Indian Clean Energy Sector: The Power of Future

Sep 19, 2011

Introduction
Energy resources in India have been under severe pressure due to substantial economic
growth in the country, increase in urbanisation, growing prosperity and rise in the per capita
income. The imbalance created in the demand and supply has necessitated the Government to
plan and implement schemes for augmenting energy supplies. In the country, nearly 80 per
cent of the oil is imported, which is an area of concern for the Government with regards to
energy security in the near future. However, renewable energy or clean energy may help
reducing this gap as well as become a major factor in meeting the energy needs of the people
of India.
The growth of clean energy sector in India is immense, as indicated by a recent report by
independent consultants E&Y (Ernst & Young Renewable Energy Country Attractiveness
Indices, May 2011), which ranked India as the third best investment destination in Renewable
energy sector, next only to China and the US. India also permits Foreign Direct Investment
(FDI) up to 100 per cent in the sector under the automatic route in Renewable Energy
Generation and Distribution projects subject to the provisions of the Electricity Act, 2003. In
order to attract foreign investors, the Government has taken several initiatives such as
introducing Generation-based incentive scheme for wind power to promote projects under
Independent Power Producers (IPP) mode. Further, Jawaharlal Nehru National Solar Mission has
been commissioned with 22,000 Mega Watt (MW) target for solar power by the year 2022. The
Government has also launched Payment Security Mechanism for Grid Connected Solar Power
Projects and Renewable Energy Certificate Mechanism and created Amendment in National
Tariff Policy for enabling Solar specific Renewable Portfolio Obligation (RPO).
Power Generation and Capacity
In the previous four years, rapid strides have been witnessed in India with regards to power
capacity addition. The installed capacity increased from nearly 1,32,000 MW in March 2007 to
over 1,81,000 MW in July 2011, at a growth rate of 37 per cent, according to Mr Sushilkumar
Shinde, Minister of Power. Mr Shinde further stated that nearly 40,781 MW was added during
the Eleventh Plan that is double the capacity added in the Tenth Plan.
In India nearly 20,556 MW grid interactive renewable power generation has been installed
which is 11.5 per cent of total power generated that could be installed from all the sources,
according to a release by the Ministry of New and Renewable Energy.
Significantly, solar technologies showcased considerable potential with regards to off-grid
energy generation. Such technologies include solar water heating systems and home lighting
systems that compromises of solar lanterns, solar pumps, cooking systems as well as small
power generating systems. The National Solar Mission has in fact proposed to cover 2,000 MW
equivalent by 2022, expect solar water heating systems for which a separate target has been
set, i.e. 20 million sq. meters.
The renewable power has become a major medium that has augmented the power generation
capacity in the country. As per the Annual Report 2010-11 of the Ministry of New and
Renewable Energy, in the first three years of Eleventh Plan period and during the current year
till January 31, 2011, during the first three years of the Eleventh Plan period and the current
year upto January 31, 2011, renewable power capacity addition has been 8,564 MW, while the
conventional power capacity addition has been 28,529 MW, which corresponds to over 23 per
cent of the total capacity addition. The graph provided below states the break-up of installed
power capacity in the country as on January 31, 2011.
Break-up of Installed Power Capacity (MW) in India as on January 31, 2011

Technology

Capacity Installed
(MW)

Thermal

93,838

Hydro

37,367

Renewabl
e

18,842

Gas

17,456

Nuclear

4,780

Source: Ministry of New and Renewable Energy

The growth of renewable energy capacity in India in the last decade can also be understood
through the below mentioned table. It has been witnessed that around 70 per cent of the total
capacity has been contributed by wind power.
Plan-period-wise Capacity Addition in Grid Connected Renewable Energy Based
Power Generation Installed Capacity
Capacity Addition (in MW)
Resourc
e

Estimated
Potential
(MW)

Wind
power

48,500

Upto
9th
Plan

During
10th
Plan

1,677 5,427

Targets
for 11th
Plan

During
11th Plan
upto
31.01.2011

Total
capacity as
on
31.01.2011

9,000

6,090

13,184

Small
Hydropower

15,000

1,438 538

1,400

977

2,953

Bio
power*

23,700

390

795

1,780

1,488

2,673

Solar
power

20-30
MW/sq.km

50

29

32

12,230

8,584

18,842

3,497 6,761

Total

*Note including biomass power, bagasse cogeneration, urban and industrial waste to energy.
Source: Ministry of New and Renewable Energy
Apart from the grid interactive renewable power, Ministry of New and Renewable Energy has
ambitious programmes for deployment of off-grid/distributed renewable power and
decentralised renewable energy systems for rural applications. The below table provides a
summary of deployment of various systems under these programmes.
Deployment of Off-grid / Decentralised Renewable Energy Systems
S.N
o

Resources

Cumulative Achievements (in MW

upto 31.01.2011)

Off-Grid/Distributed Renewable Power (including Captive/Cogeneration Plants)

Biomass Power / Cogen. (nonbagasse)

274 MW

Biomass Gasifier

128 MWeq

Waste-to-Energy

68 MWeq

Solar PV Power Plants

4 MWp

Aero-Generators/Hybrid
Systems

1 MW

Total

461 MWeq

Decentralized Energy Systems

Family Type Biogass Plants

43.26 lakh

SPV Home Lighting System

6,69,805 nos.

