Month: March 2014

India has two choices to make. The first choice is: should it actively develop and follow an energy strategy? Or should it continue to sputter along in an ad-hoc manner, with inefficient private investments into back-up infrastructure and with power deficits that inhibit development? The second choice, if India opts for a strategy, is: what should the strategy be? Should it focus on the centralized, fossil fuel-based model or on a smart-grid, renewable-fueled model?

India should build an energy infrastructure on fuel sources with a downward cost trajectory – that are locally available

We are witnessing a period of transformational change in energy. India can leapfrog

Optimism is more warranted with respect to overcoming the challenges of renewables than the challenges of fossil fuels.

To bet on coal, which is currently the mainstream consensus in India, is to accept a number of inevitable consequences. The first is a huge increase in energy imports. This will further corrode India’s energy security and make it dependent on a small number of coal exporting countries as well as the related sea trade routes. It will also put an enormous strain on the current account balance of India, which will in turn add pressure on the Rupee.

The second consequence is the corresponding environmental degradation. This relates to the destruction of habitats through mining as well as to the air pollution from power generation. Delhi has recently been named the most polluted city in the world (refer). A major share of that pollution is from coal-fired industrial production and power generation. While environmental concerns don’t seem to have a high priority by politicians, the example of China shows just how fast that can change. (In fact, as I am writing this, I have a splitting headache and pollution levels are at a record high.)

In addition, there is currently no global or Indian carbon regime in place. However, as the pressures of climate change will increase, so will the pressure on every nation to reduce emissions. If India were to choose a very carbon intensive growth, it will likely come under pressure later – at a point, when it will be much more expensive to change track.

And even if India were to choose to expose itself to these risks and costs and still go for a coal-driven growth model, there is still the question of whether it can actually do it. Over the last years, India’s coal infrastructure has failed to deliver: mining, railway heads and port facilities were inadequate. The resulting fuel shortages have led to under-investment and under-utilization of plants (see charts below).

An alternative to the coal scenario could be to go solar on a massive scale. This would have to be supported by investments into balancing power (gas, pumped hydro, later perhaps storage) and a “smartening” of the grid (metering, demand-side management, etc.). It would be possible. And it would also be better for India. India could build 1,000 GW of solar – enough to generate 1,500 TWh of power or 1.5 times India’s current power requirement – using half the land available in the desert district of Barmer in Rajasthan or 3.5% of India’s wasteland. This is just to illustrate the case. In reality, solar could be on every rooftop across the country as well (see chart below).

Solar might not be the cheaper than coal yet. And storage adds to the cost. However, it will become cheaper in the near future, if not in 5 years, then in 10. And the choices India makes today will have a relevance far beyond the next 10 years. Globally, the energy market is in a transformational stage. India can choose to be at the helm of this development. With its exposed energy supply situation, rising demand and high irradiation, it is ideally suited for solar. Therefore, it should invest its resources into building a new energy infrastructure that will bring long-term energy security, rather than tying itself to power plants that will be inadequate, cost more over time and require India open-endedly spend money on imports. This would not only give the country a great boost of innovation and employment in a new industry (with all the additional economic and social benefits), but would make its economy and its businesses much more resilient to deal with an energy future that will be very different from the current one.

I understand that this is asking for some optimism: will solar costs really come down? Can we manage the grid with high penetration levels of renewables? Can we develop the financing solutions necessary? There are challenges in this scenario. However, there are challenges in every alternative scenario, especially in a coal-dependent one. I see much more reason to be optimistic about solar than about coal. Moreover, success would be entirely in India’s own hands to achieve.

To read part 1 of the blog, click here

To read part 2 of the blog, click here

To read part 3 of the blog, click here

Tobias Engelmeier is the Managing Director at BRIDGE TO INDIA.

Gujarat has restricted industries in the state from procuring power from outside the state through open access as per news reports. This restricts the choice of private industries in Gujarat to either purchase electricity from the state discoms or via on-site captive power plants. This comes as an unexpected move since Gujarat has been on the forefront of power sector reforms in India.

