1. Renewable energy in India
Rahul Bhargava
17th January 2013
Energy and the Environment
Renewable energy urban planning, resource management and envi-
ronmental technology
The developing world is witnessing continued population growth
and rising energy demand1 from the accompanying accelerated eco- 1
http://en.wikipedia.org/wiki/
Energy_policy_of_India
nomic growth. Existing producers and distributors, in India, can
address some of the demand. While the shortfall has been evident
for long, substantial progress has not been made for certain externa-
lities, deficiencies in policy, planning and execution that have held
back 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 of
renewables2 . 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 is
a 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 the
fastest amongst sectors at a CAGR of 9.8% from 1970-71 to 2008-093 . 3
http://mospi.nic.in/Mospi_New/
upload/energy_stat_2010_pdf/table_
There are several subsidies that distort the consumer price of elec-
section_6_es10.pdf
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 for
Some of these subsidies are likely to reduce by 2020, while other sub-
2020 with assumptions, http:
sidies, for rural and agricultural consumers, may not reduce. Energy //www.slideshare.net/manasij_
intensity is high relative to developed countries at 0.129 KWh in kar/pv-grid-parity-in-india
2008-09 and may reduce as has been the trend since 19995 . Loss of 5
http://mpra.ub.uni-muenchen.de/
16774/1/MPRA_paper_16774.pdf
electricity during transmission declined to 26.76% in 2008-096 and 6
http://mospi.nic.in/Mospi_New/
this is the prevailing trend. upload/energy_stat_2010_pdf/
Production capacity is 167 GW in November 20107 . analyticalhighlights_es10.pdf
Electricity prices in India depend on prices of energy commodi-
7
http://www.powermin.nic.in/indian_
electricity_scenario/introduction.
ties, namely, petroleum products, LPG, coking coal, coke and lignite. htm
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 has
almost tripled in Rupees since 1993-94, the WPI for electricity was
2. 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_
With increases in local generation capacity and a more efficient
section_8_es10.pdf
grid, reductions in subsidies for domestic users, high growth and
increasing domestic demand (10% CAGR), residential electricity
prices are likely to be between 10 and 20 US cents or between 4 and 9
Rupees in 2020.
Table 1: Electricity generation capacity
Type 2010 2020 Projection
in 2010 and 2020. Note, there are signi-
Thermal 108 3/8 GW 183 1/2 GW ficant delays in delivery by Government
enterprises in relation to Ministerial
Hydro 37 3/8 GW 57 + import 7 GW plans and projections. 100GW in addi-
Nuclear 4 3/4 GW 9 1/2 GW tional capacity are planned for the 11th
and 12th five year plans, that is till 2017,
Renewable 16 3/4 GW 35 GW but the 11th plan capacity addition goal
will not be met by a large margin.
Total 167 GW 292 GW
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.pdf
ted, where possible. While in an EPC contract, a single contractor
is 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 process
engineering designs provided by the European company.
To be price competitive in India, the European company must
source as much material locally as possible and engage engineers
who are familiar with local conditions, either through a third-party
specialist 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-house
teams, who can assist the former. Delays, disruptions, property and
works damage claims should legally be the responsibility of the
Indian concern, where contractually permissible. The European com-
pany should be liable for performance of the design, preparation of
the budgets and estimated duration of work, managing procurement,
administration of trade contracts, co-ordination of the design and
construction between trade contracts.
Where the project includes patented processes, designs and assis-
tance with commissioning, from the European concern, these should
be provided though a specialised supplier under a separate techno-
logy and licensing agreement directly with the buyer.
3. renewable energy in india 3
An EPCM contractor must plan to provide updated cost estimates
to the buyer as soon as they become apparent. The European concern
should advise the buyer on required insurance. It is often the case
that the buyer takes an all encompassing insurance policy that co-
insures all project participants.
The European concern must make allowances for adapting to the
Indian market. It is often the case that managerial and technology
capability and expertise are at hand with an Indian concern but the
markets have not matured or priorities are misplaced or there is a
lack of vision. On the other hand, there are certain areas, the mate-
rial sciences, for example, where Research and Development has not
progressed significantly in comparison to capability outside India, for
lack of funding or high barriers to entry in underlying technologies
and cost. There is also some aversion to commercialisation of tech-
nologies developed at Government research labs while R&D budgets
in private establishments are disproportionately low by international
standards.
Long term competitiveness can be better assured by identifying
and patronising researchers and research groups in India for develo-
ping products targeted at developing and low-income countries for
bootstrapping 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 centre
for excellence with cutting edge facilities, and visiting experts and
researchers. Locally sourceable material substitutes and patentable
incremental improvements should result fairly quickly.
In the short-term, the European concern should have a dedicated
knowledgeable 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 and
knowledge of best practices will be invaluable in arriving at realistic
deadlines. Through time, the complexities of the Indian market can
be understood better and a fully independent subsidiary can be setup
to go it alone.