Drivers for Growth of Renewable Energy in India

The following drivers indicate that the growth of the RE market in India is likely to be significant and the market fundamentals for investors could be long and enduring.

 

Access to Energy

The Government of India’s commitment to provide electricity to predominantly rural India will drive the growth of off-grid RE technologies. By early 2007, 44% of Indian households still lacked access to electricity and less than 30% of rural Indian households had access to residential water, primarily due to lack of energy for motive power. There is a current electricity energy shortage of 8% and a peak demand shortage of 11.6%4, with increases in energy requirements projected at 6% per annum and electricity consumption at 7.6% per year and peak demand projected to increase by 77% by 2012. To meet this demand, power generation capacity would need to increase by 2.5 current levels.

 

Energy Security

The central government has undertaken a strategy to diversify its energy mix to address energy security and RE is assuming an increasingly significant role. India imports approximately 75.5% of its oil, and the International Energy Agency, projects that India’s dependence on oil imports will grow to 91.6% by the year 2020. Energy demand has outstripped domestic production, and India has become a major buyer of energy. Despite doubling its generation capacity over the past decade, India is unable to meet current energy demands. In 2004, India was the 3rd largest importer of ethanol and the 5th largest consumer of energy globally. India currently imports roughly 2.5 million tons of coal annually and is expected to increase coal imports to 7 million tons annually over the next few years.

 

Environmental Degradation

In addition to the environmental impacts associated with resource extraction, the emissions of conventional fuel production have contributed to the global issue of climate change. India, like many other developing nations, is facing challenges with severe air pollution, limited arable land, and water quality issues. These types of environmental concerns lend additional motivation for cleaner sources of energy production.

 

Policy targets

The Government of India (GOI) has set an aggressive target of electricity for all by 2012, with an objective to add 10,000MW in RE capacity and source 10% of total power capacity from renewables. In 2006, the Indian President, Dr. A.P.J. Abdul Kalam announced a target of energy independence by 2030 and an increase in RE contribution from current levels of 1-5% to 25%.By 2006, India’s Integrated Rural Energy Program using RE had served 300 districts and 2200 villages.

 

Resource availability

India averages 300 clear and sunny days per year, has an installed wind capacity of over 7,000 MW, 3.8 million biogas plants, and 15,000MW small hydroelectric capacity. India is the 4th largest producer of wind power, 5th largest producer of energy from commercial biomass and small hydro and ranks globally in the top 5 countries with maximum RE power capacity.

 

Human capital

India has the human resources to draw on to enable the growth of a new industry based on RE technologies. For example India has a significant amount of engineering students with 464,743 graduating in 2004-05.

 

Leapfrogging Opportunities

If IP rights are enhanced, India can position itself to adopt the world’s best technology as it builds its future energy infrastructure leading to opportunities for RE technology transfer and leapfrogging as new systems are commissioned, invested in and installed.

 

Health concerns

Health issues are increasingly becoming a driver for uptake of RE technologies. In 86% of rural households, traditional biomass is the primary cooking fuel, and India experiences the largest number of indoor air pollution related health problems in the world with 500,000 deaths each year, primarily women and children who have the greatest risk and domestic exposure.

 

The Sustainable Development imperative

Affordable energy has been linked to indicators of human development, and access to energy and electricity can increase access to education, reduce indoor air pollution, provide energy for medical equipment and storage, provide water and sewer services, create jobs, stimulate micro-enterprise, reduce poverty and increase life expectancy.

 

Growth of the Carbon market

India, as a non-annexure I country under the Kyoto Protocol, is eligible for carbon revenue through the Clean Development Mechanism (CDM). India is currently the world leader in development of CDM projects with a large potential for renewable energy generation from agriculture wastes, hydro and wind.

 

Market Opportunities

At the end of the third quarter in 2006, India ranked 3^rd in the Ernst & Young Country Attractive Indices, which ranks countries based on RE markets, infrastructures and their technologies and 4th in the E&Y Renewables Infrastructure Index. The International Energy Agency (IEA) predicts $16 trillion of investment inflows in the energy sector until 2030, $8.1 trillion of which is predicted to flow to developing economies to meet energy needs. Though there are some mature RE technologies, such as wind, India remains in a position to undertake technology collaborations, import mature RE technologies and processes to fill technology gaps, and scale up current production through both domestic and international investment.