Utilities bemoan that private power purchase agreements (PPAs) are rendering generation capacity of up to 2,500 MW idle

The conflict of interest between DISCOMS and independent power producers has severely limited the uptake of open access in India

BRIDGE TO INDIA believes that India’s open access mechanism must be made truely ‘open’ to all

Utilities bemoan that private power purchase agreements (PPAs) are rendering generation capacity of up to 2,500 MW idle. Utilities are paying up to INR 8,000 crores as fixed/capacity charges to power producers without being able to buy the amount of power it has contracted. They are also concerned about inadequate transmission capacity to import power forcing them to restrict open access purchase from outside the state. While the concerns of the state utilities might be warranted, such a restriction is against the statutory provision of the Electricity Act 2003 that grants open access rights to all consumers who have a demand greater than or equal to 1 MW. This ban may set precedent to other states that grant open access fairly easily (Tamil Nadu) and states like Maharashtra that have traditionally opposed open access.

The power sector reforms were initiated in 2003, but remain incomplete. An important part of the deregulation is open access that allows consumers to tie up with independent power producers by using the state grid by paying a small fee. Ironically, DISCOMS are responsible for granting the open access approvals. This conflict of interest has meant that the uptake of open access has been severely limited in India. Open access forms a very important driver for renewable energy – especially wind and solar. Restrictions on open access can severely limit India’s renewable energy goals. Almost all of India’s wind installations today run on captive/group-captive or on private power sale model. This model has worked well for wind and is also being replicated in the solar industry. Since policy announcements are non periodic, any significant capacity addition that happens outside policy allocations is likely to be via open access mechanism.

BRIDGE TO INDIA has often argued on several platforms that India’s open access mechanism must be made truly ‘open’ to all. This means regulations and costs that have long-term visibility. This is beneficial to the entire power sector in the form of improved investor interest and beneficial to the end consumers in the form of more reliability and greater choice. The Gujarat Government would do good to keep its track record of power sector reforms and revert this decision. Gujarat being a power surplus state should look at using open access to sell the excess generation capacity to other power starved regions, especially in the south.

So far, in its process of industrialization, India has been relying heavily on its own coal reserves and on imported oil (mostly from the Middle East). Attempts to build a strong nuclear industry based on domestic Thorium reserves have so far been unsuccessful. Despite the shale gas revolution in the US, it seems like fossil fuels will become more and more expensive in India. At the same time, the potential for wind and solar is just beginning to be tapped. India is just at the beginning of its industrialization. In order to drive it, should the country develop a predominantly non-fossil strategy to energy supply? And what would that imply? This is part 3, looking at the cost trajectories of fuel sources for India.

To read part 1, click here.

To read part 2, click here.

The cost of oil will rise. The cost of coal will be stable globally but could well continue to rise for India.

The cost for renewables is reducing fast. Wind is already competitive with fossil fuels on the generation side. Solar, on the consumption side.

India’s current energy choices will impact its long-term energy mix

In India, the cost of fossil fuels has been rising significantly over the last years. This was driven by challenges in Indian supply lines (e.g. for domestic coal) and weak infrastructure (e.g. grid and railway bottlenecks). The main driver, however, was global prices. Will this trend continue? I will look at the two main current energy sources for India: Oil and coal. With respect to oil, most experts predict that, despite new unconventional oil finds, the cost of oil production will rise. Most investment into conventional oil has gone into existing fields, where the input to output ratio is becoming ever more adverse. Unconventional oil reserves are more expensive. The question of “peak oil” is blurred by the fact that as prices for oil rise, more reserves can be profitably unlocked. So the question is: how much are we willing and able to pay for oil. Or, as Dr. Richard Miller, formerly with BP, said recently: “We’re like a cage of lab rats that have eaten all the cornflakes and discovered that you can eat the cardboard packets too.” The International Energy Agency (IEA) shows that we will be moving from a production cost band of USD 20-60 per barrel to USD 60-100 per barrel (see chart below).

