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Perspectives on building technology businesses and AcceleratorIndia from Cartezia

Renewable power in India - Diversification is key

Monday, January 28, 2013

From the Catalyzt Research Desk

Last year’s nationwide power outages in India brought into sharp relief one of the most important issues surrounding the country’s power sector, that of generation. The strong economic growth experienced by India has placed excessive demands on its power generation capacity, and led to continuing average energy shortages of 11%. Bridging this gap is crucial if India is to achieve its ambitious growth targets on a sustained basis. Nevertheless, this large power deficit represents a significant opportunity for renewable energy sources such as solar, wind and hydroelectric to meet this growing demand for energy on a timely basis, improve the country’s energy security, and reduce the dependence on fossil fuel imports.

Consequently, investment in renewable energy has surged forward, reaching US$10.4 billion in 2011, an increase of 54% from the previous year. This is the highest rate of growth for a prominent global economy, with solar attracting 40% of the total, and wind 44%. In 2012 India was ranked fourth on Ernst & Young’s renewable attractiveness index and has been routinely ranked in the top five in terms of its market potential for renewables. Currently, renewable energy constitutes approximately 12% of the total 200 GW of installed power generation capacity, the aim is to at least triple renewable energy generation capacity over the next decade.

Renewables have a key role to play to tackle India's energy challenge, but the winning strategy is to have a diversified range of renewable energy sources at the state level. Reliable power generation can be ensured only by avoiding overreliance on any single renewable source and by establishing a judicious mix of multiple renewable sources of energy. The plight of the southern state of Tamil Nadu, a net importer of power from other states in India, is a case in point. Tamil Nadu relies on wind power for 27% of its own generation capacity but recently had major instances of load shedding due to the failure of seasonal wind patterns.

However, a number of key challenges related to infrastructure, policy, and regulation need to be overcome in order to establish diversified renewable power generation capacity.

India’s inadequate power distribution infrastructure remains one of the largest threats for renewables to fulfil their potential, and many projects are finding it problematic to access the national grid. Common problems include disputes over feed-in-tariffs (FITs), grid structure vulnerabilities and delays in connection. For example, in Tamil Nadu many commissioned wind power plants are not able to distribute energy which has been generated because of the lack of infrastructure.

In addition, India’s national and state level bureaucracies, regulations and policies are extremely complex to navigate. The responsibility for different energy sources is distributed over several energy ministries of the Indian Government and sometimes also involve other ministries such as Transport and Urban Development. Most importantly, renewable energy policies for subsidies that are important in determining the success of particular initiatives vary significantly from state to state. For example, Gujarat’s advantageous tariffs for solar power helped the state install 67% of the total solar power capacity in India by 2012.

Compare this with Tamil Nadu’s announcement in October 2012 in what was India’s biggest solar tender that sought developers to build 1,000 MW of power generation capacity per year until 2015. The response was lukewarm and the government received bids for less than half the target, as developers were deterred by the complexity of the state’s detailed plans for the project.

This variation in state policies results in the uneven geographic distribution of renewables in India with certain states dominating in particular types of renewable energy installations.

                                                        * - Catalyzt Research 2013

Renewable energy in India is experiencing huge growth, yet the full potential is just beginning to be exploited. If renewable energy firms from outside India are to participate in this growth, they will require strong local ecosystem relationships, and strategic partnerships to effectively position themselves to take advantage of this opportunity.