 

Government Programs

India has a dedicated Ministry of New and Renewable Energy (MNRE) and a number of ministries have taken on specific renewable technologies to develop and support.

 

 

 

Many resource assessment programs have been implemented or are slated as future projects, including:

Wind Resource Assessment Program (WRAP),

National level Biomass Resource Assessment Program (NBRAP),

and Solar and Wind Energy Resource Assessment(SWERA).

RE specific research institutions have emerged

Centre for Wind Energy Technology (CWET) for wind,

Solar Energy Centre (SEC) for solar,

and National Institute for Renewable Energy (NIRE) for bioenergy.

What is Clean Technology?

It refers to any product, service or process that delivers value using limited or no nonrenewable resources and/or creates significantly less waste than conventional offerings .Area of focus of the Clean Technology sector include energy, water, agriculture, transportation & manufacturing where the technology creates less waste or toxicity

Sectors of application:

Renewable energy technologies

Wind Energy, Hydro energy, solar energy, energy from waste

Environmental Management

Water Filtration, Industrial Air Pollution, Effluent treatment from Industries, Vehicular Pollution, Waste water treatment/ solid waste management

Technologies/ processes to improve the energy efficiency in households/ Industries

 

Clean Technology in Indian Context

Increasing focus on Environmental Management

Deterioration in Air quality due to vehicular emission & untreated Industrial smoke

Particulate Matter in major Indian cities >10 times the legal limit

Only 7% of the solid waste is treated

While 20% of waste is recyclable, 35% compostable, 35%-40% inert

Regulations pertaining to air and water pollution levels forcing industries/ government bodies to adopt cleaner technologies to meet the legal norms

Energy Uncertainty

Overdependence on coal & oil as a source of energy more than 90% of India’s energy requirement being met through Coal & Crude Oil

Carbon emissions in India has grown by 65% over the past five years (2nd highest growth next only to China)

Technological Advances

Innovations in microelectronics, biology, chemistry & physics have improved performances of clean technologies

Sustainable Development imperative

Recognizing the need to balance the environmental, economic and social interests

Through adoption of clean, affordable, and resource efficient technologies

Changing Political winds

Recognition by the Governments that future competitiveness is directly linked to being more resource efficient

….And Most importantly….

Vast new business opportunities presented by the Cleantech revolution

Forward seeking entrepreneurs coming ahead to develop and commercialise many clean technologies

Trend driven by improvement in technology leading to decreasing costs

More and more projects becoming commercially viable vis-à-vis conventional Technology

Specific opportunities exist in the following sectors

Industrial Pollution Abatement

Renewable Energy

Water Supply & Sanitation

Environmental monitoring & measuring

 

How big is the business opportunity in greentech today? Are there any estimates about the Indian market?

 

The cleantech markets may dwarf the IT markets by orders of magnitude

                         —$trillions versus $billions.

 

For sustainable India’s growth story to continue, India needs two things

                        — Energy and Human capital.

 

The government has recognized this and has aggressively invested in both these sectors. There is a great opportunity for public-private partnerships to foster innovation and move India to the forefront of cleantech. And India could do the same in the energy sector as it has done in the telecom sector. India leapfrogged generations of technology in the wireless telecom infrastructure.

Clean Technology Investing

Cleantech, or clean technology, investing seeks sustainable investments in environmentally friendly companies that work to improve their operations, performance, productivity and efficiency while lowering their costs, energy consumption, inputs, waste or pollution. Clean technologies can lower a company’s environmental impact and may provide improvements in resource efficiency and productivity. When a company operates with less energy and materials, or produces less waste, the result can create more economic value for the company and its shareholders.

Cleantech is currently clustered in six industry sectors: energy, water and waste water, advanced materials, energy efficiency and manufacturing, transportation, and agriculture. The largest of these sectors is energy and can range from biodiesel, clean coal and fuel cells to wind and solar energy.