For the same reasons and taking into account growing global demand especially in Asia, the US Energy Information Administration (EIA) assumes a rising long-term cost trend for oil with only a five year impact of US unconventional tight oil (see chart below).

On coal, the EIA says that an “upward trend of coal prices primarily reflects an expectation that cost savings from technological improvements in coal mining will be outweighed by increases in production costs associated with moving into reserves that are more costly to mine.” As with oil, the growth in demand and the fact that there are few new reserves that can be accessed cheaply means that the price will go up. Technology improvements are softening this trend but cannot reverse it. The amount of energy needed to extract and deliver usable fossil fuels to the economy is ever rising. The productivity of the energy economy is declining. Over the past years, coal prices have globally remained fairly stable (see chart below, data from the IEA World Energy Outlook 2013). However, in India, they have gone up. The Ultra Mega Power Projects (UMPPs) that were planned in the 1990 and are still mostly not commissioned, originally offered power tariff of INR 1.5 to 2/kWh. They are now nearer to INR 3/kWh, because of rising fuel costs.

Renewables, on the other hand are becoming cheaper. Solar has made the biggest leap in the past years as modules and other components become more efficient and production costs are fall as a result of learning, innovation and scale (see chart below). The same happens with wind power. The potential for generation of renewable power in India is almost unlimited. India could install around 1,000 GW – equivalent to around four times the current peak power demand – of solar PV power plants on around 16,000 square kilometers of land, the equivalent of half of the desert district of Barmer in Western Rajasthan or 0.5% of India’s total land mass. There is no other technology that offers the same theoretical potential to service India’s long term power requirements. For wind, the Shakti Foundation, in a detailed technical assessment, estimated the potential for on-shore wind at 80m hub height and 25% capacity factor to be more than 300 GW. There have, as yet, been no reliable assessment at all for off-shore wind potential, but given India’s long coast line of 7,500 km there will be ample scope although with significant financial, technical and environmental challenges.

In addition to the favorable cost curve of renewables, they have the theoretical potential to meet India’s power requirements without relying on imported fuels. Fossil fuels, on the other hand, are getting more expensive and there is no credible long-term strategy for a reliable and sufficient supply. The current Indian infrastructure and institutional mindset is set for a continuing fossil fuel expansion (especially coal and oil). In the short term, that is seen as the only option. However, it is not a viable medium term strategy for the country. Renewables, on the other hand, come with a number of challenges – foremost their intermittency.

The important thing is that the energy infrastructure (grids, plants, railways, ports, etc) India decides to build today and the consumer behavior (mobility concepts, efficiency in products, building codes, etc.) it now encourages will determine the long-term energy generation and consumption patterns.

Tobias Engelmeier is the Managing Director at BRIDGE TO INDIA.

Last financial year (April 2013- March 2014), the Ministry of New and Renewable Energy (MNRE) had received a budgetary allocation of INR 15.2 billion (USD 250 million) for various renewable energy programs. However, there was a mid-term course correction due to India’s high current account deficit situation and the actual disbursement ended up to be only INR 4.4 billion (USD 72 million). As predicted by BRIDGE TO INDIA (refer), this caused the subsidy disbursements for rooftop solar to come to a grinding halt and resulted in many EPC companies (channel partners) shelving their rooftop solar plans as no new project sanctions were being provided.

The funds allocated to the MNRE have been cut significantly

EPC and project development companies whose business model depended on the central rooftop subsidy scheme have been the worst hit

The rooftop subsidy scheme has more or less been taken over by the bidding based rooftop allocations being carried out by SECI

Now, in February 2014, as the outgoing Indian government announced its interim budget ahead of the elections due next month, the talks about the budgetary allocation for giga-watt scale projects dominated the news (refer). However, what people missed was the fact that the funds allocated to the MNRE have been cut significantly again.

