Renewable Energy Auctions most cost effective in developing green capacity

2 Jun, 2015 by Sneha Shah

Renewable Energy Auctions

A new study has come out with results that we at Greenworldinvestor already knew of and have propagated through our columns. The research by Climate Policy foundation says that auctions are the most cost effective way to increase the deployment of green energy, after going through the results of 20 auctions around the world. Solar energy auctions have been immensely successful in India having cut the solar tariffs by half from Rs 12/kWh, to around Rs 6/kWH in the last auction. This has made solar electricity prices one of the cheapest in the world. Reverse auction template has been copied across most state governments in India and are now being used for coal mine auctions as well. The coal mine auctions have also resulted in a major windfall for the government in terms of royalties and revenues.

The only problem with reverse auctions in Indian infrastructure is that corporate groups bid irrationally low and don’t complete the projects on time. This has occurred in major road and thermal power projects. These groups use debt from government owned banks to fund these projects, putting little of their own equity. Winning the auction is important as it allows to raise debt. Many infra projects have turned bad, due to the corporate behavior. Indian bankruptcy laws are also not that great, which allows promoters to escape without getting punished for their bad decisions.

Thankfully the same situation has not happened in solar energy, as the crash in solar equipment prices allowed developers to develop the projects though their bids were very low. Nowadays, larger developers are bidding rational prices for solar power projects through reverse auctions. The ROE for projects are in the normal 15% range, which is good for the government and the developers.

The research also says that risks such as payment security, clearances, land acquisition and electricity transmission should be better managed and done by the government to improve the chances of project completion. Many of these issues have become a big hindrance across large infra projects. Wind Energy capacity should also be done through auctions in my view. Currently a fixed feed in tariff has prevented sharp competition amongst wind energy developers. This has allowed the ROEs on wind farms to be better than solar farms. Using auctions will introduce more competition and lower the tariffs for wind energy as well.

Huge gap in grandiose Indian state power plans and ground realities

15 May, 2015 by Sneha Shah

India,Solar Energy

State Power plans – fact or fiction

The Indian federal government wants to raise the solar RPO to 8%, from 3% when even the 3% is not working. It also wants thermal power plants to keep 10% capacity for solar power, when power utilities are running losses and not setting up any new plant. Bureaucrats and politicians are seemingly living in a different world compared to morsels. The gap between dream and reality is widening in the solar sector. MOU’s to set up more than 200,000 MW of renewable power was singed in India’s renewable energy conference. However, setting up even 1/5^th of that capacity will be a big achievement, given the structural issues.

India is all gung ho about building huge amounts of solar capacity, as solar energy has become competitive with fossil fuel prices in India. Solar power costs around Rs 6.5-7 per unit, compared to the Rs 4-7 per unit paid by customers for electricity prices in India. Large parts of India can already install solar energy based on pure economics alone. However, the plans of some states to quickly build huge capacities through mega solar power plants of 1000 MW sizes and more is running into teething problems. NTPC recently said that distribution utilities are not willing to buy power from it, as they have huge problems with debt. Solar power is still expensive compared to domestic coal generated power and India’s industrial growth has not really taken off making demand tepid. Some of India’s coal and gas power plants have restarted while growth has not taken off.

Read more about Solar power in India.

India’s southern state which have the biggest power deficits are the most aggressive and have set up aggressive 5-10 GW targets. But they are finding it hard to set up even 1000 MW. Andhra Pradesh which had signed a MOU with NTPC to set up 1000 MW solar park in Anantpur, has got only 250 acres of land which means that only 50 MW can be installed now. Buying land in other districts has also become difficult as land owners have jacked up prices even of barren land, since they know that there is demand for solar power plants.

Telangana too faces huge land constraints and its ambitious 100,000 MW target by 2022 seems a non-starter currently. It has managed to only finalize 600 MW odd capacity as there was no land to satisfy all bidders in solar auctions.

Lack of ground work is a huge issue for all governments. The capability is really low amongst government workers, while their political masters have grandiose plans. This means that there is a huge gap between targets and achievements. Even the solar pump plan is running aground due to this gap. According to TOI, Softbank has also not moved ahead with its plan to set up 10 GW in AP. Naidu had earlier gone to Japan and signed a MOU. 10,000 MW would require 20,000 hectares which is a tall order in AP. Governments should look at the practical issues when announcing target, rather than signing billions worth of MOUs to generate media headline.

Will India revive its faltering nuclear energy expansion plans

29 Dec, 2014 by Sneha Shah

India,Nuclear Energy

India Nuclear Energy

India has a massive power deficit issue, which requires it to expand using all available fuel sources both green and non-green. The last government placed a huge emphasis on growing nuclear energy signing a landmark deal with USA, which broke its pariah status. Despite the numerous deals signed with uranium suppliers as well as reactor sellers, nothing much came out of this due to bad policy making which placed too much liability on reactor suppliers. Even those nuclear power plants which came up in Tamil Nadu and Maharashtra faced huge protests from locals, due to the NIMBY factor. The plant in Tamil Nadu started running after interventions both by the central and state governments. Some NGO leaders had to be arrested and numerous litigation in the courts had to be fought.

