Month: April 2015

The global energy system is in a period of rapid transformation: electricity plays an ever more important role, as do renewables, distributed generation and electric vehicles. Energy efficiency is improving. Emissions are a large and growing concern. New technologies and business models are disrupting and challenging a traditionally risk-averse and slow-moving industry. The International Energy Agency (IEA) has just published its new “Energy Technology Perspectives” outlining the global trends until 2050 (refer). Here are some of the key findings and the implications they might have for India.

According to IEA, solar can become the cheapest source of energy by 2040

The IEA considers storage to be of secondary importance in the future energy system

In India, according to BRIDGE TO INDIA, solar and storage will become the drivers of India’s energy future

Source: IEA

The Global Context

According to the IEA, in a 2 degrees scenario, solar becomes the dominant electricity technology by 2040, and provides 26% of global power generation by 2050. The IEA says that  already today, the “impressive deployment of renewable technologies is beginning to shape a substantially different future in supply”. As the graph shows, if a reasonable price of carbon ($ 100 per ton of CO2, commensurate with the world achieving the 2 degrees goal) is added, the cost of solar is already very competitive – and it will become more competitive over time, overtaking combined cycle gas turbines (CCGT) to become the cheapest source of energy around 2040.

In a high solar scenario, storage will play a role. The IEA thinks of storage mostly as being part of a larger, systemically “smart”, flexible new power grid, wherein it will compete with other options for managing a renewables-heavy power supply. The other options are: stronger grids, international grid interconnections, demand-side measures and flexible, on-demand power generation. Overall, the IEA sees storage as the option of last resort, once all other options have been exploited. Currently 99% of electricity storage is in pumped hydro storage plants. In future, other forms of storage (battery, mechanical storage, etc.) will become attractive solutions.

Implications for India

In India, solar and storage will likely play a different and a much larger role than in the IEA’s global analysis. Due to the weakness of the grid and the limited alternative energy sources, distributed solar plus storage will be an attractive solution for end-users. As compared to the IEA’s global scenario, the Indian power market will be more consumer-, less infrastructure-driven; more decentralized, less centralized; and see more private sector than government sector initiatives. It will be a default (local solutions to electricity supply shortages) rather than a design market.

Tobias Engelmeier is the Founder and Director of BRIDGE TO INDIA

Solar Energy Corporation of India (SECI) has released an Expression of Interest (EOI) for Engineering, Procurement and Construction (EPC) for 2,000 MW of solar PV[1A]. The EOI envisages multiple projects of 250 MW or 500 MW each. EPC companies can form a consortium to bid for this opportunity.

This is the first time that SECI is assuming the role of project developer.  It is not clear why SECI is going down this route particularly when the government’s budgetary resources are limited

It is important for the industry to understand the future of SECI and whether this tender fits into a larger picture or it is just a piecemeal arrangement

The EPC contractors are required to provide a turnkey solution (including land). Given the considerable land requirements for projects of such size, this approach will severely limit competition and affect timescales

It has been several months since the government has released guidelines for an allocation of 3,000 MW by way of competitive bidding on tariff[1B] through the bundling route and another 2,000 MW through the viability gap funding (VGF)[2] route. However, the real action has been missing and the allocation process for either is yet to begin. From these guidelines, it seems that SECI would invest into this 2,000 MW and the opportunity would not go the renewable independent power producers and other private investors.

In view of the limited government funding for the sector, the question to ask here is that why would SECI want to invest into solar projects itself when private investors are more than willing to take up projects in a very competitive landscape.  The point to ponder here is about the future role of SECI. Does SECI want to be to ‘solar’ what NTPC is to ‘thermal’ in India? This is again puzzling, especially when NTPC, itself is in process of developing 1,000 MW of solar in Andhra Pradesh. If SECI wants to become a developer for this 2,000 MW, it would require an equity contribution of USD 450m.[3] At a time, when the government should be focusing on attracting private domestic and international capital for solar projects, this development is providing a different message. So, why does the government want to develop solar projects through a new entity? Perhaps, the only reason for the government to adopt this structure could be to channel the concessionary funding from multilateral agencies into a government entity for lowering the levelized cost of solar energy.

Coming to the process, the winning EPC contractor must arrange at least 1,125 acres of land for a 250 MW project and 2,250 acres for a 500 MW project. The timelines for completion of project is 30 months for 500 MW project and 24 months for 250 MW. Aggregating such large tracts of land typically requires 12-18 months and capital commitment of approximately USD 10m for 250 MW and USD 20m for 500 MW. This is a massive task given the troubles of land acquisition in India.[4] This move would restrict the competition and favor the few EPC players who have already aggregated large tracts of land in Rajasthan and Tamil Nadu.

