EY - Mapping India's Renewable Energy growth potential

Renewable energy in India: status and growth 2013

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India has the fifth-largest power generation portfolio worldwide. The country transitioned from being the world’s seventh-largest energy consumer in 2000 to the fourth-largest one within a decade.

This rapid growth of power capacity and a subsequent rise in demand can be attributed to several factors:

  • Economic growth and increasing prosperity
  • Growing rate of urbanization
  • Rising per capita energy consumption
  • Widening access to energy in the country

Overview

  • Power generation from renewable sources is on the rise in India, with the share of renewable energy in the country’s total energy mix rising from 7.8% in FY08 to 12.3% in FY13.
  • Wind accounts for 68% of the capacity, with 19.1 GW of installed capacity, making India the world’s fifth largest wind energy producer.
  • Small hydro power (3.6 GW), bio-energy (3.6 GW) and solar energy (1.7 GW) constitute the remaining capacity.
Power generation from renewable sources is on the rise in India, with the share of renewable energy in the country’s total energy mix rising from 7.8% in FY08 to 12.3% in FY13.

Key drivers of renewable energy in India

  • Energy security concerns: India ranks fourth and sixth globally as the largest importer of oil, and of petroleum products and LNG, respectively. The increased use of indigenous renewable resources is expected to reduce India’s dependence on expensive imported fossil fuels.
  • Government support:The government is playing an active role in promoting the adoption of renewable energy resources by offering various incentives, such as GBIs and tax holidays.
  • Climate change: The National Solar Mission aims to promote the development and use of solar energy for power generation and other uses, with the ultimate objective of making solar energy compete with fossil-based energy options.
  • Increasing cost competitiveness of renewable energy technology: Renewable energy is becoming increasingly cost competitive compared to fossil fuel-based generation.
  • Distributed electricity demand: Renewable energy is a distributed and scalable resource, making it well suited to meet the need for power in remote areas, which lack grid and road infrastructure.
  • Favorable foreign investment policy:The government has created a liberal environment for foreign investment in renewable energy projects.
  • Vast untapped potential:India has abundant untapped renewable energy resources. India also has significant potential to produce energy from biomass derived from agricultural and forestry residues.

Renewable energy sources in India

Wind energy

Wind has emerged as the most promising renewable energy source in India. As of March 2013, the country had an installed wind capacity of 19.1 GW, making it the world’s fifth-largest wind energy producer.

Key challenges

  • Lack of strict enforcement of RPOs is limiting demand for power from renewable energy sources.
  • Weak transmission infrastructure results in only a fraction of generated power reaching the grid.
  • Delays in payment lend financial uncertainty to projects, which dampens investor interest.

Solar energy

Solar energy is a very important resource but is still largely underutilized in India. It currently accounts for only about 0.8% of the total power generation capacity in India.

Key challenges

  • Absence of strict enforceability of RPOs continues to widen the REC demand-supply gap.
  • Solar industry — manufacturers and developers — are divided over anti-dumping duties.
  • A weak rupee is expected to put pressure on project financing in the short term.
  • Uncertainty with respect to some state government policies does not augur well for investor confidence.

Biomass

Biomass is an important energy source that contributes more than 14% of global energy supply. In India, biomass provides fuel for about 32% of the total primary energy consumed and caters to almost 70% of the country’s population.

Key challenges

  • Inconsistent availability of biomass with a reasonable cost structure acts as an impediment for the competitive use of biomass for energy.
  • Difficulty in managing of feedstock chain due to the unorganized nature of the market poses as a concern.

Small hydro

In India, hydropower projects of up to 25 MW capacity are classified as small-hydro power (SHP) projects. Small hydro has the potential to meet power requirements of remote and hilly areas, where the transmission of an electrical transmission grid system is uneconomical.

Key challenges

  • Remote/Difficult terrain and small project size impact project economies adversely.
  • The pace of implementation of SHP projects is slow because of delays in acquiring land and obtaining clearances and approvals.
  • Inadequate grid connectivity also poses a challenge.

Energy efficiency initiatives

The GOI launched the National Mission on Enhanced Energy Efficiency (NMEEE) in June 2010 with an outlay of INR2.35 billion. By 2015, the mission is expected to result in savings of nearly 23 million tons oil-equivalent of fuel in coal, gas and petroleum products.

Key initiatives

  • The PAT scheme is a market-based mechanism to enhance energy efficiency in large, energy-intensive industries (known as “designated entities”). The designated entities are given energy intensity improvement targets.
  • The Market Transformation for Energy Efficiency (MTEE) aims to promote and accelerate the shift toward energy-efficient appliances in the designated sectors through various methods.
  • The energy-efficiency financing platform focuses on creating mechanisms to help finance demand-side management (DSM) programs in all of the select sectors by capturing energy savings.