Solar Lantern

8,17,549 nos.

SPV Street Lighting System

1,22,697 nos.

SPV Pumps

7,495 nos.

Solar Water Heating - Collector

Area

3.97 million sq.m.

Source: Ministry of New and Renewable Energy

Indian Clean Energy Market Analysis
Clean energy technologies include renewable energy, hybrid and co-generation, and energy
efficiency technologies for power generation, alternative fuels and advanced technologies for
transportation. Some of the renewable energy technologies that are focussed here are biomass
and biofuels, solar power, wind power, geothermal and hydropower.
Biomass
Plant and plant-derived material is the constituent of Biomass. Some of the sources also
includes agricultural residues such as rice hulls or straw, residue from sugarcane production
i.e. bagasse, coconut shells, wood chips along with energy crops like switch grass or
sugarcane. Biomass could be directly used for production of energy or could be processed into
fuels.
At present the installed capacity for generating power from biomass which includes paddy
husk as well as bagasse based concoction in the sugar mills is around 1,045 MW and 1,742
MW, respectively. According to National Biomass Resource Atlas which has been prepared by
the Indian Institute of Science, Bangalore under a project that is sponsored by the Ministry of
New and Renewable Energy, has estimated that the power generation capacity through
biomass that includes paddy husk would be 17,536 MW. Apart from this, the surplus power
generation capacity of around 5,000 MW from bagasse based cogeneration in the sugar mills
has been estimated.
Notably, the Ministry of New & Renewable Energy has been implementing schemes in the
Eleventh Five Year Plan for encouraging national for setting up projects for generating power
from various biomass residues that includes bagasse as well as paddy husk. The power
generation could be based on combustion/ cogeneration as well as gasification technologies.
Solar Power
Solar technologies convert light and heat from the sun into useful energy. Photovoltaic (PV)
systems convert sunlight to form electricity as well as thermal systems that collects and stores
solar heat received from water and air heating applications.
In a study published by KPMG, a global consulting company, it has been forecasted that solar
power could meet nearly 5-7 per cent of the total power requirement of the country by 202122.
The country has good potential for solar power as the mainland receives energy equivalent to
over 5,000 trillion kWh per year, that is more than the total energy consumption in India,
according to Dr Farooq Abdullah, Minister of New and Renewable Energy. Dr Abdullah further
stated that total installed capacity of grid connected solar power plants as on August 29, 2011
was 45.5 MW.
The Government has also launched the ambitious Jawaharlal Nehru National Solar Mission in
January 2010, that aims at setting up 20,000 MW grid solar power by 2022, in addition to 2,000
MW of off-grid solar power.

Wind Power
Wind power technology helps converting energy from wind into useful power; primary market
for the wind power technology has been from wind turbines, that are able to convert wind
energy into electricity.
In the country, wind power capacity of 565 MW has been installed in the present year (upto
July, 2011) with an investment of around INR 34 billion (US$ 0.7 billion) through the private
sector.
The Government has been promoting wind power projects through private sector investment
by providing promotional and fiscal incentives such as giving 80 per cent accelerated
depreciation or concessional import duty on particular components which are critical for the
production of wind electric generators as well as excise duty exemption to the manufacturers.
Additionally, the government has also provided a 10 year tax holiday on the income generated
from the wind power projects. Further, for installing windmills, loans are available from Indian
Renewable Energy Development Agency (IREDA) together with other Financial Institutions.
Technical support has been provided as well for wind resource assessment by Centre for Wind
Energy Technology (C-WET), Chennai.
Geothermal Power
Geothermal power has been generated by using thermal energy from underground sources,
that includes steam, heat stored in rock formations and hot water.
India has huge potential for becoming a leading contributor for generating eco-friendly as well
as cost-effective geothermal power by the year 2035. The sector is still in a very nascent
stage. However, the country offers various hidden potential through the untapped Himalayan
region or Puga Valley in Jammu and Kashmir or Jalgaon in Maharashtra along with Tapovan.
The world report on geothermal energy indicate that nearly 6.5 per cent of electricity
generation in the world would come from geothermal energy and India would have to play a
bigger role in the coming years in this direction.
Recently it was announced that India's fist Geothermal power plant with an initial capacity of
25 MW will be coming up in Andhra Pradesh's Khammam district by 2012. The countrys first
Geothermal Power Purchase Agreement (PPA) was signed between GeoSyndicate Power Pvt Ltd
(an incubated company of Indian Institute of Technology, Bombay) and Northern Power
Distribution Company of AP Ltd (APNPDC) in this connection.
Hydropower
Hydropower is the conversion of energy embodied in moving water into useful power. It is
estimated that hydropower supplies about 19 percent of the worlds electricity.
In India, only 23 per cent of the total hydropower resources have been harnessed so far,
prompting the Government to acquire an increasing portion of this additional power from the
countrys vast untapped hydropower resources. The energy portfolio of the country depends a
lot on coal-based thermal energy and hydropower only accounts of about 26 per cent of the
total power generation. The Government has therefore set the target for Indias optimum
power system mix at 40 per cent from hydropower and 60 per cent from other sources,
according to the World Bank.
Investment and Financing of Clean Energy