For the upcoming financial year (April 2014 to March 2015), the finance ministry has taken the actual disbursements from last year as a standard and set the disbursement target for the MNRE at just INR 4.26 billion (USD 70 million) (refer). This means that new approvals under the subsidy based rooftop solar market are unlikely to be re-initiated.

Many EPC and project development companies whose business model depended on the central rooftop subsidy scheme have been the worst hit. Even though new project approvals came to a halt last year itself, companies were told that the financial crunch would soon be resolved and the market will take off again. However, this is not likely to be the case.

The only hope for this segment of the market is that the new government, as it comes to power, will present a new financial budget that might give more allocations to the ministry to carry out its programs.  However, the chances of that too might not be very high.

Various state policies such as Kerala, Tamil Nadu, Andhra Pradesh and Uttarakhand have recently announced their rooftop solar policies. All these policies depend on the MNRE funds for a part of their incentives. In that context, the lower budgetary allocations might lead to some of these policies also getting shelved. Overall, this is likely to have a negative impact on the rooftop solar market in India in the short term.

To look at the positive side of things, the rooftop subsidy scheme has more or less been taken over by the bidding based rooftop allocations being carried out by the Solar Energy Corporation of India (SECI). Three phases of the scheme have already resulted in an allocation of around 25 MW of rooftop solar capacity. New allocations for a capacity of 50 MW this year are being planned.

Also, several state governments have also announced their net-metering policies that are expected to increase non-subsidized adoption of solar power in some parts of the country where the commercial and industrial tariffs are comparatively high. With parity fast approaching for various power consumers in India and the ‘subsidy overhang’ having receded, it might be better for the MNRE to announce an end to the capital subsidy mechanism rather than allowing the market to deteriorate further because of false hope.

Instead, the MNRE should focus on working with states to ensure better regulations for interconnectivity that will allow a smoother adoption in the parity driven market.

Global Sustainable Energy Solutions (‘GSES’) – a leading Australian firm engaged in providing training and resources for solar PV- held its first workshop in Delhi in the first week of March. The four day workshop was focused on technical and operational aspects of solar PV projects with a guided site visit to a solar plant to give participants an informative tour of a typical PV installation.

Participants included project developers and EPC companies

The workshop covered a wide range of topics including grid connected PV systems, system optimization, quality control and performance indicators

Participants were trained to use PVsyst using solar radiation data

The workshop, attracted a varying range of participants from solar project developers and EPC companies. The diversity of attendees generated a healthy debate while allowing individuals to share their practical insights on the solar PV space in India.

The panels of instructors comprised of leading industry experts, including Mr. Dwipen Boruah, a renewable energy professional with over 20 years of experience in solar PV, solar thermal, micro hydro, wind-solar hybrid systems and biomass. The workshop covered a range of topics including various design and engineering aspects of grid connected PV systems, system optimization, quality control and performance indicators. Various factors affecting the performance of solar PV projects were looked at – with participants drawing on their experiences. Participants were also trained to use PVsyst using solar radiation data from different sources.

Topics covered also included areas such as mounting systems, balance of system equipment, and storage solutions. The workshop concluded with a solar plant visit to provide hands on experience of topics covered in the workshop.

The next solar PV workshop is scheduled to commence on the 22nd of April. As GSES says ‘Don’t be a fossil fool. Go solar today!’

If India industrializes and quadruples its energy consumption to over 2 billion tons of oil equivalent per year, it needs to come up with a more thought out energy strategy than just the current “more of everything, whenever available”. Three countries comparable in size to India have been prominent in formulating and executing energy strategies. These are the US, Germany and China. This is part 2, looking at what India can learn from other countries. Read part 1 here.

