A new World Bank report says developing indigenous renewable energy sources which have low marginal costs of generation are more economically viable in the long run. Renewables can play an important role in increasing India’s energy security by diversifying supply, reducing import dependence and mitigating fuel price volatility.
The Report Unleashing the Potential of Renewable Energy in India is a diagnosis, assessing the feasibility of developing Renewable Energy (RE) in India. The Report is based on data from nearly 180 wind, biomass, and small hydropower projects in 20 states, as well as information from the Ministry of New and Renewable Energy (MNRE) and the Central Electricity Regulatory Commission (CERC).
India’s electricity demand is expected to grow at an average annual rate of 7.4 percent in the next 25 years. Generation capacity will have to increase fivefold to keep pace with demand growth. The Integrated Energy Policy Report, 2006, also estimates that nearly three-fourths of the installed capacity will be thermal–based (with coal and gas as feedstock). The gap between supply and demand is likely to increase unless adequate measures are taken to bring in new generation capacity and improve operational efficiency in the distribution and management of power utilities.
Today, more than three-fourths of India’s electricity production depends on coal and natural gas. At current usage levels, India’s coal reserves are projected to run out in 45 years. India already imports 10 percent of its coal for electricity generation, and the figure is projected to increase to 16 percent by 2011.
With about 150GW of known resource potential—of which only about 10 percent has been developed— renewable energy can be an important part of the solution to India’s energy shortage, says the Report.
“Renewable energy is seen as the next big technology industry, with the potential to transform the trillion dollar energy industry across the world. China has seized this initiative as it strives to become a world leader in manufacturing renewable energy equipment. Investing in renewable energy would enable India to develop globally competitive industries and technologies that can provide new opportunities for growth,” said Inger Andersen, Vice-President, Sustainable Development Network, World Bank.
Economic and financial potential of renewable
Renewable energy development can also be an important tool for regional economic development within India, the Report suggests. Himachal Pradesh, Jammu and Kashmir and Uttarakhand have 65 percent of India’s small hydropower resources. Much of the economically attractive wind potential in Orissa or the biomass potential in Madhya Pradesh also lies largely undeveloped. Developing renewable energy in these states can provide secure electricity supply to foster domestic industrial development, attract new investments, create employment, and generate additional state income by allowing the states to sell renewable energy trading certificates to other states.
The Report suggests that about 3GW of renewable energy – all from small hydropower is economically feasible, when the avoided cost of coal-based generation of Rs 3.08/kWh is considered. About 59GW of renewable energy in wind, biomass, and small hydropower is available at less than Rs 5/kWh. The entire cumulative capacity of 68GW in these three technologies can be harnessed at less than Rs 6/kWh. About 62GW—90 percent of cumulative renewable capacity in wind, biomass, and small hydropower—is economically feasible when the environmental premiums on coal are brought into consideration.
Like coal, gas and oil have witnessed considerable price volatility in recent years. Renewables are the only free hedging mechanism against price volatility of fossil fuels. The risk-adjusted cost of renewable energy is lower than that of fossil based fuels, and their use enhances the price certainty of the portfolio and increases energy security, it says.
Small hydropower—one of the least expensive and most attractive forms of renewable energy—lies largely untapped. It is the most economically viable form of renewable technology, with an average economic cost of Rs 3.56/kWh followed by biomass-based generation at Rs 4.6/kWh and Rs 4.9/kWh for wind-based generation. In fact, the generation costs of small hydropower are comparable with thermal generation sources, and the generation costs of biomass are comparable to those of wind. This resource is the most attractive in Andhra Pradesh, Haryana, Himachal Pradesh, Punjab, and Uttaranchal.
“India needs to apply multi-pronged solutions to achieve the massive additions in generation capacity to meet the demands of its fast-growing economy. Renewable energy is one such solution, particularly in light of its economic feasibility. The entire renewable potential including solar is less expensive than diesel, where existing 20 GW of diesel based installed capacity points to innovative possibilities of scaling up renewable in a big way,” said N. Roberto Zagha, World Bank Country Director in India.
Realizing the need to bridge this gap, the government has set an ambitious target of installing at least 40GW of additional capacity of renewables in the next 10 years. To add 40GW by 2022, India will not only have to meet ambitious targets of National Solar Mission, double its wind capacity, quadruple its small hydropower power capacity, fully realize co-generation capacity, and increase biomass realization by a factor of five to six. These ambitious targets have made creation of an enabling environment for renewable energy development particularly urgent and topical, the report adds.
“India has, no doubt, made tremendous strides in establishing overarching policy framework and institutions to bring renewable in the mainstream of energy mix. The World Bank is looking forward to partner the Government to achieve its ambitious target of 40 GW of renewable energy development,”said John Henry Stein, Sector Director, Sustainable Development Network.
However, significant financial and regulatory barriers to renewable energy development remain, the Report says. Projects are held back by the large number of clearances required during the development cycle. The biomass sector is paralyzed by spiraling fuel costs. .
The report suggests single window clearance for all renewable projects, promoting innovative approaches, a competitive bidding process, and providing long-term funding options for producers.
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