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.