The US benefits from a large shale gas boost – but India does not have the same reserves

Germany is a pioneer in transitioning from conventional to renewable energy, but faces many challenges

China has built a large coal-based, centralized infrastructure, but at the expense of import dependence and pollution

In the US, the most striking aspect of the energy market is the shale gas and tight oil revolution. It has lead to falling energy costs and the current process of “re-industrialization” this brings about. According to an estimate, the US currently saves as much as USD 200bn per year on oil and gas imports and has created 2m new jobs in the energy industry – in addition to the jobs created through the development of its industry as a whole. Globally, it has changed the economics (and geopolitics) of oil and gas by reducing the cost of LNG and keeping a lid on oil prices. There is a danger for the US economy that the shale gas high will not last long and that the subsequent fall will be even harder. On the other hand, the country could use the windfall gain to invest into a sustainable energy infrastructure based on renewables.

While India will benefit from a softening of global gas and oil prices as the US will likely stop importing, it will be difficult to follow the US lead. India also has shale gas reserves, but they are likely far less. In addition, there are regulatory and technological hurdles to extracting them.

In Germany, the story is different: The country is half way into its “Energiewende” – a transition away from nuclear (and, in theory, coal) and towards renewables (especially wind and solar). Renewables already provide over half of the country’s installed power generation capacity and at peak times, more than half of the power consumed. However, there are significant challenges: the cost of power in Germany is high and rising, endangering German export industries. Renewables contribute partially (not wholly or even mainly) to this. In addition, the rise in renewables has ironically led to an increase in lignite coal production as a cheap balancing source and undercut more climate friendly gas power plants. However, a deeper look reveals a much more positive picture: Germany has created millions of jobs and become a technology leader in this promising industry. It is also in the – admittedly painful – process of creating one of the most dynamic and efficient power markets in the world, where generation, consumption, balancing and spinning reserves as well as storage are adequately incentivized. It also makes Germany, a country with insufficient own energy resources, significantly less dependent on imports.

Germany has made a political choice to shift from coal and nuclear to renewables and from centralized to distributed generation. It has done so under conditions of a stable power demand that was fully met. The main driver was to go green and reduce carbon emissions. In India the situation is entirely different: the main driver for its interest in renewables is to generate power as fast as possible and to do so at viable rates. The grid is weak and there is a power deficit, which encourages distributed generation, for which renewables are well suited. India is still at the early stages of development and not so path-dependent. It can choose what kind of energy infrastructure it wants to build. It can learn from German mistakes with respect to fitting renewables into a larger energy infrastructure through, for instance, incentivizing balancing power and spinning reserves.

China is perhaps most easily comparable with India as it shows how a rapidly developing country can solve its energy bottlenecks. It has decided to build a centralized energy infrastructure based mainly on coal through the largest investment program in the field ever seen. It was stunningly successful in this. However, the costs of success are high. China has become highly dependent on energy imports. Pollution is a major concern and the country is coming under ever more pressure with respect to its carbon emissions. As a result of these imbalances and in order to meet its continuous demand growth, China is now increasingly looking at large scale renewables development. It also has some of the largest shale gas reserves in the world that it wants to tap.

India could attempt to follow the Chinese example and try to rapidly expand its fossil power generation and grid infrastructure. There are, however, two fundamental questions: Can India really deliver on large infrastructure projects as well as China has done? And where will India find the foreign exchange necessary to buy all this coal? India is already running a substantial and unsustainable trade deficit, putting huge pressure on the Rupee.  And even if India should succeed in doing so, it will likely just end up exactly where China is now: with too much import dependency and pollution.

Tobias Engelmeier is the Managing Director at BRIDGE TO INDIA.

So far, in its process of industrialization, India has been relying heavily on its own coal reserves and on imported oil (mostly from the Middle East). Attempts to build a strong nuclear industry based on domestic Thorium reserves have so far been unsuccessful. Despite the shale gas revolution in the US, it seems like fossil fuels will become more and more expensive in India. At the same time, the potential for wind and solar is just beginning to be tapped. India is just at the beginning of its industrialization. In order to drive it, should the country develop a predominantly non-fossil strategy to energy supply? And what would that imply? This is part 1, looking at the energy requirements of India.

