In contrast to the explosive global media coverage of the failures of three of India's five regional grids that left almost 700 million people without electricity, the publication of the Enquiry Committee's Grid Disturbance report lit few fuses. It attributed the failure to a combination of climatic conditions with weak inter-regional transmission corridors due to multiple outages, the high loading and eventual loss of one link, and overdrawals by Northern Region utilities. Among an extensive list of technical and administrative recommendations, the report suggests applying the penal provisions of the Electricity Act.

But with load shedding schedules already dictating daily routines across large swathes of the country, the nation’s loss of face hurt more than the lost power. In fact, many corporate operations were unaffected, as they own generation facilities to insulate themselves from just such events. Annual energy conservation reports - obligatory among energy-intensive industries - reveal that Tata Steel generated 30% of its electricity. Costs ranged from Rs3.88 (US$0.07)/kWh for purchased electricity to Rs2.41 ($0.04)/kWh for steam turbine/generator (95% using by-product gases) and Rs37.49 ($0.68)/kWh for diesel generation. For energy-intensive industries with limited cogen possibilities, renewables offer an attractive alternative to the diesel gensets used for backup power to redress the country’s power supply/demand imbalance.

The Current Energy Balance

According to the latest available figures from its Central Statistics Office, India had almost 207 GW of installed capacity by March 2011, 64% from thermal generation and non-hydro renewables. Large-scale hydropower accounted for 18.2% and ‘self-generation’ for 16%. While India is the world’s third largest coal producer, producing 7.5% of the global total in 2010, it’s also the world’s fourth largest net importer of coal and crude oil.

For example, the nation’s domestic steel industry has had to import high quality coking coal to meet its energy needs. Large industrial consumers (the so-called ‘high-tension’ segment) have been hard hit by rising energy prices which have raised the prices of their products in export markets. The country’s sustained growth places enormous demands on scarce energy resources with peak deficits for electricity in the 12% range. With improvements in living standards, per capita energy consumption in India increased from 1204 KWh in 1970-1971 to 4816 KWh in 2010-2011.

Forward-Looking Policy

Biogas is integral to the Indian subcontinent, home to the world’s largest cattle population. Introduction of a national biogas project in 1981 saw cow dung used to produce methane-rich biogas in domestic-scale family plants. But the 2010 launch of the Jawaharlal Nehru Solar Mission (JNSM), one of eight national missions forming part of India’s National Action Plan for Climate Change, aimed to propel the renewable energy sector into new orbits.

India’s 11th Five Year Plan (2007-2012) marks a definitive departure from the past, and is perceived as having finally given teeth to the renewable energy sector. As wind power, the sector’s mainstay, has achieved grid parity, the government abolished an accelerated depreciation incentive and refocused on sectors such as solar, which had previously been prohibitively expensive.

The northwestern state of Rajasthan has 1.8 GW of installed wind power
capacity and strong transmission networks (David Appleyard)

To be implemented in three phases, the Solar Mission targets an installed capacity of 20 GW of grid power (solar PV and solar thermal), 2 GW of off-grid solar applications, 20 million m2 solar thermal collector area and solar lighting for 20 million households by the end of the 13th Five Year Plan in 2022. The first phase focuses on modest capacity additions to the grid, along with off-grid power to serve populations currently without electricity, including applications such as power for irrigation pumps.

The vast majority of JNSM projects are located in the northwestern state of Rajasthan, India’s largest state by land area. It’s a magnet for solar power due to its high insolation, strong transmission networks and land banks prepared by the state’s government for on-grid solar projects. An arid region home to the Thar Desert, the state, under the auspices of the Rajasthan Renewable Energy Corporation, has been quick to piggyback on the perceived economic benefits from the Solar Mission by marketing itself as a manufacturing base: it already produces zinc, quartz and salt and hopes to lever transferable expertise from its existing glass and ceramics local manufacturing base.

Other states with dedicated solar policies include Gujarat, Karnataka, and Andhra Pradesh.

Investment Trends

Initiatives such as the Solar Mission have been instrumental in raising the visibility of the renewable energy sector - and in attracting domestic and international investment. India had the highest growth rate for renewable energy investment in the world in 2011 with a 62% increase over 2010 levels to $12 billion. Of this, $11.6 billion was raised through asset financing, according to Bloomberg New Energy Finance. Of the total financing, $5.9 billion went to wind, $4.7 billion to solar and $0.9 billion to biomass and waste-to-energy. The highest growth came from asset financing in the solar sector which increased from $426 million to $4.6 billion.

However, public market investment in clean energy companies in India plummeted from $716 million in 2010 to $189 million in 2011. The US remained the largest country for venture capital and private equity even though investment fell by 11% to $2.8 billion. In India, investment increased by 334% to $332 million. Goldman Sachs’ $204 million investment in India’s ReNew Wind Power was among the top 10 global private equity deals of 2011.

Darius Pandole is a partner with New York firm New Silk Route Partners, and focuses on private equity investment opportunities on the Indian subcontinent. ‘Availability of equity capital is critical to the growth of the sector,’ he says. ‘A typical project has 70% debt and 30% equity but banks won’t provide loans without equity, and private equity is a valuable source of risk capital. Private equity also provides a wide range of value addition capability from sourcing key managerial talent to providing resources to deal with operational issues to assistance in strategy development.’

From an investor perspective, Pandole outlines three reasons why India is seen as a tremendous opportunity: increasing coal prices and the pressure on power generation to remain cost-competitive given that two-thirds of power generated in India is thermal; State Electricity Boards being allowed to raise prices and hence renewable energy achieving near-grid parity in terms of pricing; and a wide range of renewable resource availability.

Renewable Energy Capacity and Policy