 

Energy
Interest in clean energy is driven by sustainability issues, oil depletion and energy security concerns. Political decisions, like the Kyoto Protocol and concerns about global climate change, are also increasing interest in this sector. Within the energy sector there are many different subsets of clean energy including solar, wind and biofuels. Finally, the rising interest in clean technology energy arises from the increased recognition that costs can be significantly reduced if energy efficiency is addressed.

Solar Power

One option for clean technology is solar power and, although it is not yet as widely used as hydro power, this may change because hydro is limited by the finite nature of suitable dam sites, and political restrictions on available supplies of water. Solar power obtains usable energy from sunlight. Solar energy is used in a number of applications such as heat and electricity, and is very attractive because it is plentiful and virtually pollution free. Despite these advantages, however, solar power is still expensive when compared to grid electricity. Even with the recent boom in solar power investment, the industry remains dependent on government incentives. With economies of scale from widespread use, this energy may become more competitive.

Wind
Wind power is the conversion of wind energy into more useful forms, usually electricity. Global wind power generation more than quadrupled between 2000 and 2007, but is still a small part of total energy use. Wind energy is a renewable and clean source of energy, but this energy source can be intermittent because the wind is notoriously inconsistent. Wind energy is therefore unlikely to grow to be more than a supplemental source of energy and, although wind power is expected to grow quickly, solar power remains the more attractive investment because of its high growth rate, better profit margins and wide range of investment options.

Biofuels
Biofuels are derived from biomass, recently living organisms or their metabolic byproducts, such as manure from cows, corn and soybeans, sugar cane or palm oil. This is a renewable source of energy and is a form of stored solar energy. Plant matter used as a fuel can be constantly replaced by replanting and a reasonably stable level of atmospheric carbon can result from plant matter used as a fuel. However, biomass use can still contribute to global warming – this happens when the natural carbon equilibrium is disturbed such as in deforestation.

The drawback to relying on biofuels, however, is that it puts pressure on grain costs and water supplies, which can dramatically increase the cost of raising livestock. This means that alternate feed stocks, such as switchgrass and algae, must be found.

Geothermal
Geothermal is another energy source that is viewed as sustainable because it is provided by the vast heat of the earth, only a very small fraction of which may be enough to meet the world’s energy needs. This source of energy will require technical innovation before it can be widely used.

There is also a central issue that may be the force that drives the technology in one direction or the other: centralized versus decentralized energy transmission. Centralized energy generation, such as with gas or coal and nuclear-fired power plants, is subject to detailed and slow-changing regulations. These technologies are very capital intensive, with long lead times necessary to build capacity. Centralized energy plants also tend to have powerful political bases from which to block competitive energy sources. Distributed power generation, such as solar or wind power, tend to react to changing market conditions and new innovations much more quickly. In general, decentralized power sources require less capital and their fragmented nature make them less likely to have a concentrated political foundation.

Water
The cleantech water industry is focused in several areas, especially waste water treatment and general filtration. The world’s water consumption continues to grow as it is used in modern agriculture and industry. Because water is an essential resource and the planet’s natural supply of water is virtually static, it is likely that there will be room for growth in this industry for many years to come.

What is likely to change is the fragmentation of the water industry. This industry has often been compared to the oil industry 100 years ago, which was fragmented and eventually consolidated. The water industry may also consolidate, which could have an impact on investment decisions in this area. As the industry becomes more concentrated, it is likely to seek ways to use waste water plants more efficiently, use chemicals better and use less power.

Other Avenues for Cleantech

Advanced Materials

Advanced materials can yield products that are less toxic, less expensive and more efficient than existing materials. These materials can make products lighter, stronger and cheaper, and can benefit both the environment and a company’s bottom line.

Energy Efficiency/Manufacturing

The best way to make energy is to not use it in the first place. Many green products require fewer natural resources either in manufacturing or during their life span. This means these products will cost less either up front or over the total time period of their use. Examples include fluorescent light bulbs and improved packaging that reduces waste. These products don’t have to be high tech, but the more economic sense they make for consumers, the more likely they are to be adopted. 