A discussion meeting on this is to be held on 8th May 2015 to provide more clarity about the process.

[1A] Solar Energy Corporation of India, http://goo.gl/Fvh5WR

[1B] MNRE< “Draft Guidelines for Selection of 3000 MW Grid connected Solar PV Power Projects under Batch-II

Tranche-I State Specific Scheme”, http://goo.gl/8m9FBX

[2] MNRE, “Draft Guidelines for Implementation of Scheme for setting up of 2000 MW Grid-connected Solar PV Power Projects under JNNSM, Batch-III “State Specific VGF Scheme”- Regarding”, http://goo.gl/dWGhsB

[3] Assumption: Project cost of INR 5.5 cr/MW (USD 0.9/MW) and D/E ratio of 75:25

[4] Refer our blog, “Will land be the main hurdle for India’s solar dreams?”, http://goo.gl/M79ysf

Mudit Jain is Manager Consulting at BRIDGE TO INDIA

Ministry of Power (MoP) has proposed amendments to the country’s existing tariff policy of 2005 (refer). Promotion of renewable generation sources has now been added as the fifth objective of the policy. There are three salient features for the solar sector in this proposed amendment:

Renewable purchase obligation (RPO) has been revised to 8% by 2019

Discoms will now be allowed to procure bundled solar power from the existing conventional power generators on a cost plus basis to meet their RPOs

Renewable sources have been exempted from inter-state transmission charge

The increase in RPO target from 3% by 2022 to 8% by 2019 implies an aggregate solar capacity of 69 GW by that time. This is equivalent to solar capacity growth of 87% per annum, which is largely consistent with the 2022 target of 100 GW but is nonetheless extremely ambitious in our view.

Discoms will continue to have the option to buy solar power by allocating capacity through competitive bidding. However, they can now also buy bundled power directly from conventional power producers such as NTPC, NHPC, state power generation companies and private conventional power generators such as Reliance, Jindal and Adani. The amendments propose that all coal-fired power plants installed after a specified date will have to be accompanied by a renewable power plant for at least 10% of their coal generating capacity. Additionally, after receiving consent from off-taker, the existing coal power plants will be allowed to set up solar/renewable capacity for bundled power to be sold on a cost-plus basis. Conventional power generators have an obvious advantage over renewable IPPs in terms of scale and existing evacuation infrastructure. Now, with the added advantage of being able to directly pass through costs for solar on a regulated cost-plus basis, these players might get a significant advantage over renewable IPPs going forward.

Renewable power is also proposed to be exempted from inter-state transmission charges until a further notification by central government. This would encourage a large concentration of solar plants in resource rich states, such as Rajasthan and Gujarat provided the transmission capacity is sufficiently boosted. Green corridors to evacuate renewable power are already in active planning stages.

There is more detail required to back up these policy announcements particularly on enforcement, which is always the weakest element of such policies in India. Also, like most other central government initiatives in the power sector, bringing states on board will be a significant challenge. Overall though, BRIDGE TO INDIA believes that the proposed amendments could be a very good driver for boosting the renewable sector in the country.

The global energy system is in a period of rapid transformation: electricity plays an ever more important role, as do renewables, distributed generation and electric vehicles. Energy efficiency is improving. Emissions are a large and growing concern. New technologies and business models are disrupting and challenging a traditionally risk-averse and slow-moving industry. The International Energy Agency (IEA) has just published its new “Energy Technology Perspectives” outlining the global trends until 2050 (refer). Here are some of the key findings and the implications they might have for India.

The world is currently failing to improve the carbon intensity of its energy supply

However, as global energy consumption will grow, it can be decoupled from emissions through efficiency measures and renewables

India’s choice of future energy system will be a key determinant of whether or not the world is able to achieve tha

Source: IEA

The Global Context

In order to reach the 2 degrees goal, the world needs to reduce emissions per unit of electricity by 90% by 2050. This can be achieved through fuel switching to renewables (and in the medium term to gas) and through carbon capture and storage (CCS), if this is a commercially viable route.

Currently, as the graph shows, we are failing to reduce the emissions intensity of our energy system. The US has seen a large coal-to-gas shift that has reduced its emissions intensity. Germany, on the other hand, has not significantly improved because in addition to the new renewables it built, it is burning large amounts of lignite. (Highly efficient, new gas-fired power plants are lying idle because their power is not competitive.) China has built large amounts of coal-fired power plants, may of them sub-critical and inefficient.