Read about Nuclear Energy Advantages & Disadvantages here.

The new NDA government has placed strong emphasis on the growth of solar energy followed by wind energy. The Power Minister Piyush Goel has hardly spoken about growing nuclear energy. The government’s focus has been mostly on thermal, solar and wind energy. So we need to examine whether India is going to aggressively expand its nuclear energy plans.

Negatives

1) Nuclear energy is facing an enormous global blowback after the Fukushima incident. Countries such as Germany, Belgium and others have completely shut down their existing reactors

2) Nuclear energy plants are seeing high cost escalations and steep prices due to additional safety equipment and procedures

3) India is also facing huge protests in its existing plant sites

4) Other cleaner and safer fuel sources such as solar energy and wind energy are becoming more competitive and lower in cost

5) Even China which has the biggest expansion plans is going slow due to the safety and protest factors

Positives

a) India needs to expand all possible fuel sources including nuclear energy for power generation

b) The Russian PM was recently in India and signed a deal to supply 12 reactors

c) Nuclear power plants also serve a very important strategic need for nuclear armed countries like India by providing raw material for bombs

Hindu

Russia’s state-owned Rosatom said it would supply 12 nuclear energy reactors for India over 20 years, under an agreement aimed at boosting nuclear energy cooperation signed by the two countries during a summit in New Delhi on Thursday.A 1,000-megawatt reactor is operating at the Russian-built Kudankulam power station in India’s Tamil Nadu district, with a second due to come on stream in 2015.

Europe leads the way in climate change fight with 27% Renewable Energy target by 2030 and 40% GHG cut

30 Oct, 2014 by Sneha Shah

Climate Change,Europe

Europe fights Climate Change

Europe has always led the way in fighting global warming by setting up aggressive targets in green-house gas emission reductions for its member countries. Denmark has played a leading role in advancing wind energy technology in the world, while Germany has played a top role in making solar energy reach grid parity in different places. The European Union has again set up an ambitious target to reduce GHG emissions by 40% by 2030, as compared to 1990 and making it mandatory to generate 27% of its energy from green sources. Many of the top countries such as Germany, Italy, Spain etc. have already installed massive wind and solar capacities. New capacity in these countries are now coming from captive consumption, as grid parity has been reached in many places.

Some of the Eastern European countries have pushed back against these RE targets particularly Poland, which has a large coal mining sector and gets 90% of its electricity from thermal sources. The European Union however has agreed to keep the target by offering the lower income countries more subsidies and grants to achieve these targets. Most of the other high income nations such as USA, Japan etc. have been very niggardly in setting GHG emission targets and have never done enough to fight climate change. Instead they have been pestering lower income developing countries such as China and India to set targets. Developing nations do not have the capital and technology to set aggressive targets, since most of their population is poor and depends on primitive forms of energy particularly coal.

Other countries such as Canada and Russia have been worse and amongst the biggest contributors to global warming with their apathetic attitude. Middle Eastern countries have been opposed to global warming as it will reduce the demand for their massive oil reserves which the single largest factor contributing to their wealth. Reducing prices of renewable energy is the biggest threat facing their lazy populations, which have become used to hundreds of billions of dollars being generated each year by oil and gas exports. Some of the richest nations in the world are now Middle Eastern and their per-capita GHG emissions are also the highest. They have opposed global warming tooth and nail and have despicably asked for compensation for the global warming fight. These states have more than $2.5 trillion in reserves. All of it is dirty fossil fuel money and can easily reverse global warming.

Falling oil, coal and gas prices could pose short term risk to Renewable Energy growth

6 Oct, 2014 by Sneha Shah

Renewable Energy

Risk for Renewable Energy

Renewable energy has been on a big roll in the last couple of years, with solar energy leading the way. The massively falling costs of renewable energy has made it competitive with fossil fuel power in a large number of places. For example Solar energy over 25 years can be sold at a lower rate in places where fossil fuel prices are high. Places like Brazil, Chile are going to see massive growth due to high electricity prices. Government is also pushing renewable energy hard to ensure energy security and to look green. India is set to unleash massive investment soon in both solar and wind energy. China is already the leader, with almost 13 GW of solar energy and more than 15 GW of wind energy installed in 2013.