Transportation
One of the biggest cleantech success stories in transportation is hybrid vehicles, which combine a conventional engine and a battery-powered electric motor to achieve improved fuel economy and performance. These vehicles are gaining increased acceptance as gasoline prices remain high. Annual  sales of hybrids are expected to grow to more than half a million vehicles by 2010.

 

Agriculture
Cleantech in the agriculture sector ranges from more efficient farming, to micro and drip irrigation that reduce water usage, to natural pesticides. Investments are likely to be driven by cost-effectiveness, regulatory mandates, consumer demand and public interest. For example, organically produced food has grown at close to 20% in the world, while sales of conventional foods have grown 2-3%. At the same time, organic food production has become increasingly regulated so that organic certification is necessary to market foods as organic.

Market Potential for Renewable Energy Technologies in India

The potential for generating power from wind, small hydro, and biomass is estimated to be around 85,000 MW. Only about 11,500 MW has been exploited to date. It is growing at an annual rate of 15%. The major areas of investment are: wind energy, small hydro projects, waste-to-energy, biomass and alternative fuel.

 

Wind Energy

India’s wind power potential has been assessed at 45,000 MW. The current technical potential is estimated at about 13,000 MW, assuming 20% grid penetration, which would increase with the augmentation of grid capacity in potential states. States with high wind power potential are Tamil Nadu, Gujarat, Andhra Pradesh, Karnataka, Kerala, Madhya Pradesh and Maharashtra. About 11.3 billion units of electricity have been fed to various state grids from wind power projects. Almost 80% of the power thus generated has been used for captive consumption, and the rest sold to the grid or to a third party.

 

Small Hydro Power (SHP)

India has enormous economically exploitable and viable hydro potential amounting about 84,000 MW. The estimated potential for SHP is about 15,000 MW. MNRE has a database of 4,233 potential sites with an aggregate capacity of 10,324 MW for projects up to 25 MW. A remaining 5,000 MW is under examination. The states mentioned in table above have announced policies for private sector participation in the SHP.

 

Biomass

500 million tons of crop and plantation residues are produced every year, a large portion of which is either wasted, or used inefficiently. Conservative estimates indicate that even with the present utilisation pattern of these residues and by using only the surplus biomass materials, amounting to roughly 150 million tonnes, about 19,500 MW of distributed power – biomass power generation 16,000 MW and 3,500 bagasse based co-generation- could

be generated.

 

Energy Recovery from Waste

There exists a potential for generating an estimated 1700 MW of power from the urban and municipal wastes, and about 1000 MW from industrial wastes. The potential is likely to increase further with economic development.

 

Biogas

The estimated potential of household biogas plants based on animal waste is 12 million units. The estimated biogas production from these plants is over 3.5 million m3 per day, which is equivalent to a daily supply of about 2.2 million m3 natural gas.

 

Bio-Diesel

In India, the jathropha tree, which produces an oil-rich nonedible fruit, is gaining admirers in the biodiesel world. The tree is drought resistant and considered an optimal source of oil for biodiesel because its fruits bear oilrich seeds. The oil is so pure that it can be used for transportation fuel in diesel-powered vehicles and equipment without extensive refining. The Indian government is providing fiscal and technology inputs to promote Jathropha and Pongamia as high yielding energy crops, especially in arid lands which were unviable for other cropping. These crops are becoming the preferred choice for generation of biofuels as their seeds have high oil content and they also help in improving the overall green cover through reforestation of relatively barren land resources.

 

This competitively priced, green and replenishable fuel offers an opportunity to many Emerging Markets to conserve their fossil fuel and forex reserves while simultaneously promoting sustainable livelihoods across the value chain. As per the estimates released by the Planning Commission of India there is total fallow land of 7400 sq. km. available for such cultivation. This provides a theoretical potential of savings to the tune of USD 357 million in terms of replacement with bio-fuel from currently un-utilised land.

 

Electric Cars

One of the most promising Electric Vehicle (EV) manufacturers is the REVA Electric Car in Bangalore, which has more than 1,000 small electric sedans on the road in India and another 600 in the United Kingdom under the brand GoinGreen. The Electric car produced by REVA is a niche play for urban motorists and commuter, with a top speed of 40 mph and a range of only 48 miles on a charge. But with cities like London, Rome, Athens and other cities offering exemptions from their inner-city driving restrictions and “congestion charges” and free parking to clean-power vehicles and EVs, start-ups like REVA see a big opportunity. The REVA car uses eight 6-volt lead-acid batteries, but its range could expand as lithium-ion and other battery technologies advance.