Source: IEA

For a decarbonized energy system, we need to bring together new supply choices (like renewables) and CCS with end-user initiatives such as improving the efficiency of energy consumption and applying demand-side management to match demand with renewables generation peaks. As the graph above shows, the IEA projects that reaching a 2 degree climate change goal is feasible, if we improve end-use fuel efficiency (38% of the target change), build more renewables (30%), apply carbon capture and storage to coal- and gas-fired plants (14%), switch end-use fuels from petrol to mostly electricity (9%), build more nuclear power (7%) and improve power generation efficiency and switch from coal to gas (2%).

These measures will be of particular relevance in the developing world. Electricity growth in non-OECD countries will be 300% as compared to the almost flat 16% growth in OECD countries. For India, BRIDGE TO INDIA has predicted a five-fold increase to 5,000 TWh in 20 years.

Implications for India

India is at a crossroads with respect to its energy future. It can choose to go for a more traditional supply model (centralized, coal-heavy) or for a more modern, flexible supply model (higher share of distributed generation, “smart”, solar-heavy). Obviously, the former is highly carbon intensive, while the latter is not. Because of India’s size, its choice will have an impact on the global scenario. It is difficult to see the world reaching a 2 degrees target without having a strong contribution from India. As the following articles in this series show, investing into a decarbonized energy system makes much more business sense: it is a cheaper, more resilient and secure energy choice.

Because of India’s size, its choice will have an impact on the global scenario. It is difficult to see the world reaching a 2 degrees target without having a strong contribution from India. As the following articles in this series show, investing into a decarbonized energy system makes much more business sense: it is a cheaper, more resilient and secure energy choice.

Tobias Engelmeier is the Founder and Director of BRIDGE TO INDIA

The Indian government has upgraded the target of solar capacity from 20 GW to 100 GW by 2022. Of this, 60 GW are to be from ground-based projects. A key bottleneck for achieving this target is suitable land. Many developers believe that the single biggest factor for delay in project execution is the time-consuming process of land identification and acquisition. Even the government’s own plans for creating solar parks, have been put on hold because of challenges in making available the required land. A new, badly needed land acquisition bill is stuck in Rajya Sabha. Is it really that difficult to find a solution for the land acquisition bill?

   While states have committed to participate in the 25 solar park plan (for 20 GW), implementation is a challenge due to land acquisition issues

   Maharashtra’s renewable energy policy is delayed also due to hurdles in land acquisition

   Land acquisition problems could be addressed by fixing a realistic compensation agreeable to both farmers and developers

The Ministry of New and Renewable Energy (MNRE) is well aware about the challenges faced by developers in land acquisition. To fast track the installation phase, the government initially introduced the concept of solar parks. Under this, the government agencies would be responsible for land acquisition and the development of power evacuation infrastructure. The idea is to build 25 solar parks for a total solar capacity of 20 GW. A draft policy has been released in September 2014 by the MNRE for solar parks, proposing a contribution of 50% (or up to INR 2 million) from the central government towards the setting up of solar parks in any Indian state.[1] Following this, the MNRE has prepared a roadmap for installing 15 GW by 2019.[2] However, after six months of waiting, the allocation process has still not seen the light of the day. The main reason is the difficulty in identifying and acquiring suitable land acquisition for the first few parks.

The much-awaited Maharashtra renewable policy that targets 7.5 GW of solar is facing the same challenge with land acquisition.[3] Equally, developers are seeking clarity with respect to land availability for the recent 2 GW tender in Telangana.[4]

All the while, the urgently needed reform of the land acquisition is stuck in parliament.The previous UPA government has made land acquisition very difficult. It has introduced a bill mandating the consent of 70% of farmers (for a public-private partnership project) and the consent of 80% of farmers for private projects. A detailed social impact study has to be performed and the land acquisition process cannot be completed until satisfactory resettlement and rehabilitation have been prepared. It typically takes at least three years for complying with the process.

The present NDA government is trying to relax the norms for priority projects relating to national security, defence and rural infrastructure, including electrification and industrial corridors.[5] But the move has faced a lot of opposition and been labelled “draconian” by opposition parties. Amended land acquisition bill has been passed in Lok Sabha but, it is stuck in the Rajya Sabha (Upper House), where the opposition still has majority.

In my opinion, the situation can be fixed. The focus of the land acquisition bill should be to ensure that the landowners are fairly compensated while processes are not held up too long. It is not about protecting farmers’ rights to farm as some politicians claim. According to the National Sample Survey Organisation, in 2005, 40% of farmers did not want to engage in agriculture.[6] Additionally, the educated children of most farmers also do not want to engage in agriculture. I believe that a significant proportion of the farmers, operating on not so fertile land, would be willing to sell their land. They want a functioning market place as much as solar developers do.

Currently the compensation for land acquisition has been fixed at four times the market value. The trouble with this process is that the “market value” is dictated by the state.[7] Typically, it takes into account historic transactions and not the current trend. The solutions is to develop a mechanism that allows the two contractual parties to settle on a price they are both happy with – without involving the state more than necessary. In addition, the consent clause, the biggest deterrent to land acquisition act, needs to be lowered to, say, 50% to keep the buyers interested.

