An Analysis Of The Indian Energy Structure
The energy sector holds the key in accelerating the economic growth of India. The challenge is especially significant given the Honorable Prime Minister's cherished goal of reaching 8% growth rates from the current threshold of around 5 to 6%. However, the development of the Indian energy sector has been constrained by capital, technology, environment and security issues arising out of internal and external consequences. Five different ministries have structurally handled the Indian energy sector and power is a concurrent subject of both the central government and the states. Although reforms in the energy sector are underway, the pace of reform is different in the sub sectors viz, power, coal, oil, gas and renewables.
The power sector needs special attention to foster development aspirations. Despite significant growth in terms of technological sophistication and capacity addition, the power sector suffers from financial weakness and supply constraints. Thus, emphasis should be put on a scheduled process to turn around the sector from "bankruptcy to bankability". India is gradually shifting focus towards its renewable energy resources. Driven by an increasing demand for electricity and widening gap between demand and supply, India has targeted 20GW of Solar Power by 2022 in its Jawaharlal Nehru National Solar Mission.
India has been enduring a pressing need to reduce its high and increasing greenhouse gas emissions. India's renewable energy capacity reached 14.8 GW in 2009, accounting for 9.7% of the total installed power capacity. Though solar energy accounts for only 1% of total capacity, it has witnessed a quick growth in the last five years.
During 2005-2009, total revenues were $22.8 billion representing a compound growth rate of 11%. The market consumption volumes increased by 8.3% annually from 2005 to 2009 and reached a total of 149.9 billion kilowatt hours (kWh) by 2009. With the current growth momentum the market's volume is expected to rise to a 189.8 billion kilowatt hours (kWh) by the end of 2014, representing a CAGR of 4.8% for the 2009-2014 period.
2.2 Energy Scenario in India:
Energy is the prime mover of economic growth and is vital to the sustenance of a modern economy. Future economic growth crucially depends on the long-term availability of energy from sources that are affordable, accessible and environmentally friendly. India ranks sixth in the world in total energy consumption and needs to accelerate the development of the sector to meet its growth aspirations.
The country, though rich in coal and abundantly endowed with renewable energy in the form of solar, wind, hydro and bio-energy has very small hydrocarbon reserves (0.4% of the world's reserve). India, like many other developing countries, is a net importer of energy, more than 25 percent of primary energy needs being met through imports mainly in the form of crude oil and natural gas. The rising oil import bill has been the focus of serious concerns due to the pressure it has placed on scarce foreign exchange resources and is also largely responsible for energy supply shortages.
The sub-optimal consumption of commercial energy adversely affects the productive sectors, which in turn hampers economic growth.If we look at the pattern of energy production, coal and oil account for 54 percent and 34 percent respectively with natural gas, hydro and nuclear contributing to the balance. In the power generation front, nearly 62 percent of power generation is from coal fired thermal power plants and 70 percent of the coal produced every year in India has been used for thermal generation.The distribution of primary commercial energy resources in India is quite skewed. 70 percent of the total hydro potential is located in the Northern and Northeastern regions, whereas the Eastern region accounts for nearly 70 percent of the total coal reserves in the country.
The Southern region, which has only 6 percent of the total coal reserves and 10 percent of the total hydro potential, has most of the lignite deposits occurring in the country.On the consumption front, the industrial sector in India is a major energy user accounting for about 52 percent of commercial energy consumption. Per capita energy consumption in India is one of the lowest in the world as shown in Fig. 2.1. But, energy intensity, which is energy consumption per unit of GDP, is one of the highest in comparison to other developed and developing countries.
For example, it is 3.7 times that of Japan, 1.55 times that of the United States, 1.47 times that of Asia and 1.5 times that of the world average. Thus, there is a huge scope for energy conservation in the country.
Figure 2.1 Per Capita Energy Consumption
2.3 India's Emerging Solar Industry
The global solar energy industry is in the early phases of what may be a 30 to 50-year expansion. By the end of 2007, the cumulative installed capacity of solar photovoltaic (PV) systems around the world had reached more than 9,200 MW, up from 1,200 MW at the end of 2000. Installations of PV cells and modules around the world have been growing at an average annual rate of more than 35% since 1998 (Solar Generation V Report, EPIA, September, 2008). The chart at right by the German Advisory Council on Global Change indicates the vital role that solar energy may play in our energy futures. While contributing only a fraction of the world' energy needs today, by 2060 it may be the largest single contributor to global energy production.
