Editorials

Green Power Trading: An Innovative Move To Incentivize RE-Friendly States

According to recent news paper reports, the government is thinking through a Renewable Energy Certificate (REC) mechanism aimed at evolving green power as a tradable commodity to promote inter-State sales of clean energy. The ministry is reportedly in the process of hiring consultants for the development of a REC mechanism on the lines of “green tags” used in the UK and US.

The green-tag initiative follows firming up of Renewable Purchase Obligation (RPO) by several State Electricity Regulators, thereby making it mandatory for all distribution utilities to source a minimum quantum of electricity annually from renewable sources. While States such as Tamil Nadu and Karnataka have already approached the 10 per cent mark for renewable procurement (as prescribed under the RPO), many states are not procuring even 1 per cent of their obligation.

The certifications would essentially create a nationwide market for renewable energy, enabling renewable deficit States to tide over their RPOs and spur higher green power generation in surplus States.

The green tags have been in use in the US for several years now where Renewable Certificates (TRCs) of 1 MWh of electricity are commonly traded. A certifying agency gives each certificate a unique identification number to make sure it does not get double-counted. In the UK, the Renewables Obligation (RO) places an obligation on licensed electricity suppliers to source an increasing proportion of electricity from renewables.

This is a welcome move as the initiative is likely to encourage states  to generate more renewable energy. 

CERC (finally!) draws a roadmap for promotion of RE... 

After the State Electricity Regulatory Commissions (SERCs) set the tariffs for renewable energy and fixed the RPOs, it is now the Central Electricity Regulatory Commission (CERC) which is taking a lead. The Commission issued a discussion paper on “Promotion of Co-Generation and Generation of Electricity from Renewable Sources of Energy” on May 16, 2008 wherein it urged for “the removal of road blocks in setting up of power plants based on non-conventional sources of energy as also in sale and wheeling of the power generated from such sources, with the objective of augmenting availability of power in grid”, reiterating that “all possible routes for sale of power generated by non-conventional plants be opened up”.

The various modes for sale/utilization of non-conventional electricity highlighted in the paper include:

·   --  Sale to the host distribution licensee or an authorized state entity, as per tariff and terms specified/approved by the concerned SERC.

·   -- Sale to a distribution licensee or an authorized state entity in another state, as per tariff and terms specified/approved by the SERC of that state. 

·   -- Wheeling to an associated entity, as captive generation. 

·   -- Sale to any consumer, in the home state or elsewhere, subject to the regulations made under section 42(2) of the Act. 

·   -- Sale to the host distribution licensee or an authorized state entity, as Unscheduled Interchange (UI). 

·   -- Notional injection into the regional grid, as Unscheduled Interchange (UI).

Each of the above modes has been discussed with its pros and cons in the discussion paper.  The focus of the discussion paper is on finding solutions to the various problems presently being faced by the developers of renewable energy generation plants and providing them number of options regarding sale of their output.  The suggested solutions seek to take care of the concerns of the investors as well as of the local utility whose cooperation is considered crucial to granting of grid connectivity and open access to such generators.

    Here are the key points of the discussion paper:-

   -- All possible routes (the six modes discussed in the paper and any other mode which may be developed) be opened up, for the renewable energy developers to choose from.

   -- Small renewable energy plants, output of which could be accommodated on the existing inter-State transmission system, should be exempted from all inter-State open access charges, e.g. transmission/wheeling charge, scheduling fee, etc. 

   --  Only a reactive energy charge may be applied by the host utility, as per the reactive charge scheme specified in Indian Electricity Grid Code (IEGC), but there should be no other charge, e.g. standby

       charge, grid connection charge, etc. 

   -- Renewable Energy Plants may not be asked to reduce generation in any time block during a day as long as supply is within contracted plant capacity and there is no transmission constraint.  This is to

       accommodate the non-despatchable nature of many renewable source based power generation systems.

   -- For suppliers of such energy to the utility within the same State, State Transmission Utility may provide access without any charges.