The market size for Clean Technologies in India

India offers an extremely attractive market for Environmental Technologies, Equipments and Services. The total market size is estimated at USD 5.29 billion in 2007. Since the early 1990’s the market for clean technologies has been growing at an annual growth rate of 15%. The sector-wise market size of Clean Technologies is presented in the Table below:

 

Sectors	Market Size($ billion) as on 2007	Est. growth Rate (%)
Energy Efficiency & Renewable Energy	3.00	15.00
Water & Water Treatment	1.24	6.00
Solid Waste Management	0.41	10.00
Air Pollution Control	0.41	15.00
Environmental Consulting*	0.12	20.00
Hazardous Waste Management	0.10	7.00
Total	5.29	15.00

 Source: U.S. & Foreign commercial service and U.S. Department of State as on 2006

* Providing knowledge based services for implementing environmental initiatives

What Is Green IT?

The Gartner report, “Green IT: The New Industry Shock Wave,” by analyst Simon Mingay, doesn’t provide hard data but instead offers definitions and prescriptions that might prove helpful for companies looking to create a green IT strategy.

First, the report attempts to articulate just what “green IT” means. Mingay acknowledges there is no precise definition, before continuing with the jargon-rich, “optimal use of information and communication technology (ICT) for managing the environmental sustainability of enterprise operations and the supply chain, as well as that of its products, services, and resources, throughout their life cycles.”

The report goes on to define the key words in Gartner’s definition, from “optimal” to “life cycle.” While long-winded, the details—too long to go into here—could aid executives looking to understand some of the buzzwords of the eco-friendly movement.

Finding Appropriate and Practical Actions

Gartner’s attention to detail, while helpful, can also get head-spinningly complex. The real value of the 10-page report is its list of practical tactics for greening a company’s IT program. These include the development of environmental metrics, which Gartner recommends should focus on more than measuring a corporation’s carbon footprint or making PR statements about ambitions to go carbon-neutral by a certain date, à la Google (GOOG) or Dell.

Instead, Gartner advises devising metrics to assess energy use, material selection, supply chain compliance, and staff engagement—as well as carbon footprints. The report doesn’t say what a company should do with these measurements, but the guidelines could prove helpful for those starting from scratch in terms of creating greener IT practices. And the lack of a “one-size-fit-all” prescription indicates companies should find sustainable actions that are appropriate and practical. There are also simple, take-action-now suggestions, such as purchasing devices with eco-labels including the new Energy Star 4 label.

A Broader View

The most complex, and more general, of the two recent reports, is McKinsey’s 107-page document, Reducing U.S. Greenhouse Gas Emissions: How Much at What Cost?. The report is based on two years of research and is the product of the management consulting firm’s U.S. Greenhouse Gas Abatement Mapping Initiative. The project was completed in conjunction with companies such as Shell and Honeywell (HON), as well as various nongovernmental organizations.

Whereas Gartner’s reports concentrated on green IT, the McKinsey report focuses on a broader sense of energy efficiency, to include office buildings as well as devices and products. The authors argue that implementing such energy efficiencies could offset 85% of projected energy demands by 2030. That’s considerably more impact than increasing fuel efficiency in vehicles, replacing industrial equipment and industrial processes that are not energy efficient, planting forests and improving soil, or shifting toward renewable energy sources. Citing projections from the Energy Dept., the report’s authors state that overall energy use in commercial environments is predicted to rise at 1.6% each year for the next 22 years. The energy used in offices full of PCs and power-guzzling devices is expected to grow at twice that rate.

What each of the three reports share is statistics that make it clear reducing expenses is the leading reason corporations are seeking more eco-friendly practices. Forrester’s report, for instance, states that 55% of those surveyed see reducing their energy-related operating expenses as the main reason for pursuing more sustainable IT operations—above “doing the right thing for the environment,” the top motivator for 50% of those polled. In the Gartner report the authors estimate that “potential power cost and CO2 emission reductions of 50% are available” by better managing the power usage of PCs, monitors, and printers—for instance, simply encouraging employees to turn them off.