The European Photovoltaic Industry Association (EPIA) estimates that by the year 2030, PV systems could be generating approximately 2,600 TWh of electricity around the world, enough to satisfy the electricity needs of almost 14% of the world's population. India has the opportunity to play a major role in this global energy transformation. With significant technical and production resources, India can be a major supplier of PV cells and modules to meet the growing world demand.
With the current pace of growth, India's solar industry could emerge as the fourth largest generator of solar energy in the world after, Germany, China, and Japan. As an increasingly significant energy consumer, solar power can play a significant role in the country's domestic energy supply. With over 50,000 villages in India without electricity, solar power has enormous potential to meet rural electrical needs, improving the lives of millions of Indians and meeting critical agricultural, education and industrial needs.
2.4 Solar Photovoltaic (SPV) Capacity
Bulk of India's installed SPV capacity is in the form of non-grid applications. SPV market in India is mostly organized .There are 15 entities engaged in the production of solar cells. 20 companies in the PV modules space and 50 companies are engaged in the assembly and supply of PV Systems (PV cell and PV modules) PV cells- India's installed capacity for PV cells is expected to increase to 750 MW in 2010 from 400 MW in 2009. The actual production of PV cells in 2009 was 75 MW.
PV Modules- Installed capacity for PV modules expected to increase to 1250 MW in 2010 from 1000 MW in 2009. The actual production of PV modules in 2009 was 240 MW With the beginning of new projects and government the SPV capacity is expected to grow exponentially over the years:Solar PV based applications usage in India is not in accordance with that in the global market. Globally, grid-connected PV applications account for 75% of the overall PV applications while in India off-grid applications account for ~97% of the overall applications.
Ministry of New and Renewable Energy (MNRE) is aiming to achieve 50 MWp grid-connected SPV capacity by 2012.
2.5 Solar Industry Value Chain:
The value chain of solar industry consists of four main segments:
2.5.1 Silicon and thin film producer
Crystalline Silicon PV: Involves low cost of productionThin Film: Higher cost of production requiring adequate technology
2.5.2 Appliance Manufacturer
Standalone players Involved in product design, marketing and distributionDevelops products such as solar heater, solar cooker, street and home lighting Systems
2.5.3 EPC Player
Operates in grid generation systemsMajor focus on developing ties with suppliersPlayers have strong engineering capabilities
Manages various solar power contracts through private and public partnershipsArranges land banks for solar installationsFinancial aspect of large scale grid generation systemsIn India the solar industry is now dominated by few players, either in the public sector or joint ventures with major global players barely set up 5 years ago. The major government owned players in the domestic industry are BHEL, Central Electronics Ltd., BEL and Rajasthan Electronics & Instruments Ltd (REIL). Several international players, such as Moser Baer PV, TATA BP Solar, Signet Solar and SELCO International USA, are also active suppliers in India. The market is dominated by joint ventures and technical collaboration with foreign firms that specialise in solar products.
New firms that are setting up or expanding manufacturing units and developing forward linkages to develop solar power plants are Reliance Industries, Moser Baer, Signet Solar, and Solar Semiconductors at various value chain of the solar industry.
2.6 Regional Spread of Manufacturers in India
The southern part of India dominates the market in terms of production of SPV cells and SPV modulesOut of 9 SPV cell manufacturers in India 6 are located in south IndiaWhile, out of 21 SPV module manufacturer in India 15 are located in south IndiaGujarat is gradually becoming an important destination for solar PV developers as it is easier to acquire land located in any part of the state directly from the farmer. Many companies have announced their plans to set up solar PV plants in Gujarat which include Moser Baer, Lanco Solar, Solar Semiconductor, Euro Solar, PLG Power, and Zeba Solar. All these solar PV developers have signed public private alliances (PPA).
2.7 Drivers of growth:
Rise in polysilicon plants
Gradually, Indian Companies are planning to foray into the production and processing of polysilicon. Currently, India imports about 4,000 TPA of polysilicon and wafers.
Demand supply gap
India's power deficit is about 10%, with a peak deficit of 17% leading to chronic power shortage. Power is one of the requirements for the economic development of India but even today almost 1/3rd of the population has no access to grid electricity.
Demand for off-grid PV application
Apart from PV application in the rural areas, there are other PV off-grid applications which have huge scope in India such asOff grid lighting systemIrrigation PumpCaptive PowerUrban Application
2.8 Government Role:
It is essential to strive for efficient use of energy and energy conservation. According to the Blue Print for Power Sector Development (Ministry of Power 2001)â€¦the energy efficiency/conservation measures encourage consumers to use energy more efficiently, which will result in reduced energy consumption thereby reducing cost of production and increasing productivityâ€¦The Central and the State Government can be provided with statutory power to achieve energy efficiency through proper acts or laws. The enactment of the proposed EnergyConservation Bill can provide this necessary power to both Central and State overnments.The scope of the proposed Energy Conservation Bill includes all forms of energy viz. coal, oil, nuclear, renewable sources etc. For implementing the provisions of the proposed Bill, a Bureau of Energy Efficiency is to be set up.