Though an ordinance has been passed for land acquisition, it won’t drive the market. Professional investors need a legally sound long-term solution. There is a good chance that the land acquisition bill will be passed in the next parliamentary session in a compromised form, more docile that the ordinance.

Mudit Jain is Manager – Consulting at BRIDGE TO INDIA

[1] MNRE, http://goo.gl/O4zn8r

[2] Refer to our blog, “MNRE releases draft guidelines for 3,000 MW solar under NSM” http://goo.gl/D2qird

[3] News article, “Land acquisition bill row delays solar policy nod in Maharashtra”, http://goo.gl/IsxZJX

[4] News article, “Telangana solar power developers seek clarity on land, evacuation issues” http://goo.gl/90Vmz

[5] News article, “Decoded: What changes has the Narendra Modi government made in the Land Acquisition ordinance”, http://goo.gl/doDRfr

[6] News article, “What the states got right”, http://goo.gl/NwjFTc

[7] News article, “Empower, don’t patronise, the farmer”, http://goo.gl/QHKDeS

Net-metering can potentially drive widespread implementation of distributed generation by incentivising end-users to adopt localized power generation through technologies such as solar. In theory, net-metering is the proverbial silver bullet designed to help India achieve greater energy security through generation at point of consumption (distributed generation). In addition to helping consumers reduce their energy bills, it is also supposed to help stabilise the national, regional and state grids, provide financial relief to the distribution companies (DISCOMs) through consumer default risk mitigation and reduction of AT&C losses, and help cut down the per-capita energy footprint. Unfortunately solar adoption through net-metering has not picked up, even in 12 states and union-territories where it has been implemented. Both DISCOMs and end-consumers are reluctant to adopt net-metering. This article is post 1 of 2 on this matter and discusses the consumer side of the issue. [Refer – part 2 – DISCOMs side of the story]

Net-metering is crucial for India if it wants to achieve energy security by 2022

Improvement in inverter technology and innovation in financial incentives is required for large scale adoption of net-metering

While technological improvements will enable market growth, financial innovations will drive the growth

There are two main reasons for the disappointing adoption of net-metering by the consumers: the tariff structure (a policy matter) and grid-reliability (a technical concern). Both issues are relevant for the residential, commercial and industrial segments. In this post, I have focused on the residential segments since it exemplifies the issues well.

Reason 1: Tariff structure (a policy issue)

Net-metering allows customers who generate their own electricity from solar to feed unused electricity back into the grid and be compensated for that. If the energy supplied by the consumer to the grid (selling) is at a special, usually higher, tariff rate than the one at which electricity is bought from the grid (buying), then it is called a “feed-in-tariff”. However, if the selling and buying are at the same tariff-rate (usually the buying rate), then it is called net-metering. And herein lies a problem.

Residential (and agricultural) tariffs are purposefully and artificially kept low (through subsidy) to influence the voters (e.g. Delhi elections). The actual average tariff rate varies widely in each state ranging from approximately Rs. 2.8/unit in Chhattisgarh to Rs. 6.15/unit in Maharashtra for MSEDCL consumers. In the highest consumption slab, they can even reach Rs. 11/unit in certain states. Residential rooftop solar PV systems today, on the other hand, produce electricity at a fairly constant cost across the country of approximately Rs. 10/unit – reducing yearly as system prices drop.

Thus a net-metering customer in Chhattisgarh will have to sell electricity at a loss of almost Rs 7/unit. Only residential customers in the highest consumption of some states benefit as they can sell at a profit and recover their investment within a few years.

DISCOMs recover the revenue lost due to subsidy for residential and agricultural users by levying extra charges on the commercial and industrial segments. If one removes this “cross subsidy” then the tariff rates will become more realistic and net-metering for all users will make more financial sense.

However, since there is no sign of change in vote gathering mechanisms and thus removal of cross subsidy in the near future, feed-in-tariff comes across as a possible solution. Unfortunately, feed-in-tariff is just not possible in India is because of the simple reason that the DISCOMs are in financial deficit – they have no money to pay the users. Lack of viable financial incentives is, thus, restricting end customer’s adoption of net-metering.

For net-metering to make financial sense, the solar industry, its financiers and the Indian government will have to introduce innovative financial incentives (may be such as tax-credits) to make choosing solar through net-metering easier for consumers.