Going Green Can Mean Dollars Saved

And the McKinsey document, helpful as a macro-view of how the U.S. can adopt more environmentally friendly practices, concludes that corporations, governments, and individuals alike can slash greenhouse emissions 50% from projected levels in 2030 by using technologies that already exist—as well as those in the pipeline. The report also says 40% of the recommended practices would save companies and organizations money too.

In other words, going green can mean dollars saved—clearly a motivating factor for the tech companies already pushing for more earth-saving IT policies, not to mention for those corporations outside the realm of tech that look at such reports to gauge how policies are evolving—and how to emulate them.

Energy 2.0

Just as Web2.0 represents the renaissance of the internet as a playground for innovators, venture capitalists and entrepreneurs, the global energy demand-side crisis has brought energy investing and entrepreneurship back to the spotlight.

 

Energy2.0 thus is this new era in energy, enabled by long-term upward trending energy prices and driven by the beginning world’s second major wave of global industrialization. Just as the 20th century saw the rise in the standards of living in of the first 20% of the world’s population residing in the industrializing Western nations, the 21st will see the rise of the “next 40%” in the burgeoning economies of China and India.

 

There is a new wave of energy emerging that should accelerate in the next few years. It’s called efficiency. The really good news is that it produces a higher IRR for the entire value chain. Each element of the value chain (consumer, generator, distributor, and regulator) makes more money while cleaning the environment.

The signs are everywhere that high energy prices are here to stay and that the way we generate and consume energy will be shift radically in the next decade. Investment in the CleanTech sector is increasing at steady rate. Innovation in energy has returned for the first time since the 70s Oil Crisis.

 

We have undeniably entered a new age of Energy characterized by nationalistic concerns about energy security, record demand levels and prices and desire to address CO2 emissions on global basis. To meet this challenge a new breed of entrepreneurs are emerging, a new generation of financial backers are making bets and the grey hair CleanTech veterans of the 70s are finally having their day in the sun.

Energy 2.0 is here… and every indication is that its here to stay.

 

Clean Technology

Clean technology refers to any product, service, or process that delivers value using limited or zero nonrenewable resources and/or creates significantly less waste than conventional offerings. Clean technology represents a broad range of products and markets including technologies in alternative energy, such as wind or tidal power; advanced recycling technologies; residential and commercial solar projects; smart-grid technologies for the utility grids; electric or hybrid-electric transportation; advanced materials, including biodegradable plastics; water technologies; and alternative fuels, including bio diesel and ethanol.

Clean energy projects continue to receive the most attention in the clean technology space, however the market appears to be expanding into a variety of applications and areas. Areas of focus of the Clean Technology sector include energy, water, agriculture, transportation, and manufacturing where the technology creates less waste or toxicity.

The impact of Clean Technology can be either to provide superior performance at lower costs or to limit the amount of resources needed while maintaining comparable productivity levels. As climate change and carbon taxes have entered into the human consciousness, so too have unique solutions arisen. This broad diversity of technology and seemingly limitless market potential
makes investing ‘green’ a huge opportunity for ‘green.’

The Clean tech can be categorizes into the following 11 segments:

1. Agriculture: Natural pesticides and herbicides, land management, technologies that support organic food and aquaculture.

2. Air & Environment: Cleanup/ safety, emission control, monitoring and compliance, trading & offsets.

3. Energy Efficiency: Lighting, building materials, glass, other

4. Energy Generation: Wind, solar, hydro/marine, biofuels, geothermal

5. Energy Infrastructure: Management, transmission

6. Energy Storage: Fuel cells, advanced batteries, hybrid systems

7. Manufacturing/Industrial: Advanced packaging, monitoring8. Materials: Nano, bio, chemical & other materials with cleantech applications

9. Recycling & Waste: Recycling, waste treatment

10. Transportation: Vehicles, logistics, structures, fuels

11. Water & Wastewater: Water treatment, water conservation, wastewater treatment