Responsibility for renewable energy policy development and implementation in India is divided between the central and state governments. Depending on the state and energy source, incentives may include accelerated depreciation, tax exemptions, soft loans, FiTs and capital subsidies and exemptions from import duties, among others. Some states such as Maharashtra offer a range of FiTs based on differentiated wind zones.

India’s grid failure caused massive gridlock in Delhi (Parivartan Sharma/Reuters)

The Ministry for New and Renewable Energy (MNRE)’s annual report for 2011-2012 estimates gross installed capacity of grid-interactive renewable power at 23 GW in January 2012. Of this, onshore wind power accounted for 16 GW. Small hydro accounted for 3.3 GW, biomass power for 1.1 GW, biomass cogeneration for almost 2 GW, waste-to-energy for about 74 MW, and solar PV for only 481 MW. Off-grid and captive power generated another 671 MW, half of it from biomass cogeneration. Other significant contributors to renewable energy generation include family biogas plants (almost 4.5 million) and solar water heating with a collection area of around 5 million m2. Five states account for the majority of installed wind power capacity: Tamil Nadu (6.6 GW), Gujarat and Maharashtra (around 2.6 GW each), and Karnataka and Rajasthan (1.8 GW each). India places fifth in the world for installed wind power capacity, boosted by a strong domestic manufacturing base.

Issues with Policy

The central government shapes overall policy direction through initiatives such as the Solar Mission. However, in reality the success of a policy depends on implementation at the state level. While Pandole maintains that consistent government policy is critical to infrastructure development, he points to three shortcomings: inconsistency in policy formulation; insufficient attention to policy implementation, and a lack of investment in enabling infrastructure.

Pandole feels the government should be more proactive in actually implementing the policy and cites the 2003 Electricity Act to illustrate his point: ‘Allowing open access for power generators was watershed legislation for the energy sector but there has not been enough follow-through.’ Open access, established in the Electricity Act of 2003, allows ‘any licensee or consumer or a person engaged in generation’ to use India’s transmission lines, distribution system and/or associated facilities.

The state of Tamil Nadu, which has the highest installed wind power capacity, is a good example. Narasimhan Santhanam, co-founder and director of Energy Alternatives India, a research and consulting firm focused on renewables, describes how grid bottlenecks have led to turbines being shut down during windy days, even as load shedding continues to be a national problem. ‘Everybody thinks of the State Electricity Boards as the villain,’ he says, ‘because, in theory, wind power should have priority. But the chaotic way in which wind power developed in the state makes this difficult to do in practice.’

Since India’s renewable resources are not evenly distributed, in 2011 the government kicked off a renewable energy certificate scheme (RPO) to facilitate development of a pan-Indian renewable energy trading market. It is envisioned that utilities’ obligation to purchase 10% of their power from renewable sources will drive RPO trading. However, in Santhanam’s view the most effective policy measures have been FiTs and capital subsidies. ‘The RPO policy to drive demand doesn’t seem to have worked so well,’ he muses.

A major issue is non-compliance. Though the scheme was slow to get off the ground, the Indian Energy Exchange reported record trading in a recent (September 2012) auction. There were 191 participants (Discoms, or distribution companies, plus captive consumers and open access consumers) on the buy side and 182 eligible entities on the sale side. However, the Exchange stated, ‘The apparent over-supply is misleading since there is real shortage of renewable power generation in the country. If all obligated entities that include private and government-owned Discoms, Captive and Open Access consumers, would have bid to purchase RECs, the demand would have surpassed the supply many-fold. We need to push hard for compliance. When an instrument has been introduced which facilitates purchase of renewable power so conveniently, there should be no reason for non-compliance by small or big entities.’

Solutions and Predictions

The webs of Indian conglomerates which operate in heavy industries wield tremendous influence and favour on-site generation to free themselves from the vagaries of the grid. With self-generating industries accounting for 33 GW of national electricity capacity there is huge untapped potential.

While less energy-intensive than manufacturing industries, the new generation of IT companies also requires reliable power. Infosys, a global IT company with headquarters in India, has committed to using electricity from renewable sources only by 2017 in its Indian operations. Currently 20% of its electricity consumption is generated through off- and on-site renewable resources, mostly wind and hydropower. Almost 17% of its electricity is generated through expensive diesel used in generators and boilers, and as the cost of solar power rapidly approaches that of diesel gensets, the company is also turning to solar PV. As Santhanam says, ‘Large corporations used to think of energy as just a utility; now it can be used as a tool for competitive advantage.’

While Pandole thinks that ‘the need of the hour is consistent government policy and a coordinated approach with state governments in order to set up an enabling environment for infrastructure development’, he remains optimistic about the future. ‘India has suffered in the past from insufficient policy action,’ he says, but points to the success of the Solar Mission as an example of the power of government commitment. ‘When the government committed for 20-25 years, it really emboldened a lot of solar power project developers to bid for projects.’

While Santhanam feels that government policy has been the driving force for renewable energy development in India, he identifies the corporate social responsibility ethic as a nascent but potentially potent force for driving sector growth. ‘It is increasingly forming part of corporate brand equity,’ he says. ‘It adds to the quality of their product and perception as a sustainable company.’ Pandole, too, agrees that the impetus from the corporate social responsibility movement is extremely important for renewable energy.

Santhanam cites the recent opening of the ITC Grand Chola Hotel in Chennai - which intends to meet all its energy requirements through renewable energy - to illustrate his point. It is the world’s largest Leadership in Energy and Environmental Design (LEED) Platinum certified hotel, the highest rating provided by the US Green Building Council.