India’s energy security scenario represents a giant paradox, where millions live in darkness even though the county is blessed with abundant energy resources. A large chuck of rural India doesn’t know what electricity means. After so many years of Independence only a few enjoy the fruits of development. Faulty policies and lack of political will have led us to a stage where 360 million people in India lack access to electricity and another 20 million households receive less than four hours of electricity per day.
To come at par with other countries in energy access, especially with neighbors like China, we have no option but to make a quantum leap in energy production and improving connectivity. Some recent developments have once again raised the hope of a future where we can provide energy access to the last man. Much of it has to come from the renewed commitments in the clean energy sector. Growing population and fast paced development have presented a situation where we now need to leap from “Megawatts to Gigawatts” scenario.
Flip-flops in government policy making and gloomy investment climate have so far discouraged many domestic and international investors to take more ambitious targets in renewable energy. The initial hype in the sector turned out to be a mere bubble inducing more panic to the investors. But in the last one year the government has done well to shore up expectations in renewable energy and bring it back on course to reaching its full potential. Through many policy initiatives, the government is trying to showcase that investments in the sector will be protected and encouraged. It is promising to make Renewable energy an attractive investment destination by providing a favourable atmosphere and predictable policies.
The government recently upgraded its target of renewable power generation capacity addition to 100,000 Mw (100 GW) in solar and 60,000 Mw 60 GW) in wind-based power. Solar power capacity is currently 3,000 Mw and wind-based power is 21,000 Mw. Presently, renewable energy accounts just 6.5 per cent in the power mix of the country. The new targets are pretty ambitious considering that currently the total installed energy in India from all sources is still just 250 GW.
In a power thirsty country, clean energy markets offer sustainable solutions to the energy crisis. At the same time they address the pressing challenge of climate change create more jobs and supports local economies.
It’s a well established fact that for the long term energy security, low carbon sources cost less than fossil fuels. But at the same time they require more capital for the initial infrastructure set up. India’s alone can’t finance the infrastructure needs for driving the future of clean energy. It needs to attract investors from outside by providing them with attractive incentives.
In the recently concluded RE INVEST 2015 summit in New Delhi, as many as 293 firms committed to build 266 GW or 2,66,000 MW renewable energy capacity in the next five years. Bankers committed to finance projects of 78,000 MW power generation capacities and help meet the USD 250 billion investment target for the sector. Country’s biggest lender SBI vowed to finance 15,000 mw of renewable energy over the next five years.
Fixing Financial Issues
The scale of these commitment raise many questions regarding the finances needed to reach the targets. The question is whether India’s financial system is prepared to sustain the scale of investments promised in the renewable energy sector? The recent optimism in the sector may prove to be a mere bubble if the financial viability aspect is not taken care of well. Developers for long have complained that the current financial regime makes it difficult to develop projects.
The challenges of the renewable energy sector cannot be completely separated from India’s overall infrastructure financing challenges. The single biggest challenge to scaling up renewable energy is the cost of finance – in particular to debt. High interest rates and relatively short term loans for renewable energy projects in India increase the cost by 24-32% compared to similar projects in the U.S and Europe. Adding to the woes of the sector is the expensive domestic debt due to hostile macroeconomic conditions as well as weak capital markets.The government should make a policy shift for facilitating low-cost and long-term debt from domestic capital markets as well as foreign sources.
Public sector financing will play a pivotal role if India is to meets its increased renewable energy targets over the next decade. The sector will require some financial support in the medium term, until its costs come at parity with the conventional power.
Ms Naina Lal Kidwai, Chief Executive Officer & Country Head, HSBC India, believes that capital markets will have more responsibilities to play . “Particularly, we need to create a domestic green bond market which did trading worldwide worth $34 billion last year. India needs to participate and I also believe that priority sector lending should include renewables and better credit enhancement techniques,”.
To further support the sector MNRE is soon going to introduce the concept of renewable generation obligation (RGO) in the new renewable energy policy. Union Minister of State ( IC) for Coal, Power and New & Renewable Energy says, ” There is a need to socialise the cost of renewable energy (RE) through participation of all states, because currently only the states pushing for RE are bearing the burden.”
One Million Green Jobs
If the new targets are achieved and commitments lived , it will have socio economic huge benefits for India. India’s 100 GW Solar Target is projected to create 1 Million Jobs by 2022. Of these Approximately 183,500 jobs would be generated in the wind energy sector.The government is looking at all possibilities to cease the opportunity. The sector will see large investments in solar parks and grid-connected projects. But a significant focus will on rooftop solar solutions and off grid solutions where large number of youth can be trained and engaged. With a little impetus on skill development green energy can also generate jobs for India’s rapidly growing workforce.
Make ‘Renewable Energy’ in India
Renewable energy has been listed as one of the key sectors under government’s flagship ‘Make in India’initiative. India has vast renewable energy resources and if utilised well can make India a manufacturing hub for renewable. A great advantage India has is being strategically located thereby having access to the emerging renewable energy markets. It also has a very large land mass and therefore raw material required for renewable energy is available.
Though after years of promoting renewable energy, India has attained a certain level of manufacturing capabilities, it still lacks an exciting manufacturing ecosystem. It needs integrated manufacturing along the complete value-chain. For renewable manufacturing to be truly competitive, the market needs more innovative pathways. It could look at the possibility of hybrid energy parks harnessing solar and wind energy together in an area to maximize benefit. The country needs to move on from likes of ‘domestic content requirement’ to policies that help industry to acquire new technologies.
“Fortunately, the Indian manufacturers supported our endeavour be withdrawing the anti-dumping duty request. We see a renewed enthusiasm in both Indian corporate and international investors.” Said a hopeful Piyush Goyal.
‘Make in India’ in renewable sector could only succeed if sufficient focus is made on research and innovation in the renewable energy sector rather than simply adding more capacity. Energy companies would need to invest more in R&D , while the government will have to come up with proactive policies. Banks and other financial institutions also need to get involved in supporting R&D in the sector. The government will have to invest heavily in creating enough testing and certification facilities of global standards that can cater to sharply increased demand arising out of this campaign.
Crossing the Bridge
What would it take to achieve the target by the year 2022? A strong will from the government to put enough support behind it. Recent efforts have succeeded to a great extent to change the mood. There is a clear sense of optimism in the market. One good change seen in the RE INVEST summit was that this time there were a new set of players around: large Indian business houses and international investors who now see a chance for projects big enough to warrant their time and efforts. Government’s interest in renewable definitely signals hope for manufacturers and they can expect adequate and continues orders from public sector companies in the coming years. The best news however is that the RE INVEST 2015 brought financial institutions back to the table.
India’s power demands are huge and ever increasing. Rapid industrial growth would only be sustained if it gets continues power supply. Fossil fuels, like coal, are finite and cannot be depended in long run. They also come up with significant damage to the environment. In such scenario , renewable energy particularly solar has the potential to become the base of India’s energy security in a decade’s time. But for that it would require an even more ambitious target and improved grid management and storage facilities. India gets 70% more solar radiation than European countries and just by ending the energy paradox it can bring light in the lives of every individual in the country.
About the Author
This story is written by Rohan Singh. Rohan Singh is journalist with significant experience and has worked with different organizations including DD News. He writes extensively on environment, new and renewable energy, coal and petroleum industry.He has worked with organizations like FICCI, Greenpeace and WWF.