Reason 2: Grid reliability (a technical issue)

One of the key requirements for any energy source to connect to the grid is the availability of “anti-islanding protection”. Anti-islanding protection is a way for the inverter to shut itself off and stop feeding power into the grid, when it senses a problem with the power grid, such as a power outage. This requirement is crucial because when problems arise with the power grid, it is assumed that workers will be sent to deal with it, and the power lines need to be completely safe – i.e. not have electricity flowing from all the nearby PV grid-tie systems – so that the workers can fix them without putting their lives in danger.

Most of the states in India, unfortunately, suffer from frequent power outages, mostly due to load shedding rather than problems in the grid’s infrastructure. Thus when the grid shuts off, the solar PV inverter will also turn off completely, preventing the owner from using the generated energy for themselves. With high unreliability of the grid, a lot of the electricity generated by the solar PV system will be wasted. This is a key reason for consumers to adopt solar with net-metering.

The anti-islanding protection is an essential safety feature that cannot be removed. Thus, the solution is technological innovation. Inverter manufacturers will have to make their inverters capable of cutting off the connection to the grid in case of grid failure, while still being able to operate (acquire reference voltage) and provide solar energy for use. If such a provision is available then net-metering customers can still use their grid-connected PV systems even during power outages.

Conclusion

In essence, consumers are seeking better incentives and a resolution of technical obstacles before they invest in residential solar PV systems. Policy makers, meanwhile, are coming up with multiple mechanisms to incentivize net-metering adoption from both sides to help DISCOMs improve their financial health and to enable a reliable energy supply. Unfortunately, this is just one side of the story. DISCOMs are wary of net-metering for various reasons. Policy makers are working hard to convince them to accept it as a viable solution. This convoluted state of affairs is, unfortunately, working against net-metering and India’s progress to achieve energy security. In the next post I will cover why DISCOMs view net-metering unfavourably. In the meantime, I hope that the solar industry will find solutions to the issues covered in this post.

Gayrajan Kohli is Senior Manager – Consulting at BRIDGE TO INDIA

This week, Germany was steeped in Indian colors. At the Hannover Fair, India made excellent use of the opportunity of being the official partner country and present itself favorably to a global business community.

India’s presentation at the fair was cool and exciting

Modi finds the right language and understands investor concerns

The international business community is ready to move, but expects more policy measures

India was all the buzz in Germany: at the airport and at the train station in Berlin, I was greeted by bright “Make in India” posters. As I drove up to the Hannover Fair – the world’s largest industrial fair to which India was this year’s official partner country – there were bright flags and imposing towers and more posters highlighting various aspects of India’s economy. Investors are invited to join in the big India story in friendly, optimistic, and exciting designs.

The most inspiring stall at the fair was the official “Make in India” stall: It was a very cool, colourful, open showcase of India’s plans and capabilities in sectors like automotive. energy, urbanization, defence, or chemicals. The stall was flanked by many more, smaller stalls from companies and individual Indian states with their own investment slogans. The well-known “Vibrant Gujarat”, was joined by “Emerging Himachal” or the more low key “Credible Chattisgarh”. Very senior bureaucrats from the states were out there, engaging at ease with anyone interested. There were Indian businessmen and a few women all around. Some of the German companies even dressed up their rather teutonic looking staff in turbans and sarees in a nod to the partner country.

Prime Minister Modi and German Chancellor Merkel gave talks – in english – on the opportunity that India presents for the world. Modi was cheered like a rockstar by hundreds of mostly Indian visitors as he left the conference hall. There was a palpable sense of optimism around him.

As far as communication and marketing go – both very important tasks for investment promotion – this was a first rate performance. This matters, because the execution excellence gives the “India” brand a credibility that it previously lacked and draws serious interest.

The general mood amongst the international business community was one of cautious optimism: there is a recognition that the government is working on key legislative reforms (land, tax, electricity) and that it is very responsive to investors. Many businessmen appreciate these efforts, and the fact that Modi’s government is talking the right language.

In the CEO round of the Indo-German Business Summit, which followed Modi’s and Merkel’s statements, it became clear that the reality of doing business in India has not yet caught up with the visions and ideas. Joe Kaeser, the slightly quirky CEO of Siemens said that they look to the implementation: “From ‘Make in India’ to ‘Make it happen in India’, one step at a time”. Cyrus Mistry, the Tata CEO, concurred. My discussions with Indian and international businessmen at the fair were mostly in tune: the outlook is positive, but there has not yet been a discernible uptick in on-ground business results.

The Indian government seems to recognize that. It wants to encourage more transparency and competition amongst Indian states by asking them to regularly publish a scorecard on the “ease of doing business” along 100+ criteria. That sounds like a good idea (and one the EU or even Germany would do well to copy).

Overall, India’s presentation at the fair was an excellent sales pitch. And that, after all, is the main purpose of fairs. If delivery now follows, there is a real chance for a step-change in Indian growth and development.

