|November 11, 2006|
India: Renewable Energy Market
|India is becoming the world's most attractive market for Renewable Energy (RE) investment, displacing Germany in the top three markets. India's rise has been precipitated by excellent national and regional government support for both foreign and local investment in renewable technologies. Consequently, rapid growth is expected to continue in this market. |
The installed RE capacity in India, currently at 8,000 Mega Watts (MW) is forecasted to reach 20,000 MW by 2012 - twice the government's target. The market in India for RE business is estimated at $600 million and is growing at an annual rate of 20 percent. The total investment in RE business is estimated to be about $3 billion. India has one of the world's largest programs for RE, covering all the major sources such as solar, wind, small hydro and biomass. The new RE policy of the Government of India is expected to further boost the growth rate of this sector.
The growth pattern of Gross Domestic Product (GDP), which started with 4.4 percent in 2000-01, grew to 8.1 percent during 2005-06. According to market analyst, S.K. Sharma, there is a direct correlation between GDP and energy consumption. In the present economic scenario in India, there is a serious gap between the demand and available supply of energy. As a consequence, India needs to increase the energy supply to sustain economic growth levels.
The Indian Renewable Energy Development Agency Limited (IREDA) was established in 1987 as a non-banking financial company under the administrative control of the Ministry of Non-Conventional Energy Sources (MNES) to provide term loans for RE projects. In a major step, financial product lending rates for wind energy projects have been reduced by 150-200 basis points. It should be noted that the spread of various RE technologies has been aided by a variety of policy and support measures by the government.
The key drivers for RE demand in India are the large untapped power generating potential, a huge demand-supply gap in the power sector and an urgent need to strengthen India's energy security, reducing India's dependence on international fuel sources. In addition, India seeks to provide rural electrification solutions as evidenced by the Ministry of Power Accelerated Rural Electrification Program, which targets 100,000 villages).
The major sectors in RE include:
Solar water-heaters and solar photovoltaic systems for decentralized power supply are fast becoming popular in rural and remote areas. More than 700,000 photovoltaic systems generating 44 MW have been installed around India. Under the water pumping program, more than 3000 systems have been installed thus far.
Solar Photovoltaic Systems (SPV)
SPV's are installed all over India for use in different applications- mainly for home lighting, street lighting, solar lanterns and water pumping for irrigation. Over 17 interactive SPV grids generate more than 1,400 Kilo Watt (KW), are in operation in eight states in India. As the demand for power grows exponentially and conventional fuel based power-generating capacity grows arithmetically, SPV based power generation is a potential energy source, which could be utilized to meet the expected energy shortfall.
The solar photovoltaic program of the Government of India is one of the largest in the world. While the rest of the world has progressed tremendously in the production of basic silicon monocrystalline photovoltaic cells, India is lagging far behind. The Government of India (GOI) has offered incentives to encourage more SPV installations. These include no excise duty for manufacturers, soft loans to users, intermediaries and manufacturers and low import tariffs for several raw materials and components.
Solar Cookers and Water Heaters
The government has been promoting box type solar cookers with subsidies for quite some time with the hopes of saving fuel and meeting the needs of both the rural and urban populace. There are community cookers and large parabolic reflector based systems in operation in some places in India. A conservative estimate of the amount of solar water heating systems installed in the country is over 475,000 sq. meters of conventional flat plate collectors. To date, the largest users of solar water heaters are co-operative dairies, chemical and process units, hostels, hospitals, textile mills, process-houses and individuals.
India is emerging as a new destination for developing non-conventional sources of energy with wind power in particular focus. India is the fifth largest wind power producer in the world having an installed wind power capacity of 1167 MW. A significant number of Indian manufacturers today are making suitable changes in their business models to include power generation facilities utilizing wind energy.
India's Wind Resources Assessment Program (WRAP) is being implemented to study wind energy potential and is one of the largest programs of its kind in the world. Altogether, 13 states in India have a net potential of about 45,000 MW - but only 1,870 MW power generating capacity is installed so far. States with high wind power potential include Tamil Nadu, Gujarat and Andhra Pradesh. MNES has already identified 208 potential sites with the planned implementation of 65 MW demonstration projects at 30 locations.
Small Hydro Power
With numerous rivers and their tributaries in the country, the Small Hydro Power (SHP) sector presents an excellent energy opportunity with an estimated potential of 15,000 MW. About 10 percent of this has been exploited so far. Over 2,000 MW capacity is being offered to the private sector producers by different states. The Ministry of Non-Conventional Energy Sources (MNES) has a database of 4,233 potential sites with an aggregate capacity of 10,071 MW for projects up to 25 MW. MNES has implemented the United Nations Development Program/Global Environment Facility (UNDP/GEF) Hilly Hydro Project for optimizing development of SHP projects in the Himalayan and sub-Himalayan regions.