India’s per capita energy consumption is still only a fourth of the global average

If India were to consume at the global per capita average, it would need to add the equivalent of the entire European Union’s annual energy consumption

Procuring such amounts of energy will be very difficult for India, given its limited resources and difficult geostrategic location

India is still a largely unindustrialized country. I am convinced that it needs to industrialize on a vast scale, comparable to China, to lift its citizen out of poverty and provide the millions of jobs needed for its young and growing population. This will require an equally vast surge in energy supply.

Currently, an Indian citizen consumes only about one-fourth of the amount of energy of a Chinese citizen. This is well below global average and, of course, far less than inhabitants of developed countries consume (see chart 1 below). India currently consumes 563 MTOE of energy. If the country would – on a per-capita basis – consume the global average, this would rise by a factor of 4 and an additional 1,613 MTOE (the equivalent of the demand of the entire European Union) to 2,176 MTOE. For the power sector alone, this would mean an additional 1,000 GW of installed capacity. If India were to have the same consumption as the US, energy demand would even increase 15-fold (see chart 2 below). Over the past 10 years, India’s economic growth has been driven by the service industry, which is less energy intense than manufacturing. This will likely change in future as India needs significant growth in manufacturing to provide the required jobs.

It is currently quite unclear, where even a four-fold rise in energy supply could come from, let alone the amount required for lifting India to the level of developed economies. India’s internal resources are limited. Coal is available but of low quality. More and more power plants rely on coal shipped from abroad (South Africa, Indonesia, Australia). India needs to import over 90% of its oil and gas. Pipelines from Central or West Asia need to cross unstable or hostile countries such as Afghanistan or Pakistan. India’s neighbor in the east, China, is as energy hungry and competing for fuel sources. In the international markets, the developed countries have the advantage of existing relationships and infrastructure. So where does that leave India?

The next part of the blog will look at what India can learn from other countries that are comparable in size.

Tobias Engelmeier is the Managing Director at BRIDGE TO INDIA.

The state government of Jammu and Kashmir (J&K) has signed a Memorandum of Understanding (MoU) with the Ministry of New and Renewable Energy (MNRE) to set up 7,500 MW of solar power projects in the state(refer).

The report on ‘Desert Power India 2050’ claims that if 5% land (in Ladakh region) is used for solar- it would installation of 38.2 GW of solar power

The reports envisages a National Desert Mission that could be undertaken by the MNRE and Planning Commission of India

Even if the mission were to become reality, Ladakh would be one of the last to get an ultra-large scale power plant

The genesis for this project is most likely based on a report (Desert Power India 2050 – Integrated Plan for Desert Power Development) published by the Power Grid Corporation of India Limited. The report is on the feasibility of using wasteland desert areas in India for installing large wind and solar power projects.

This report claimed that Ladakh region in J&K has 11,177 sq. km. of wasteland area and if 5% of that can be used for solar, it would allow for an installation of 38.2 GW of solar power. The report envisages a National Desert Mission/ Policy in the future that could be undertaken by the MNRE and Planning Commission of India to set up 300 GW of renewable capacity in the desert regions of Thar, Rann of Kutch, Ladakh and Lahul & Spiti. Such a plan would require balancing reserve requirements of 68 GW from concentrated solar power with storage, pumped hydro storage and other storage options such as grid-scale storage and flywheel. New transmission infrastructure with a capacity of 216 GW would also be required. Such a plan would require investments to the tune of INR 43.8 trillion (USD 714 billion) until 2050.

However, it is important to note that any such plan is still only a ‘plan’ and no concrete steps have been taken in the direction of realizing it.

Even if a National Desert Mission was to become a reality, Ladakh region will be one of the last to get an ultra-large scale power plant due to adverse geographical conditions and terrain where the construction of a project and its related transmission infrastructure will be particularly challenging even as compared to other desert regions such as Thar in Rajasthan and Rann of Kutch in Gujarat.