Tobias Engelmeier is the Founder and Director of BRIDGE TO INDIA

The global energy system is in a period of rapid transformation: electricity plays an ever more important role, as do renewables, distributed generation and electric vehicles. Energy efficiency is improving. Emissions are a large and growing concern. New technologies and business models are disrupting and challenging a traditionally risk-averse and slow-moving industry. The International Energy Agency (IEA) has just published its new “Energy Technology Perspectives” outlining the global trends until 2050 (refer). Here are some of the key findings and the implications they might have for India.

Construction of very large plants, especially nuclear power plants, has come to a halt due to uncertainty about the future power market design

If carbon were priced at a reasonable rate, both carbon capture and storage (for gas) and renewables would get a major boost

In India, the market will be driven more by default than design

The Global Context

As energy markets are transforming and countries are working out different supply strategies, this hitherto stable market is becoming much more dynamic and perceived investment risks for infrastructure investors are increasing. This has a profound impact on what they invest into.

Nuclear power suffers most. This energy technology requires the most planning security, because of its technological complexity, the very long planning, construction and operating time and the high capital expenditure. In addition, there are questions around accident insurance and the storage of used radioactive materials that can only be addressed with political support.

As a result, there are hardly any new nuclear plants coming up at the moment. The small number of new plants is offset by retiring old plants (like in Germany), leading to a flat industry growth. In some countries, even new gas and coal projects have been stalled for the same reason. In developed economies, where demand growth is very slow or even receding due to efficiency gains, this leads to an investment paralysis. In fast growing markets, like India, the effects are less strongly felt.

However, it is not only the power markets, but also the carbon markets that are uncertain. At present, there is almost no cost to carbon emissions. As a result, there is hardly any investment into carbon capture and storage (CCS) technologies. For the same reason, over 60% of new coal-fired plants added in the past 10 years were of the highly emissions intensive, inefficient, subcritical kind.

If carbon emissions were priced at $ 100 per ton (as compared to the ridiculously low $ 1 that they are currently traded at), technology choices would change dramatically: according to the IEA, it would then be commercially attractive to add CCS technology to efficient, combined cycle gas turbines (CCGT). Also, this choice would be cheaper than efficient, supercritical pulverized coal-fired power plants with CCS. And renewables, of course, would get a massive push.

Implications for India

There is a fundamental mismatch between the approach of the IEA and the reality in India. This relates to the fact that the IEA views energy as a regulatory game, driven in effect by government’s policy choices (based on market prices for fuels and technologies). In India, however, the government has a mixed record at best in providing power to its citizen and industry and it is unlikely that it will be able to manage a transition to a more complex energy future in the way that e.g. China or Germany are doing. Thus, in a way, uncertainty plays less of a role as the Indian market is used to uncertainty.

A likely scenario is that India becomes one of the leading markets for renewables, especially for solar, in the world by default rather than design. In the absence of policy certainty and in the absence of a government-driven energy strategy, we might well see a privatization of power supply, more distributed solutions, more end-user solutions and, because they neatly fit this kind of market: more renewables.

Tobias Engelmeier is the Founder and Director of BRIDGE TO INDIA

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A green bond is a green bond is a green bond – is that true?  Unfortunately, “green bond” is not a standard, well defined term.  Green bonds come in all shades of green, from the lightest tea green to the darkest ocean green, if you like.  A good way to evaluate the “greenness” of a bond is to see, if it makes a material difference to investment decision of the investors – in terms of an outright yes/ no, the maturity, the return expectation or the risk appetite. The bigger such influence, the “greener” the bond.

The green bonds currently available in India are marketing gimmicks

A real green bond needs to impact investment choices and improve financing conditions for developers

This would be a good option for the government to accelerate the market

With severely restricted bank lending appetites for the Indian power sector, we desperately need new sources of financing for the growing renewables sector. Recently, Yes Bank and EXIM Bank of India have both launched “green” bonds and there is much excitement in the market that this could be the magical solution to India’s renewable financing needs.

A closer look shows, however, that the bonds issued by Yes Bank and Exim Bank are of the lightest tea green type. This money may be raised for financing renewable projects but there are no specific covenants or structural limitations on end use or any cost of capital advantage associated with them. They are essentially called “green” for marketing purposes, to capitalise on the growing buzz around the renewable sector. And in all likelihood, the buyers of these bonds would have gone ahead and bought these bonds even if they were not “green”. The classification really made no critical difference to them beyond perhaps, a gentle feel good factor.

