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April 12, 2013India’s Renewable Energy Industry
India’s renewable energy industry is already facing huge problems due to the country’s dysfunctional governance. The whole power industry is in crisis, thanks to the muddled regulation and crony capitalism. To expect green energy to have a smooth ride in such a scenario is foolhardy. The Renewable Energy Certificate (REC) Scheme inaugurated with much fanfare has already hit an insurmountable block. State utilities and firms are refusing to meet their RPOs and state electricity regulators are refusing to enforce the REC rules. This has meant that there is a huge oversupply of RECs from green energy producers which are not being bought even at the floor price. Those firms which had bought RECs are kicking themselves for spending the money, as the state regulators are not taking any action on defaulters. This means that the green support scheme has become useless for the renewable energy industry. They have to rely on other mechanisms like accelerated depreciation and GBI to make their projects feasible.
Read about Solar Power in India – All you wanted to know.
India has kept an ambitious target of generating 10% of their energy requirements from green sources, by 2020. However, the government does not have a clue on how to go about implementing it. The policy measures remain ad-hoc as the whole power industry is mired in multiple crisis. Now, the renewable energy minister (who seems more interested in watching IPL matches) has said that the transmission has to be strengthened with 8 billion dollars in investment. With the power industry operating at cross purposes, nobody knows who and why anyone will make this investment. India’s southern states have a huge power deficit, thanks to inadequate transmission links from the north to south India.
Read about Wind Power in India – What you Wanted to Know.
With no one taking the trouble of investing to meet normal power deficits, one wonders who will take up the responsibility to make the investment for green energy. The green energy industry faces huge hurdles and I don’t think that the 30 GW target over the next 5 years will be met. The only way things can change if there is a concerted reform of the whole energy industry. But with the government of India currently mostly inert and corrupt, things don’t appear to be too rosy. However one hopes for the best.
Indian Renewable Energy Mandate not Met
India’s much hyped market based renewable energy incentive system of “Renewable Energy Certificate” (REC) has crashed. The REC market which started in 2012 at two power exchanges had initially shown a lot of promise with increasing volumes. It had offered a market based remuneration system for renewable energy developers in India. The buyers were electricity consuming entities which have to meet a gradually increased green energy mandate of 15% by 2020. However the continuous lack of enforcement of Renewable Purchase Obligations (RPO) by the government has meant that the buyers are not buying the RECs despite the mandate to do so. This means that not only will the Renewable Energy mandate not be met, but green investors will face heavy losses as well. This will derail the confidence of cleantech investors in India who are not assured of sufficient returns on a risky sector. The wind energy industry in India is facing massive problems already due to the removal of federal incentives of accelerated depreciation and GBI. This comes as an additional blow.
Problems with the REC Market
1) REC Markets are notoriously difficult to set up and run– India has started a Renewable Energy Certificate (REC) Scheme recently to boost the share of Clean Energy Sources in India’s Electricity Mix. India’s Electricity Regulator (CERC) has come out with a notification making it mandatory for Electricity Utilities to buy 6% of their requirements from Green Energy Sources. However the REC Scheme still faces teething problems in its implementation. It would take a couple of years for a well developed market in RECs to develop if everything goes to plan. Note REC are notoriously difficult to implement as Italy and Australia have found out. High Prices led to Booms while Low Prices lead to a Green Bust while it is impossible to set the Perfect Right Price.
2) Volatile REC Prices – However the market for REC remains volatile due to the fact there is a lot of uncertainty with RPO. The biggest source of this problem is the fact that RPO is not enforceable by the regulator. If the state slips in its RPO, it does not have to bear any penalty or punishment. Given the pathetic state of the electricity distributors in the state with billions of dollars in debt, it seems unlikely that they will buy expensive green energy to meet their RPO.
Nearly, $8 billion investment would be required to strengthen and develop renewable power evacuation and transmission infrastructure for the planned renewable power capacity addition in next five years.“We are looking at various options to raise financing for implementing this important report, including through public-private partnership,” said Minister for New and Renewable Energy Farooq Abdullah.
Currently, most of the renewable electricity generated within a State has to be absorbed within that State and grid balancing issues limit addition of more renewable electricity beyond a certain limit. In Tamil Nadu, where wind penetration is around 50 per cent in terms of capacity is experiencing such constraint. The sudden addition or withdrawal of wind power from the grid is already causing difficulties in grid operation.Our 12th Five-Year Plan proposals for the period 2012-2017 seek a capacity addition of 30 GW, he added.