Until then, it should just be seen as an illustrious announcement of an outgoing Minister for New and Renewable Energy for his home state.

On the 28th of January, the Chief Economist of BP and lead author of the “BP World Energy Outlook”, Christof Rühl, gave a talk at the Delhi think tank Observer Research Foundation (ORF) on the major global and Indian energy trends. His main takeaways were: there is enough energy to meet demand, prices will rise, the climate will suffer. I think that the main source of error in the forecast lies in its linearity, based on the past. There is no account of transformational changes. His future forecast is still very much dominated by centralized infrastructure and fossil fuels. I disagree with that.

Global demand growth will be driven by Asia. As China’s is slowing down, India’s will rise fastest among the BRICs. There is no real strategy for meeting it.

Energy import will shift from North America to Asia. India will become highly import dependent.

Emissions will far exceed safe limits. There is no political will to price carbon. Coal-to-gas shifts are best suited to mitigate according to BP.

Every year, BP publishes the ‘Statistical Review of World Energy‘ and the ‘Energy Outlook‘ (this year the ‘Energy Outlook 2035’). These are key publications on the global energy scenario, comparable to the International Energy Agency’s (IEA) ‘World Energy Outlook‘ and the US Energy Information Administration’s (EIA) ‘International Energy Outlook‘. Christof Rühl, the chief economist of BP, has given a very interesting tour-d’horizon lecture at the ORF on the Energy Outlook 2035. (See here the prior analysis of Lydia Powell from ORF.)

Global energy demand growth is slowing to 1.5% per annum. There are two main reasons for this: Europe’s absolute energy demand is falling. It is unlikely that it will ever surpass its 2006 peak as efficiency gains outpace slow growth. Secondly, “China is over the industrialization hump” according to Mr. Rühl. The incredibly rapid build-up of coal-fired power plants between 2000 and 2010 is tailing off. China now needs to find less energy intensive growth options. If not, growth will falter. In either case, its energy demand growth will slow down significantly.

In India, the picture is different. In a continent that drives demand growth, it is the main contributor. It will likely see an energy intensive ‘industrialization’ phase as the only way to provide enough employment to its vast and growing young labor force. Until 2035, BP forecasts a demand growth of 132% (compared to 71% in China and the non-OECD average of 69%). This is an annual rate of 4.3%, 2.8% above the global rate.

According to BP, fossil fuels, which currently make up 92% of India’s energy mix, will in 2035 still provide 87% of the energy (compared to a global average of 81%). BP forecasts that India will continue to rely, like China, heavily on coal as its dominant fuel. India and China will together account for 87% of the global growth in coal demand and in 2035 account for 64% of total coal demand. Coal will cover 66% of India’s energy requirements and 70% of power generation. (The share of oil will fall, as growth will be driven by power generation for industry rather than the transport sector – part of a global trend.)

I personally fail to see how this is possible. Here, the global view of an economist like Mr. Rühl, clashes with the realities of the energy industry in India. India is consistently failing to build large-scale coal mining, transportation and power generation infrastructure as well as the required evacuation grids.

BP projects that in 2035 renewables will make up around 10% of India’s energy mix. In the power sector, that will mean a total growth of 539% (the fastest of any energy source, but from a small basis). While that sounds impressive, it is not enough. As I have argued in several earlier blog pieces , India’s future, by default rather than strategy will be in renewables and distributed generation.

In terms of energy security and trade, the world is changing significantly. Unconventional gas and oil exploration will make the US – for the last decade a major importer of energy – self-sufficient. In 2035, the US will produce 101% of its energy needs. Globally, shale gas will be an important ancillary source of energy, but it will not be a silver bullet. In 2035, the US will supply 20% of natural gas globally or 100 Bcf/d.