So what would a dark green bond look like? Such a bond should have structural distinguishing characteristics from a plain vanilla bond. It should have a material impact on the intentions of the bond issuer as well as investors and play a key role in the investment decision process. That could be achieved in multiple ways. For example, the government could give tax incentives, whereby if an institution like IREDA or even a private company issued bonds specifically for financing the renewable sector, the investors would get certain tax benefits. Such a benefit is already provided by the government for many other sectors, including housing (HUDCO), railways (IRFC) and roads (NHAI). On the back of such incentives, these institutions are able to raise up to 20-25 year monies at attractive rates, which wouldn’t have been possible otherwise.

Or the government could also impose an investment obligation on mutual funds, pension funds or insurance companies to invest a certain percentage of their corpus into instruments for financing the renewable sector. The structural differentiation doesn’t have to come from the government alone. Many institutional investors in the West have specific investment mandates whereby they earmark a certain share of their corpus for investment in socially and environmentally beneficial projects. Hence, the issuers specifically target these monies and are happy to provide covenants on end uses of these funds. In turn, they get the benefit of cheaper capital.

Unfortunately, there is unlikely to be investor driven demand for green bonds in India as we simply don’t have the same level of environmental consciousness in India as in the West. This market needs government diktat or incentives to take off.  Otherwise, the prospects of ocean green bonds appear dim for now. More funds at lower rates and longer tenures is exactly what the market needs to thrive. The government has understood that – it has been mentioned many times by the Minister of Energy Piyush Goyal. However, we are still waiting for the action. An ocean green bond would be a very effective tool to transform the government’s ambitious targets from fantasy to reality.

Vinay Rustagi is the Managing Director at BRIDGE TO INDIA

BRIDGE TO INDIA understands that based on the rooftop solar target of 40 GW of by 2022, the Ministry of New and Renewable Energy (MNRE) is in advanced stages of working on a central government supported sub-target of 10 GW for rooftop and other small grid-connected solar projects by 2018. This is expected to further be divided into yearly targets of 2 GW, 4 GW and 4 GW for the three years.

The subsidy mechanism is expected to be replaced by an interest rate subvention scheme

BRIDGE TO INDIA hopes that quality of new projects is not adversely impacted by aggressive plans

Though some detail has started emerging on how the overall 100 GW target may be achieved, but market is still waiting for a coherent roadmap for the sector

And although the MNRE has recently approved capital subsidy allocation for around 300 MW of rooftop projects being planned by SECI, state nodal agencies and institutions such DMRC and IOCL (refer), we believe that it is in favor of completely scrapping the subsidy scheme. This step is being influenced by the inputs received during the stakeholder meeting organized by MNRE on 19th March 2015 (refer). The subsidy mechanism is expected to be replaced by an interest rate subvention scheme although it may take some time before that is finalized. As part of the interest rate subvention scheme, the MNRE is planning to reduce effective interest rate for rooftop solar projects to around 8.5% p.a. helping to reduce the levelized cost by around 10%. The MNRE is already believed to have received funding interest of EUR1 billion from kfW, USD 500 million from Asian Development Bank and USD 500 million from the World Bank. If this goes through, this should be enough to provide debt to around 2.5 GW of rooftop solar (or 25% of the 10 GW target by 2018). Our understanding is that the USD 500 million funding from World Bank is likely to be restricted to sale of power (or RESCO/OPEX) projects.

These targets are very ambitious from a short-term capacity ramp up perspective. Until now, India has been adding only around 50 MW of rooftop solar a year. Going from these numbers to 2 GW of new capacity addition in 1 year sounds implausible as there is simply not enough execution capacity (trained manpower, distribution network, financing) in the sector. By rushing through with such aggressive plans, we hope that quality of new projects is not adversely impacted.

The good news is that some detail has slowly started emerging on how the overall 100 GW target for 2022 may be achieved. The central government has already announced plans to develop 15 GW of utility scale projects by 2019. The bad news is that most of the new announcements seem to be ad-hoc. The market is still waiting for a larger coherent roadmap for the sector and an understanding of where and how these pieces of policy will eventually fit in.

The global energy system is in a period of rapid transformation: electricity plays an ever more important role, as do renewables, distributed generation and electric vehicles. Energy efficiency is improving. Emissions are a large and growing concern. New technologies and business models are disrupting and challenging a traditionally risk-averse and slow-moving industry. The International Energy Agency (IEA) has just published its new “Energy Technology Perspectives” outlining the global trends until 2050 (refer). Here are some of the key findings and the implications they might have for India.

A substantial reduction of oil consumption is needed to achieve climate goals

Oil consumption can be reduced through higher efficiency and fuel switching to gas or electricity

In India, a desire to reduce air pollution in cities can be a significant additional driver

The Global Context

In order to keep global warming to less then 2 degrees, there needs to be “radical action” with respect to our use of oil. Under a business as usual (6 degrees) trajectory, oil consumption will increase by 45% by 2050. In a 2 degree scenario, it can decrease (!) by 30%. This is possible through efficiency gains and fuel switching.