   -- Any further encouragement that may be specified/offered by the State Regulatory Commission and State utilities would also be welcome.

The Commission had earlier engaged TERI as a consultant to suggest an approach paper on “Pricing of Power from Non-Conventional Sources”.  The Commission has proposed that while the State Commissions have already done considerable work on tariff for renewable energy, the report submitted by TERI can also be considered by SERCs as a reference document.

The discussion paper is available at CERC website and comments can be sent by June 16, 2008.

  Are We Close to Solving the “Holy Grail” of Solar Energy?

  “I would put my money on the sun and solar energy. What a source of power! I hope we don’t have to wait till oil and coal run out before we tackle that” said Thomas Edison, the inventor of the light bulb. His wish may soon come true. The much-hyped new technology using molten salt to store solar energy could very well be the inflection point in the global solar energy industry. Though the concept is still evolving, if scientists are to be believed we may just be very close to solving the “Holy Grail” of solar energy – the storage problem.

SolarReserve, a company created through partnership between the US Renewables Group and aerospace parts maker Hamilton Sundstrand Corp., plans to implement large-scale solar power generation, with a single tower capable of producing up to 500 megawatts of peak power. The company plans to build solar power towers filled with a mixture of sodium and potassium nitrate salts. The technology, known as solar thermal, may have an efficiency of up to 40%, whereas solar cells' average commercial efficiency is only about 20%. During the day, the solar thermal towers would gather enough sunlight to melt the salts, which are stored until more energy is needed. Then, the molten salt could be used to heat water that operates a steam turbine, which generates electric power.

The researchers say that using molten salt for energy storage is advantageous over using water as in a conventional hydroelectric plant, since it is more predictable than water reserves and can release energy on demand. SolarReserve plans to have its first solar plant complete by the end of 2010.

The promise looks great. Just hope that this is not another one of those concepts that remains buried in academic papers or stays confined to pilot projects!

Government Takes First Stab At Standardizing Carbon Trading… Industry However Remains Skeptical…

Is this good news or bad, only time will tell; but the government has finally woken up to standardize carbon trading in India. A new set of norms to enable transparent accounting of the increasing number of carbon credits earned by Indian companies, which are presently classified as other income, is being written by the Institute of Chartered Accountants of India (ICAI).

The new ICAI norms will make it easier for banks to provide credit for such projects. Such norms are much needed if India aspires to beat China in the CDM game. Currently most companies show earnings out of carbon credit trading as other income as they are not recognized by tax laws. Once an accounting standard is defined, companies will have to show these earnings separately.

Hopefully, this is just the starting point in CDM-Project reforms.

The industry has been asking for the favorable tax regime for CDM projects. Industry captains feel these instruments should not be taxed as CDM gives certificates to discourage emission of greenhouse gases and therefore, earnings from carbon credit are for a bigger cause.

Some sceptics fear that once standardized, the government may decide to tax incomes earned through carbon trading as capital gains tax or even securities transaction tax if they are treated as instruments similar to equity shares. This will be unfortunate, as it may discourage companies to explore the CDM option.

India and China lead countries in earning carbon credits. According to government statistics, around 35% of the total 819 projects registered by the CDM executive board are from India, the highest in the world. The Indian National CDM Authority has given host country approval to 753 projects, facilitating investments of more than Rs 630 billion. The CDM executive board only considers projects approved by the host country. These projects, which are in the sectors of energy efficiency, fuel switching, industrial processes, municipal solid waste, and renewable energy, have the potential to generate 421 million CERs by 2012.

Let us hope this is the first step towards encouraging CDM trade rather than stifling a nascent business opportunity for Indian corporates!