Asian demand, at the same time, is rising fast. As a result, global energy trade routes are realigning. This will have many and complex implications on international relations, trading infrastructure and pricing. In 2035, BP projects that India will account for 7% of global energy demand (China 27%). To meet that, energy imports will rise by 163%. Coal imports will increase by 85%. India will then have to cover almost half of its energy requirements from imports. This will pose enormous risks to energy security. India will be dependent on highly volatile international prices (for instance for imported coal) that will have a huge impact on the current account balance. It will also exacerbate India’s volatile geostrategic position between energy hungry and often less-than-friendly neighbors.

For the climate, the picture looks bleak. Under the BP forecast, goals to limit climate change to 2 degrees are failing by a long margin. Total carbon emissions will rise by 29% – rather than decline. This is driven by non-OECD countries, which will contribute almost three quarters of emissions by 2035. On a per capita level, non-OECD emissions will be around half of OECD emissions. In India emissions from energy demand are forecast to increase by 117%.

The main challenge, according to Mr. Rühl is the high carbon intensity of GDP. While the world is making good progress on reducing the energy intensity of GDP (through more energy efficient growth models), the energy used is still too carbon intensive. He suggested that the key lever is a coal-to-gas switch: “a 1% coal-to-gas switch would have the same effect as an 11% growth in renewables.”

India is currently operating under the paradigm that carbon is not priced. As the global pressures of climate change will increasingly come to bear, this might change. If carbon is priced, India will have a further incentive to move away from coal. A coal-to-gas shift might help here, but it would increase further India’s reliance on imports. (Mr. Rühl is pessimistic on India’s non-conventional gas potential.) More realistic, India would focus on improving energy efficiency – and building up renewables.

My main takeaway on the BP forecast and Mr. Rühl’s talk was that there is a fundamental dilemma in looking at the future, particularly the energy future. The world is likely at a turning point at which the energy economy will change fundamentally. A ‘business as usual’ scenario as described by BP is therefore unlikely to be true. (Just think of the US ‘shale gas revolution”, which nobody saw coming.) At the same time, it might be the best forecast we can come up with, as the nature of the transformational change ahead is very difficult to predict. According to BP, “India’s energy mix evolves very slowly”. This has been true in the past. In the future, it is not an option. I know this quote by Albert Einstein is vastly overused, but it just hits the nail on the head: “We cannot solve our problems with the same thinking we used when we created them.”

Tobias Engelmeier is the Managing Director at BRIDGE TO INDIA.

A recent report by GTM Research claims that new global capacity addition announcements can bring about a turning point in the PV supply-demand dynamics in 2014 (refer). The report concludes that there are definite signs the balance between supply and demand in the PV market has not just been restored, but it is beginning to emerge that there is a very real possibility of a supply shortage in the offing. If this conclusion is to be believed, then the constant cost reductions in the solar PV markets, at least in the short term, might become a thing of the past.

There has been an upward correction in module prices in India

Competitive bidding mechanism and global oversupply ensured that the module costs in India are one of the lowest globally

Large international suppliers are shifting their focus away from India toward other emerging markets

In India, we have already seen an upward cost correction in module costs in 2013, primarily due to the depreciating rupee. It is only the dramatic cost reduction in inverter costs (for central inverters) in India in 2013 that have provided some cushion.

Module costs in the Indian market have been extremely competitive. The competitive bidding mechanism in the country along with global oversupply ensured that modules costs in India were one of the lowest globally. In the last two years, lower margins in the Indian market, state level policy uncertainties and a delay in the allocations under the National Solar Mission has led many large international suppliers to shift their focus away from India and towards other emerging markets. Therefore, any upward cost correction globally, especially one which is driven by an uptick in the global demand, is likely to have a higher impact on the module costs in India.

In such a situation, tariffs fixed for several private PPAs, allocations in states such as Andhra Pradesh and Karnataka and the open category bids under the NSM (that would have an average levelized tariff of around INR 6.50/kWh (USD 0.105/kWh)) might find it difficult to absorb any significant upward movement in module prices through the course of this year.

This risk, coupled with any currency volatility, can play a dampener for new capacity additions in the Indian market.