The salient features of the Bill are:Setting up of energy conservation standards for any equipment or appliance consuming, generating, transmitting or supplying energyCertain industries, establishments and users of energy to be notified as designated consumers keeping in view the intensity and quantity of energy consumed.Mandatory energy audit for all designated consumers, as and when required by the designated authority.Promotion of mass awareness at both the Central and the State levels for energy conservation, consumer education and guidance.Government to take steps to encourage preferential use of energy efficient equipment and appliances.Constitution of an Energy Conservation Fund at the Centre and the States for utilizing any grant or loans made available for promoting energy conservation.
2.8.1 Availability of funds
Banks and other financial institutions, including foreign financial institutions, are lending necessary funds to the players. The SPV market is also getting boosted by the financial assistance extended by the financial bodies in terms of helping the players in coordinating with interested foreign financial institutions for investing in the projects
2.8.2 Growth in foreign trade
India has consistently been a net exporter of solar PV technology, with about 66% of cumulative domestic PV production till 2009 being exported to overseas markets. India exports PV cells, PV modules to the international markets led by the European nations. India is a major exporter of PV cells with exports accounting for 75% of total capacity.
In terms of quantity, exports of solar PV cell increased by 83.4% in 2009 compared to 2008.Most manufacturers of PV cells and PV modules export their products to countries worldwide. Scope of foreign trade in the SPV sector is leading to the entry of increasing number of players to the market.
2.8.3 Fall in prices of raw materials
In 2009, global poly silicon prices fell by 80%, silicon wafer prices declined by 50% while there was a 37.8% fall in crystalline module prices. These form the basis allowing for the production of solar energy based on photovoltaic technology. Fall in the prices has reduced the cost of generating solar photovoltaic energy. It is expected that in 2010 the crystalline module prices will fall by 20%, silicon wafer prices will fall by 18.2%, poly silicon prices will fall by 56.3%.The fall in prices is likely to continue with the existing prices of PV and with steady fall in the prices of PV along with lower operating expenses, this technology is becoming cost effective Increasing number of players are now entering the market at these price levels
2.8.4 Geographical location
In India, almost all the regions receive 4-7 KWH of solar radiation per sq mt depending upon the location. India enjoys 300 sunny days every year and 3,000 hours of sunshine each year which is equivalent to over 5,000 trillion KWH. India being a tropical country receives adequate solar radiation which is a major driver for the SPV market
2.9 Solar Energy Market Trends In India:
Tata BP Solar recently signed an agreement with Calyon Bank (Credit Agricole CIB) and BNP Paribas to raise Rs 3.1 billion to fund its solar cell expansion project from the present installed capacity of 128 MW to 300 MW by 2012. Players such as Californiabased Signet Solar are also planning three PV manufacturing units in India at an investment of over US$2 billion. Moser Baer is investing close to US$1.5 billion; Titan Energy Systems is planning an investment of US$750 million, Nanotech Silicon India US$2 billion, and Hindustan Semiconductor Manufacturing Corporation US$1 billion.Despite polysilicon production for both solar and semiconductor use rising 30% during 2007-2009, it remained the most capacity constrained part of the PV chain.
On the demand side, demand from the semiconductor industry is expected to grow at steady one-digit rates, with demand for solar-grade polysilicon expected to reach over 50% of the total demand for high purity silicon in 2008-2009.
2.9.1 Investment Opportunities
There is a large scope for investments in solar energy sector and Government of India is taking all the necessary measures to promote the solar energy generation in the country. The policy measures and incentives taken by the government of India to promote investment in solar energy sector are as follows:
2.9.2 Joint Ventures
A number of companies have entered into joint ventures with leading global PV manufacturers. There are no specific conditions laid down by MNES for the formation of joint ventures. General conditions laid down by the Ministry of Industry, Secretariat for Industrial Approvals and the Reserve Bank of India are applicable for this sector.
2.9.3 Export-oriented Units
It is possible to set up a manufacturing plant as a 100 per cent EOU. Generally, these are permitted duty-free import of raw materials and components. They are also eligible to sell up to 20% of their production in domestic markets.
2.9.4 Technology Transfer
Indian PV industry is interested in seeking technology for the manufacture of PV modules especially based on thin film materials, and is able to offer technology for the manufacture of silicon solar cells, PV modules and PV systems.