Caution on Biofuel Use…

At his recent speech at the European Parliament, Dr Pachauri highlighted an important interplay between energy and food security. He referred to the increased global push to develop biofuels, and its potential impact on food supplies. Though he mainly cited the US policy of converting corn (maize) into ethanol for use as a transport fuel, his comments are very relevant to the existing scenario in India as well. Even the United Nations Food and Agriculture Organization (FAO) has warned that diverting food crop land to extensive cultivation for biofuels would damage biodiversity and lead to a serious threat to food security.

Now, where does India stand in this biofuels debate? There is already food deficit. Statistics highlight that last year the country imported food, and this year we are likely to follow suit. Besides, there are commitments to maintain a certain reserve quantity; then there are policies like PDS programs, food-for-work programs, mid-day meals, that need to be sustained. More alarming is the forecast that food prices will increase by 20 to 40 per cent in the next decade. Any attempt to divert land for bio-fuel depends upon the energy inputs, cost of production and environmental impact.

It may be argued that the country’s choice of jatropha is ideal as it can be cultivated in wastelands. The expectation is that 98 million acres of wasteland can be brought under jatropha cultivation to reduce 20 per cent of the country’s diesel consumption by 2011. Another argument in favor of jatropha by the proponents is that little attention and inputs are required. These are mostly estimates though. There are very few detailed studies on this issue thus far.

Dr Pachauri’s "words of caution" point to the fact that we need to assess our current plans on biofuels and draw up a policy and a strategy keeping India’s socio-economic scenario in mind. Our biofuel policy, whenever it takes shape, has to keep in mind the food security issue.

The central government and the high-level planners need to think hard on the biofuels option in India…

Kudos to MNRE for its Solar Energy Initiative

As political parties prepare for another round of animated (and hopefully productive) debate on the pros and cons of the India-US  nuclear deal, I want to draw attention to the recent positive efforts of the MNRE towards developing the solar energy sector in India.

In an effort to provide electricity to rural households in the country, the ministry of new and renewable energy (MNRE) has decided to provide a generation-based incentive of Rs 12 per kilo watt hour for electricity generated from solar photovoltaic and a maximum of Rs 10 per kWh for electricity generated through solar thermal power plants and fed to the grid from a grid interactive solar power plant of 1 mega watt and above. The grid interactive power plants will be set up on build own and operate model. Each state would be allowed to add 10 MW aggregate capacity under the government's scheme.

The ministry has decided to provide these incentives in view of high capital costs of developing solar energy projects. Unit cost of generating electricity from solar photo-voltaic systems is pegged at Rs 15 per kilowatt (solar photo voltaic power). Though this scheme does not put to end the debate on economic viability of solar energy projects (especially SPV), it certainly makes a case for commercially developing such initiatives.

The largest photovoltaic plant in the country so far is about 200 kWp capacity. India receives solar energy equivalent to 5,000 trillion KWh per year. The daily average of solar energy received over different parts of the country varies from 4-7 kWh per square meter depending on the location.

Hopefully this scheme will improve incremental capacity addition in the solar energy arena.

Is CDM Mechanism Really A Blessing?

Conventional wisdom in India on CDM-based funding is that it is the best thing to happen to the Indian renewable energy arena, as the projects (mainly solar, wind, small-hydel, waste-heat conversion, aforestation, energy efficiency, cogeneration, etc.) now have another source of funding through CDM. The NGOs are gung-ho on the concept, the ministry is bending backwards to ensure we have a smooth process to bring “carbon money” to India, the financial institutions are more-than-ready to structure such projects.

But lately there is some “murmur” questioning the ethics around the CDM mechanism. Why should developed countries (such as US, EU and Japan) continue to contribute more than their share of global carbon emissions by buying ‘cheap’ carbon credits in developing countries? At best they should trade emissions among themselves!

