costs about Rs.7 to 8 per kwh, and with economies of
scale, like having a 1000 MW plant through the Ultra Mega Solar Power Project
(UMSPP) and competitive bidding the likely figure may be around Rs.5.5 per
kwh. For grid connection, adding a
transmission loss of about 8-10%, cost of power at generation may come around
Rs.6 per kwh (distribution loss need not be added, as we are looking only at
incremental costs). Since solar
radiation will be effective only for a few hours during day time, the capacity
utilization assumed in project calculations of cost is only 20%, as mentioned before. Wind also has the same capacity factor. This then makes both solar and wind as intermittent energy, and its cost
cannot be compared with a continuous
energy source like coal based electricity, which provides electricity on
tap. In effect, these provide energy but
not capacity guarantee. One has to then
compare the total cost of solar and wind with the energy cost of coal thermal electricity, i.e. just the cost of
burning coal in the boilers to produce a kwh of electricity, which is just
about a Rupee. (i.e. we leave out the
capacity cost of the continuous
energy). The question is whether the
Carbon cost of coal based electricity is worth Rs.4 or 5 to make solar and
wind, comparable and acceptable.
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