2.9.5 Technology Development
R&D projects are supported by the government at Central/state government research organisations, autonomous societies, universities, recognised colleges, IITs, industries (with suitable infrastructure for R&D) and NGOs.The geographical region, type of opportunity, and policy drivers associated with each technology are identified below. At the sector level, small hydropower, wind, and solar energy offer maximum scope for clean energy development. These sectors are relatively mature and significant local industries already exist.
On the other hand, geothermal and tidal energy technologies are nascent and offer important early entry advantages to U.S. companies.
2.10 Opportunities for a foreign firm include:
About $12 million has been allocated by BEE for development of five-year energy efficiency action plans by state-level agencies. These plans will propose interventions, which will be implemented using national/statelevel funding, as well as funds from the private sector.BEE has requested proposals from national/international consulting organizations to assist the agency in the preparation of bankable proposals in the area of agricultural demand-side management (DSM) (pumping efficiency) for all the states within two years.BEE has requested proposals from national/international consulting organizations to assist the agency in the preparation of bankable proposals and to develop projects in the area of municipal DSM for all the states within two years.BEE has requested proposals from national and international consulting organizations to assist in the promotion of compact fluorescent lighting (CFL) and to claim certified emission reduction credits (CERs) through CDM projects.The State of Uttar Pradesh has solicited an expression of interest from agencies to implement CFL usage under a public-private partnership (PPP) model, where the operator can claim benefits from CERs.The State of Gujarat has solicited proposals for implementing municipal DSM by ESCOs.Investment and financing of clean energy technologies including renewable energy and energy efficiency can occur through a favorable investment and business environment supported by an adequate institutional structure.
In the case of India, the business and investment climate has improved significantly in the last decade. The following section describes these changes.
2.10.1 Foreign Investment Policy for Renewable
Foreign investors can enter joint ventures with an Indian partner for financial and/or technical collaboration and also for the establishment of renewable energy projects. There is a liberalized foreign investment approval regime to facilitate foreign investment and transfer technology through joint ventures. Proposals with up to 74 percent foreign equity participation qualify for automatic approval and full foreign investment as equity is permissible with the approval of the Foreign Investment Promotion Board but the GOI encourages foreign investors to create renewable energy-based power generation projects on a public- private partnership basis.
2.10.2 Funding and Financial Mechanisms, Capital Markets, and Financial Institutions
Currently, government funding drives the financing of clean energy projects at three levels-national, state, and local (municipal). Other sources of finance include capital markets, financial institutions (national and international), and private sector finance.
2.10.3 Central Government
The government is responsible for policy and regulatory frameworks related to financing. The Ministry of Finance (MoF), with the help of the planning commission, is responsible for planning the budget and allocating funds to the various ministries. It provides equity for project agencies, offers guarantee mechanisms, funds programs for capacity building, promotes fiscal incentives, and fuels bond markets with government borrowing. The budgets of the line ministries have been growing during the past few years.
For example, MNRE's budget increased from $39 million in 2005-2006 to $75 million in 2006-2007.These line ministries are providing financial assistance for states and districts (and organizations within them), both directly and through various programs.
2.10.4 State Government
The central government, together with multilateral agencies, is funding a large number of environmental projects at the state level. In many cases the states are expected to match contributions with state funding.
2.10.5 Local Government
Municipalities are often funded through grants, funding from the central government via state governments, state government grants, and local revenues generated through local taxes. Urban Local Bodies (ULBs) traditionally suffer from a lack of funds; typically, they receive only about 40 percent of their state funding share. This is due to deductions by state governments for items such as overdue power charges and loan payments, which result from a general lack of revenue generation. In addition, ULBs lack a system to identify and track income and expenditures.
Access to capital markets is an important way to bolster the finances of ULBs.
Considering all the Government initiatives and policies, Indian manufacturers are optimistic about the prospects of solar power market. Government's effort to bring grid connected solar power into the commercial market has pushed many companies to become turnkey solution providers and solar farm operators. Rural electrification under the scheme of "Power for all by 2012" is an encouraging initiative for solar power system manufacturers.
Private companies' support for achieving future targets is a necessity. India, with more than 300 days of sunshine annually and potential customer base (both urban and rural), offers a great market opportunity. This, combined with investor friendly policies and solar energy promotion, will provide the right platform for growth.
There is an enormous potential for off-grid PV deployment in the country such as rural lighting and electrification, powering irrigation pump sets, back-up power generation for cellular towers, captive power generation, urban applications and highway lighting.
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