However, fossil fuel prices have fallen sharply in 2014. Coal prices have crashed and finally oil prices are following suit. The main reason for the fall is the falling Chinese demand which had led to a very sharp growth in the prices of all commodities in the last decade. Iron ore prices touched a new low, as steel demand in China is falling. Oil prices have fallen almost 20% in the last couple of months, since the Chinese demand is cooling fast with expectations that the Chinese oil growth demand will be zero this year after a very long time. Despite geopolitical tensions, falling world demand is taking a huge toll on all commodity prices.

Even gas prices in Europe are falling despite the Ukraine Russian tensions. Saudi Arabia recently lowered its oil price premium by $1/barrel, as sales have been slow. Supply has increased globally as the commodity boom led to massive investment in discovery and extraction of new mines and sources.

Though fossil prices are still high, any further fall could make renewable energy less attractive as thermal and gas power becomes cheaper. Renewable energy is becoming more of an alternative to fossil fuel energy in power markets. Pricing is a crucial factor in deciding the capacity set ups and renewable energy will lose out, if fossil prices plunge massively. Unlike fossil fuels, sharp drop in commodity prices will not affect renewable energy plant prices too much. This will place them at a competitive disadvantage. I think this is a short term risk only, given that global warming has become a massive concern and renewable energy prices are declining in a secular manner.

ET
Energy analysts initially said the price declines were largely the result of greater supply, citing the North American shale boom, the tapping of new offshore reserves worldwide and greater output of coal. But analysts have also begun pointing to a slowdown in demand. They cite China’s ebbing thirst for oil and what could its first drop in demand for coal in over a decade as indicators of a sharper slowdown in the world’s second-biggest economy…Coal, the world’s most important source for electricity generation, has almost halved in value since spring 2011 to levels at which most producers are losing money. Gas prices in Europe have fallen over 6 per cent this year despite the crisis between Russia, its main supplier, and Ukraine, a vital transit route for EU imports. China’s gas demand growth is expected to ease to its slowest in three years in 2014 and dip again in 2015, due in part to its slowing economy. “Serving as a bearish signal, Saudi Aramco has cut official selling prices (OSPs) for November loading cargoes to all regions … The biggest cuts were again seen in Asia, the third consecutive round of downwards adjustments there,” JBC Energy said in a research note.

Renewable Energy to account for 45% of production in India by 2030

28 Jul, 2014 by Sneha Shah

Renewable Energy

Renewable Energy to lead by 2030

Solar and wind energy additions are going to be substantially higher, as compared to the existing forecasts leading to major issues for fossil fuel exporters. Solar energy will account for almost 30% of the total capacity addition by 2030 or 800 GW, which means ~50 GW of additions per year. This does not seem too far-fetched, given that India and China may install 15 GW this year. Wind energy will follow with 500 GW and 440 GW of hydro energy. This means that only 900 GW of thermal and gas based power will be added.

India will be the biggest factor in production addition, given the paucity of fossil fuels and its rich solar resources. The country is set to benefit as its capacity addition time coincides with the grid parity cost reached by solar energy.

Read our complete list on Pros & Cons of Renewable Energy.

The main reason for this jump will be the fast falling cost of solar power. Solar power will cost between 6-12c/kWh, which will be comparable to wind, coal and gas based power. In addition to matching costs, coal and gas power also have issues with carbon emissions and sever pollution. Imported coal and LNG costs will become too high for them to remain competitive. This means huge issues for major coal and LNG exporters in Australia, Qatar, USA and Canada. These countries have huge surpluses of these fuels and are rapidly building infrastructure to export them. But given the grid parity to be reached by solar energy by 2020, that these investments might go to waste or not earn the ROI which is expected (eg. Sabina Pass etc.)

The gas plants built using LNG will have plants costing 14c/kWh, which means they cannot compete with solar plants with average price of 8c/KWh. Imported coal or coal plants using expensive cleaning technology such as scrubbers, carbon tax etc. will also not be able to compete with solar and wind energy. Wind will continue to have a LCOE of 6-16c/kWh and will continue to be built at a steady pace.

The forecasts of IEA and other organizations continue to be very conservative in spite of the fast declining costs and expanding scale of solar energy. Solar has rapidly become very competitive with coal and gas even without taking into account the massive environmental costs imposed by fossil fuels, besides issues related to energy security and reliability.

REneweconomy

Solar PV and wind energy will beat both coal and gas on costs – without subsidies – in the major Asia energy markets of China and India by 2020, according to Bloomberg New Energy Finance.

This is going to translate into a renewable share of electricity production of 45 per cent for India by 2030, 33 per cent in China, 31 per cent for Suuth-East Asia and 26 per cent for Japan.

As this graph above illustrates, BNEF believes that the LCOE of solar will be as low as “Over time we expect the coal LCOEs for Australia, Japan and China to converge around $133-137/MWh as China is expected to impose similar environmental constraints (eg, high- quality coal, carbon price, scrubbers) as the other two. India and Southeast Asia will remain as low as $60-81/MWh in 2030 unless they take similar environmental measures as China.”

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