India has been ranked as the third best investment destination in renewable energy sector,
next only to China and the US, according to a report Ernst & Young Renewable Energy Country
Attractiveness Indices, May 2011, released by Ernst & Young.
Wind energy is the fastest growing renewable energy sector and the foreign direct investment
(FDI) inflow in the sector has been increasing over the years. Significantly, an investment of
about INR 49 billion (US$ 1.1 billion) has been received as FDI equity inflows in the renewable
energy sector during the last three years and the current year, till June 2011. The year wise
data has been provided below.
Foreign Direct Investment (FDI) in renewable energy sector (April 2008-June 2011)
Year (Apr-Mar)

FDI
(INR/billion)

2008-09

6.0

2009-10

28.7

2010-11

9.7

2011-12(Apr-Jun)

4.8

Total

49.3

Source: Department of Industrial Policy & Promotion (DIPP)

Further, India expects investments to the tune of US$ 55 billion (INR 2,606.74 billion) by 2015
in the renewable energy sector which is expected to produce 35 giga watt (GW) of power,
according to Mr Debashish Majumdar, Chairman and Managing Director, Indian Renewable
Energy Development Agency Ltd (IREDA).
Private equity investment in renewable energy sector picked up pace in the country from 2004.
Independent Power Producers (IPPs) in this sector appear to provide attractive investment
opportunity for private equity funds as a result of policy and regulatory developments such as
generation-based tariffs, renewable energy tariffs and the national solar mission. Companies
such as Auro Mira Energy, Greenko, Orient Green Power and Green Infra have been cited in the
report as some of the IPPs which received funding from investors such as IDFC PE, Axis PE,
Baring PE and Global Environment Fund.
It is envisaged that a power generation capacity of around 3400 MW (grid-interactive) and 130
MW (off-grid / captive) from various renewable energy sources, mainly wind, solar, biomass
and small hydro, will be added in the country during the current financial year 2011-12. The
same would require capital investment of the order of around INR 290 billion (US$ 6.3 billion),
including INR 145 billion (US$ 3.2 billion) in wind power, INR 25 billion (US$ 0.5 billion) in small
hydro power, INR 30 billion (US$ 0.6 billion) in bio-power and INR 90 billion (US$ 1.9 billion) in
solar power. Additional investment of about INR 10 billion (US$ 0.2 billion) is envisaged in
deployment of decentralised renewable energy systems/devices like biogas plants, solar water
heating systems and SPV lighting systems in remote villages/hamlets.
Corporate Initiatives
Various corporate and multi-national companies are also showing heightened interest in the
clean energy sector in India and have been undertaking various initiatives and investment
plans. Some such initiatives are highlighted under:

International Finance Corporation (IFC), the financial arm of the World Bank, will invest
US$ 15 million (INR 710 million) in Shalivahana Green Energy Ltd, the Secunderabad-based
biomass power firm. The investment will assist the company in developing 200 mega watt
(MW) of biomass power projects.
Reliance Power Ltd (RPower) aims to earn INR 50 billion (US$ 1.1 billion) from carbon
credit from the three ultra mega power projects (UMPP) of 4,000 mega watt (MW) that the firm
is developing.
Tata BP Solar India Ltd, a joint venture of Tata Power and BP Solar, became the first
company to install and commission a megawatt scale solar power plant under the Rooftop and
Other Small Solar Power Generation Plant scheme under the Jawaharlal Nehru National Solar
Mission (JNNSM).
Alstom-led consortium has won a contract worth over INR 18.4 billion (US$ 0.4 billion)
to build India's first variable speed pumped storage hydro power plant.
Birla Surya Ltd, a part of the diversified Yash Birla Group, is set to invest US$ 1.2 billion
(INR 56.8 billion) over five years to set up an integrated facility for fabrication of multicrystalline silicon wafers and the processing of solar photovoltaic cells.
The International Finance Corporation (IFC), a member of the World Bank Group, is
investing US$ 4 million (INR 189 Million) in India's Sapphire Industrial Infrastructures Private
Limited to implement the country's first large-scale grid-connected thin-film solar plant.
Clean Energy Policies
The Governments support for the Indian clean energy sector is also evident in the number of
initiatives announced in the Union Budget of 2011-12 for promoting and developing clean
energy and technologies. Some of the key measures include:

Planned launch of National Mission in hybrid and electric vehicles

Allocations of INR 4 billion (US$ 0.08 billion) from National Clean Energy fund for
speeding up The National Mission for a Green India
The budget of the Environment Ministry increased by around INR 3 billion (US$ 0.06

billion)
Extension of Tax holiday for the power sector by one year

A budgetary provision of INR 12.1 billion (US$ 0.3 billion) has been made for numerous

clean energy programs for the Ministry of New and Renewable Energy
Further, the Government has taken several measures to facilitate private sector participation in
setting up of the renewable energy projects which include the following:

Fiscal and financial incentives for grid as well as off-grid/ decentralized systems, such
as, capital/ interest subsidy/ generation based incentive, accelerated depreciation, nil/
concessional excise and customs duties;
Generation Based Incentives Scheme introduced for Wind power and Solar Power to
attract private investment by Independent Power Producers not availing Accelerated
Depreciation benefit.
Directives under Electricity Act 2003 to all States for fixing a minimum percentage for
purchase of electricity from renewable energy sources;
Preferential tariff for grid interactive renewable power in most potential States
following the provisions made under the National Electricity Policy 2005 and National Tariff
Policy 2006; Uniform guidelines by Central Electricity Regulatory Commission (CERC) for
fixation of such preferential tariffs being issued every year.
Amendment in National Tariff Policy to enable Solar specific RPO;
Payment Security Mechanism for Grid Connected Solar Power Projects under the
Mission;
Wide publicity on the use and utility of renewable energy through electronic and print
media, etc.

During the year 2010-11, the Ministry of New and Renewable Energy took up several new
initiatives to make renewable energy devices and systems reach out to meet the electricity
and energy needs of people in different parts of the country. These new initiatives include:

Solar Mission Operationalised:

The Ministry issued guidelines for new grid projects through NVVN, small grid projects through
IREDA, off-grid solar applications; and technical performance and domestic content
requirements of solar projects, to operationalise the Solar Mission.
BOOT model for Cogeneration Projects:

21 Bagasse cogeneration projects have been taken up through BOOT (Build, Own, Operate,
Transfer) model in cooperative sector sugar mills set up by Special Purpose Vehicle (SPV) or an
Independent Power Producer (IPP) in the states of Punjab, Maharashtra and Tamil Nadu.
Solar Cities/Green Buildings:

The Ministry operationalised the GRIHA rating scheme. Independent Society ADARSH
established by Ministry for implementation of rating system. Government has mandated that
new Central government and PSU buildings would go for minimum GRIHA 3 star rating. Ten
Cities to be developed as Pilot Solar Cities, Four Cities will be developed as Model Solar
Cities and 50 new Small townships/Campuses being promoted as green Renewable Energy
townships under the Solar Cities Programme.
Micro-hydel scheme:

The Ministry has sanctioned support for 3547 water mills in 9 states. So far 1414 water mills
have been setup. The Ministry also sanctioned 28 micro hydel projects (up to 100 kW) under
the new scheme announced in February 2009.
Conclusion
The country in the recent years has emerged as an economic powerhouse as well as an
environmental leader in the global arena. With the progress of the Indian economy, the country
is also required to look into producing more energy for providing quality living conditions to its
people. India is in fact blessed with huge resources of renewable sources of energy such as
wind, solar, biomass and hydro energy. In fact, it has been found that the technical potential of
these renewable energy resources may exceed the current installed generation capacity.
India is the fifth largest consumer of energy in the world and it is projected that the country
would surpass Japan and Russia to become the third biggest energy consumer globally by
2030. Thus, in order to fill this growing need, investments in renewable energy sector have
been rising. According to The Global Trends in Renewable Energy Investment 2011 report
prepared for the United Nations (UN) by Bloomberg New Energy Finance, India witnessed a 25
per cent increase in spending in renewable energy sources, with investment reaching US$ 3.8
billion (INR 175.9 billion) in 2010.
India is also the only country in the world that has a ministry, the Ministry of New and
Renewable Energy, dedicated to the development of renewable energy. The initiatives taken by
the government along with the efforts of the corporate sector would help in accelerating the
development of renewable energy sources in the country and help in meeting the energy
needs of the people of India.