According to a recent study, the annual per capita energy consumption in India is 0.53 tons of oil equivalent per person, and the average per capita electricity consumption in India is about 450 kWh per year — less than 1/5th of the world average and 1/30th of the US average! The volumes of certified emission reductions of carbon dioxide (CERs) recorded annually by the UNFCCC (UN agency regulating the emission reduction) are 174 million tones; and the price for CERs is “engineered” at less than $20 per CER. Researchers indicate that if the developed countries had to meet their Kyoto targets, the economic cost incurred by the US would be $32 billion, by the EU would be $14 billion and for Japan it would be about $6 billion. This would indicate costs of reduction ranging from $41 to $55 per ton of carbon-di-oxide. This is more than double the existing price of the CERs!

India (along with China) is actively participating in CDM activity with approx 300 projects with 28 million CERs registered per year. Most of these projects allow the industrialized countries to pick up the low hanging fruits at the cheapest price.

In effect are we allowing the developed countries to keep polluting the climate by selling our carbon credits? And, are we making enough money in the process?

Net net, is promoting CDM a smart opportunistic move or poor judgment?

  Venture Capitalists Plan to Flex their Muscles in the RE Sector...

  After floating niche funds for technology, real estate and infrastructure, venture capital (VC) funds in the country are now flexing their muscle in the renewable energy terrain,

  and evaluating exclusive funds for green technology.

According to Dow Jones Venture Source report, venture capitalists invested $928 million in 80 deals in India in 2007. Only a small fraction of the funds however reached the clean energy sector. Notable investments include UTI Ventures’ investment of $8 million in Pesco Beam Environmental Solutions, a company involved in waste-oil recycling and alternate energy systems; and IDFC Private Equity’s investment of Rs 35 crore in Ahmedabad-based Doshion, a water management firm.

Year 2008 is however likely to be different. Industry analysts predict that at least a few small green-technology funds, with fund sizes ranging from $20 million to $100 million, are likely to come together this year. Some of the most promising research in renewable energy is in wind generation and solar thermal.

Both Lightspeed Venture Partners and IDG Ventures are interested in investing in renewable energy or green technology companies. Kleiner Perkins Caufield and Byers or KPCB, the venture capital firm that has backed companies such as Amazon.com, Google Inc. and Sun Microsystems Inc., too wants to actively invest in clean-technology companies in India. Canaan Partners had also earlier shown interest in investing in green technology companies.

Some other prominent tech-specific funds are Helion Venture Partners, NEA-IndoUS Venture and Intel Capital. Infrastructure-specific funds include 3i Group, and state-run India Infrastructure Finance may also become active in the clean energy terrain.

So is VC-funding going to be the next-big-thing in RE financing?

The 2008-09 Budget Gives Renewable Energy Sector a Pass!

The 2008-09 Budget is as expected – for the masses. This “typical election year Budget” gives renewable energy sector a pass. Finance Minister’s (FM’s) announcements that may “obliquely” however influence the renewable energy sector and climate change arena include:

Marginally more outlay for renewable energy-based infrastructure projects. FM has proposed to raise the corpus of Rural Infrastructure Development Fund-XIV in 2008-09 to Rs 140 billion. The Government has also approved the continuation of the Rajiv Gandhi Grameen Vidyutikaran Yojana during the Eleventh Plan period with a capital subsidy of Rs 280 billion. The FM has proposed to allocate Rs 55 billion in 2008-09 for the Yojana.

Focused institutional mechanism to promote clean technologies. FM hints at a "common but differentiated responsibility" to promote clean technology products, review fuel emission and efficiency regulations, replace wood by solar as the fuel of common use, encourage use of gas which is the most benign hydrocarbon, set up a trading platform for carbon emissions, and build sustainable greenfield cities.

“More efforts” towards evaluation of the climate change impact. According to the FM, work is in progress to appoint an expert committee to study the impact of climate change on India and identify measures that the Government may have to take in the future ( this was incidentally promised in the last Budget Speech as well!)

Possible impact in customs duty on some project imports. More clarity is needed on this announcement as the FM has proposed to reduce the customs duty on project imports from 7.5 per cent to 5 per cent, while also proposing to impose a 4 per cent special CVD on a few specified projects in the power sector.

All in all, nothing to celebrate for the renewable energy sector…