Biomass potential exists in many villages in India and needs to be tapped intelligently to provide not only electricity to homes, but also to power irrigation pumps for farming purposes. More than 2000-4000 gasifiers are estimated to have been established with a capacity in excess of 22 MW-55 MW. IREDA is actively assisting in the installation of additional biomass gasifiers.
Biomass and Cogeneration
According to industry analysts, potential for bagasse-based cogeneration in major sugar producing states in India is 3,500 MW. A capacity addition of 118 MW by biomass power/cogeneration projects in 5 states was achieved against a target of 160 MW between April and December 2005.
Bio-Fuel and Ethanol
The government has passed laws requiring oil companies to mix bio-fuel with high-speed diesel fuel. Bio-fuel promises to replace some of the fossil fuel that make up a significant portion of India's import bill. The goal is to generate around 30--40 million tons by 2030, accounting for 20 percent of transport sector fuel needs. With the government's alternate fuel program for mixing petrol with ethanol set to go national from November 1, 2006, experts feel that the next stage is making alternate fuels and hybrid technology for automobiles commercially viable. Ethanol suppliers, comprising distilleries and sugar companies, have been mandated to supply ethanol to oil companies for blending with petrol.
Energy from Waste
The potential exists for generating about 15,000 MW of power from urban and municipal waste and about 1000 MW from industrial waste in India.
The market in India for RE business is estimated at $600 million and is growing at an annual rate of 20 percent. Total investment in RE business is estimated to be about $3 billion. Power generation systems producing 5,000 MW have already been installed around the country. India is the third largest producer of silicon solar cells in the world. The installed RE capacity in India, currently standing at 8,000 MW is forecasted to reach 20,000 MW by 2012. The government of India has plans to add 100,000 MW generation capacities by 2012.
India has one of the world's largest programs for deployment of RE products and systems and companies can take advantage of this huge market. There are many opportunities available for companies to offer their expertise and equipment for solar PV systems for remote areas. India imports silicon material, wafers, solar cells, raw materials and components (solar cells, modules and PV systems).
A 140 MW integrated solar combined cycle power project in Rajasthan will be the first of its kind and among the largest in the world with an investment of nearly $98 million. Companies must explore the possibility of participating in this project.
Wind power has the greatest RE generating potential in India. Financial services providers can safely invest in this field with potential for a good profit margin. Opportunities also exist for component manufacturers to become suppliers to wind equipment manufacturers. There is a huge demand for wind-turbines and windmill blades, which generate cheap eco-friendly energy. Foreign Direct Investment (FDI) is allowed in the fields of resource assessment, renovation and modernization of existing projects. Companies have the opportunity to establish turbine-manufacturing facilities by investing in joint ventures.
The principal end-user groups driving demand of the RE market in India are the central government and state government departments engaged in the promotion and development of the RE programs. The central government and the state agencies, along with NGOs, are the net buyers of the equipment needed for Accelerated Rural Electrification Program. Sugar mills and bio-fuel producers buy ethanol making plants, machinery and equipment. Bio-fuel producers are the buyers of the equipment used in crushing jartropa and karanj seeds. The state governments of Himachal Pradesh, Jammu and Kashmir, Arunachal Pradesh, Uttranchal, Sikkim, Assam and Mizoram are prospective buyers of turbines needed for electricity generation.
In the private sector, companies owning wind farms are important buyers of wind turbines and blades. Hospitals, hotels and processing units are the principal buyers of PV systems, solar cookers and dryers.
To encourage the growth of RE technologies, the private sector has been identified as one of the major driving forces for the promotion of RE technologies in India. IREDA has been able to mobilize financial resources globally, particularly from the World Bank and the Asian Development Bank. A host of fiscal incentives and facilities are available to both manufacturers and users of RE systems including a 100 percent accelerated depreciation for tax purposes in the first year of installation of projects/systems, no excise duty on the manufacture of most finished products and a low import tariff for capital equipment, components and materials. In addition, as a major incentive to the RE industry, the government has declared a 5-year tax holiday for power generation projects. It is reported that Reliance Industries Limited, the largest Indian company is planning to build a new corporate headquarters (Reliance Retail) that is expected to run on solar power.
While RE industry in India is an exciting growth area with significant opportunities, there are number of local and international competitors. Companies face stiff competition from Germany, Netherlands, Belgium, Denmark and Spain. Obtaining up to date information on market dynamics is important, given the fast developing nature of the RE industry and the continuing introduction of new technologies. For those companies with well-established products, finding an Indian distributor or sales agent may be the most economical strategy.
Excerpted from "Renewable Energy in India", US Commercial Service, October 2006.