Drivers for such a change are the cost and volatility of oil prices, concerns about supply security and future carbon prices, pollution and climate change. New business models also play an interesting role. For instance, the new car-sharing businesses have around 10% share of electric vehicles (EVs) in their fleet as compared to less than 1% EVs in the overall market. Also, new companies thinking about entering the automotive market often try to be technologically disruptive to have a better chance of success. They typically prefer new electric motorization concepts to the petrol engines that existing car companies have already spent decades perfecting. Just look at Tesla, India’s Reva or the efforts of Google or (perhaps) Apple.

A challenge in moving away from oil is the required energy density of vehicle fuels (i.e. how much energy can be concentrated in a limited amount of space). Electric battery storage will be a viable route in grid-connected, urban areas. However, fuel switching will be more challenging for off-grid, long-distance and heavy-duty vehicles such as trucks, air planes or ships. Amongst current technologies biofuels and fuel cells seem to be the best options.

Interestingly, IEA projects that fuel switching and new vehicle technologies can reduce oil demand in the transport sector without considerably increasing our consumption of power. In their modeling, even with an aggressive rate of electrification, transport’s share of electricity demand will not exceed 15%.

Implications for India

Oil consumption will rise in India as the economy and the population grows. This is a major headache for the government, since India imports almost all of this fuel. Currently oil prices are fairly low, but if they rise again, they will drive inflation and open up a large trade deficit. If the government decides to step in to subsidize oil again, it could quickly become a major cost position in the budget.

In addition, the terrible air pollution in India’s cities will increase demands for cleaner vehicles. In addition to stricter regulations on vehicle efficiency and pollution, the main lever is fuel switching to gas (CNG) and electric vehicles. China, for example, whose cities also suffer heavily from air pollution, already has some 150 million electric two wheelers on the road. Thus, moving away from oil as much and as quickly as possible is in India’s core interest. Like China, it should be a frontrunner of that transition.

Tobias Engelmeier is the Founder and Director of BRIDGE TO INDIA

On 1st April 2015, the Southern Power Distribution Company of Telangana Limited issued a request for selection (RfS) and a power purchase agreement (PPA) for allocating 2 GW of solar PV (refer). This follows the state’s successful allocation of 500 MW late last year and places Telangana right at the top of Indian states with respect to solar. No other state has allocated 2.5 GW till date. Even the central government allocations have not yet reached that mark. So far, India has only built 3.5 GW of solar.

The allocation process is aggressive on both the benchmark tariffs and the allocation capacity

After the announcement in Telangana, Tamil Nadu, Karnataka and several other states are expected to announce their new allocations

Indian states are now likely to be on the driving seat for the next 12 months

Projects will be allocated through a simple reverse bidding process. The benchmark tariff, which is the highest tariff that a developer can bid at, is INR 6.45/kWh (10.4 US cents) for projects below 8 MW and INR 6.32/kWh (10.2 US cents) for projects above 8 MW. A capacity of 500 MW has been reserved for projects below 8 MW. There will be a separate bid evaluation for the two categories. Minimum project size is 2 MW. The upper limit is only determined by the evacuation capacity at the relevant substations. This can reach as much as 450 MW in one of the districts (details are provided in the RfS document).

The allocation process is aggressive (perhaps too aggressive?) on both the benchmark tariffs and the allocation capacity. Incidentally, the benchmark tariff for the smaller project category is the same as the lowest tariff received by the state in a previous allocation late last year in a bid submitted by First Solar. Such an aggressive approach may be justified in light of the great demand. The previous bidding process for 500 MW was heavily over-subscribed with bids for 1,850 MW. In addition, the state has seen additional interest outside of the previous bidding process.

As central government allocations under the National Solar Mission keep getting delayed (refer), states are now taking the lead. This is something that BRIDGE TO INDIA has been predicting in prior posts. Read this article to get our overall perspective on where the new utility scale opportunities will lie.

Even on the distributed solar front, as the central government takes its time to decide on the future role of subsidies and incentives for rooftop solar, state governments are taking a lead. Last month, Maharashtra released its draft net-metering guidelines and Uttar Pradesh finalized its net-metering policy. Except Gujarat, Jammu & Kashmir, Bihar, Jharkhand and six of the seven north-eastern states, all Indian states now have released draft or finalized net-metering guidelines.

The 2 GW of planned allocation in Telangana and new expected allocations in Tamil Nadu, Karnataka and several other states will likely keep the states in the solar driving seat for the next 12 months. The first feedback on developer interest in Telangana’s aggressive allocation process will come in on 10th April 2015 at the planned pre-bid meeting