Sanjay Chakrabarti and Sudipta Das, Ernst and Young
December 28, 2012 | 2 Comments
Developers, manufacturers, investors and other renewable energy industry stakeholders need to know where the next big market is going to be so that they can adjust their business decisions accordingly.
Since 2003, global consultancy Ernst & Young has released its Country Attractiveness Indices, which gives a numerical ranking to 30 global renewable energy markets by scoring renewable energy investment strategies and resource availability. The indices are updated on a quarterly basis and the most recent report can be found here.
Here is the firm’s assessment of India.
Off-grid Power May Ease Deficit
India is expected to experience a 10% peak power shortage this fiscal year according to a report by the country’s Central Electricity Agency, equivalent to around 15 GW. The gap between energy supply and demand is partly responsible for the massive grid collapse and the world’s largest blackout in July.
The huge power deficit represents a significant opportunity for renewable sources to step in to meet this growing demand for energy, while also increasing the country’s energy security by reducing dependence on coal imports. However, the country’s poor power infrastructure remains one of the largest threats to the ability of alternative energy to fulfil its potential.
India lacks the transmission and distribution infrastructure to fully integrate renewables and many projects are already struggling to get connected to the national grid. FIT disputes, grid frailties, and connection delays are among the problems, exacerbated by high transmission and distribution losses.
As such, the country will need to focus on overhauling its power infrastructure in the short to medium term if it is to restabilize its energy market and facilitate the connection of additional capacity required to meet the continuously increasing demand for energy in this growing economy. This shift in focus for policy-makers and the energy sector as a whole may mean that renewable energy investment will have to wait its turn.
However, it has also become clear that renewable plants operating through local community grid systems were broadly unaffected by July’s blackout. More than a third of India’s population have no connection to the central grid, but there are now suggestions that a rapid expansion of distributed generation installations (i.e., off-grid) may be a way to meet increasing demand and ease grid pressures. To date, the Government has given little attention to distributed generation from renewable sources, however, this may be a potential avenue as it re-examines its power infrastructure, although the scale of off-grid projects is inevitably more limited.
Trading on India’s renewable energy certificate (REC) market continues to fare well, however, there are some concerns that it may not be trading optimally. Demand for RECs had been relatively low in recent months due to a supply glut and a concern that regulators may not be able to enforce the renewables targets properly. Cash-strapped state-run distribution companies, the main intended buyers, are failing to meet the targets and appear to be relying on government leniency. While REC trading levels are expected to remain relatively robust, failure to enforce noncompliance could undermine the credibility of the mechanism in the long run.
National Support for Wind is Critical
India’s wind sector has been relatively subdued over the past six months since the expiry of two key government incentives. The Ministry of New and Renewable Energy has recommended that the Government reinstate the “accelerated depreciation” tax benefit and “generation-based incentive” subsidy, on terms that are potentially even better than those that were in place until March 2012. However, there remains no certainty on whether the measures will be restored, and while 18 of the 25 State Electricity Regulatory Commissions offer FITs, the lack of coherent policy at a national level could continue to hinder future growth of the sector as a whole.
The number of turbine suppliers in India last year almost doubled from two years earlier as a result of surging installations. However, these suppliers may now be forced to consolidate amid increasing competition given the 39% plunge in installations in the first half of the financial year.
However, not all activity has ceased; listed company, Mytrah Energy has announced plans to invest INR300b (€4.32b) to install 5 GW of wind power capacity in India by 2018, and the company has already signed wind turbine supply deals with Suzlon and Gamesa worth US$2b (€1.54b).
Solar Packages Continue to be Rolled Out
Q3 saw the state of Andhra Pradesh introduce its first solar energy policy, offering projects completed by June 2014 benefits such as refunds on site registration charges and VAT on equipment. It will also waive transmission fees for using state-owned infrastructure and speed up the approvals process. The rollout of such a comprehensive solar package at a state level is extremely encouraging, although the solar resources here are not as high as in other states.
The Bank of India plans to offer loans to homes and businesses for solar power systems as part of the post-blackout energy reforms. The state-owned bank signed a memorandum of understanding (MOU) with Gautam Polymer’s Solar unit to finance lanterns and rooftop panels.
Q3 saw Areva Solar recently commence construction of Asia’s largest CSP installation in Rajasthan, a 250MW project on behalf of Indian power company Reliance Power. Meanwhile, First Solar, the world’s biggest maker of thin-film panels, is looking to shift its focus toward project development, in particular plants for industrial and commercial consumers.
Lead image: India map via Shutterstock