Indian Renewable Energy Sector Directionless: Says the report jointly prepared by Commonwealth Business Council (CBC) and IIM-A

A new report by the Commonwealth Business Council (CBC) highlights that major challenges lie ahead if India is to realize its vast renewable energy potential. Despite the Indian Government being the only nation in the world that has a dedicated ministry to develop renewable and clean technologies, the report highlights a catalogue of ills in an industry dogged by poor R&D and ineffective government data that pose huge technical difficulties for investors.

India is blessed with 300 days of natural sunlight a year, high velocity winds from the strong south-west summer monsoon, massive hydro electricity potential in the north east mountainous region and even larger potential to develop electricity from municipal waste due to the ever expanding population which has already reached over a billion. There are 35 towns alone which each have a population over a million.

The report highlights that the wind sector suffers from huge grid interface problems which don’t generate efficient wattage from the rotating turbines. The drive for solar power is hampered by the lack of available land as solar plants are often competing with other infrastructure projects. The biomass market is completely unstructured so there is no formal way of meeting demands or checking the quality of the product. The electricity from waste sector is hampered by regional governments having poor local data on the characteristics of their waste making it difficult for companies to know how to design their power plants. The report also makes clear that there is a need for better technology and manufacturing across all sectors to efficiently convert the natural resource into energy.

The CBC report, written in conjunction with The Indian Institute of Management (IIM), is aimed at global investors looking at the Indian renewable energy market and particularly the state of Gujarat which has significant potential. It provides a frank assessment of what is currently lacking and therefore where their investment and expertise is likely to have most success.

In launching the report, The CBC has also set a new incubation hub with the Indian Government, the IIM, The UK Carbon Trust, and BP Alternate Energy Group to develop cutting edge technologies tailor made for Indian city and rural living as well as transport. By involving academics as well as industry, the idea to get ideas commercialized quickly.

Director General of the CBC Dr Mohan Kaul, said:

“This report gives global investors a clear roadmap for their expertise. It shows where their skills are most needed to help India deliver on its enormous renewable energy promise. “It is clear that there are still R & D, grid interface and manufacturing issues which need to be put right. The central and regional Governments can also do better. They need to provide more user friendly data, procedures and incentives if investors are going to take a risk on relatively new technologies which are already difficult enough to get off the ground.

“Our new incubation hub will get ideas from everywhere, including the Indian entrepreneurs. Hopefully, this hub can get these ideas backed and commercialized quickly. I look forward to seeing the first solar powered rickshaw.”

The report’s findings include:

Wind

Indian Challenge

• A nationwide wind resource assessment has hardly got off the ground. Of the total of 553 wind monitoring stations installed, currently only 53 are in operation. In Gujarat, of the58 wind monitoring stations installed, only 2 are in operation.
• Current wind electricity generators in India have poor conversions rates of wind to power. There is also poor grid-interfacing further hampering the evacuation of power during high wind regimes.
• Can still be very beauracratic for a private investor seeking a wind site, getting clearances from various agencies and sourcing equipment
• Huge R and D required to develop small scale wind generators generators and new light weight materials for large wind turbines
• There is a growing view amongst various stakeholders that the existing system of tax subsidies for wind power in India which are just linked to capital outlay needs to be stopped. Instead, a new system that encourages power generation must be put in its place.

Opportunity for investor

• Global companies are currently encouraged to invest through intermediaries as this involves little administrative responsibilities before the project is completed
• R and D opportunities linked to efficient electronics for protecting, controlling, optimizing performance, power management & conversion. Also R and D opportunities linked to establishing strong connectivity to the grid.

Solar:

Indian Challenge

• The amount of land required for utility-scale solar power plants competes with other necessities such as new infrastructure and crops.
• Solar power plants are not connected to the grid as large upfront investment cost coupled with low conversion efficiencies makes mass utility scale deployments unattractive. Solar power in India is currently used in a decentralized manner for home lighting, lanterns, street lighting systems, stand-alone SPV power plants and water pumping systems.
• Inefficient manufacturing processes makes the production of silicon based solar cells expensive. Japan, Europe, China, and the US are ranked far ahead in the production of solar cells.
• The recent shortage of Polysilicon, a key component of solar cells that is expected to continue in 2009 affects the solar cell production and sends the prices of the end products soaring.

Opportunity for investor:

• An immediate opportunity to manufacture and distribute solar water heaters and cookers
• Opportunity to develop Photovoltaic Devices that have applications in areas that are unviable to connect to grids or as backup power sources. These include solar power packs for rural households and duel pump stations. Solar signaling systems: for traffic lights or railways signaling systems. Solar Road Studs to mark multi-lane highways and Solar Street Light:
• R and D to develop PV systems that reduce the ratio of capital cost to conversion efficiency.
• India is the least cost producer and assembler of solar cells so there is an excellent opportunity to set up efficient manufacturing plants of solar cells and PV systems which can used internally and exported to the ever expanding European or American photovoltaic market

Biomass: energy from unused agricultural and forestry residues

Indian Challenge

• Currently, agricultural and forest residue is traded informally as there is no such structured market. As well as this meaning that there is no efficient way of meeting the demand - there is also no certainty on biomass quality
• The limited availability of raw material including fuel sources limits the size of the biomass energy systems to below what is commercially optimal.

Opportunity for investor:

• R and D to improve biomass conversion on the large MW biomass gasifiers
• Due to the lack of uncertainty in the biomass quality, an opportunity lies in efficiently collecting the biomass, segregating it into different qualities and providing it to power generation units.

Biofuels – for cars

Indian Challenge:

• Constraints in the supply of molasses have impacted the bio-ethanol production. Reaching a target of 5% blending in some states is still a challenge.

Opportunity for investor:

• Jatropha cultivation, which grows in semi-arid wastelands with minimum care, is an ideal feedstock for large scale bio-diesel programme
• To develop technology and techniques for producing ethanol from alternate feedstock such as sorghum ligno-cellulosic materials like, rice straw,
• Joint ventures can be formalized with automobiles companies like Tata Motor, Daimler Chrysler etc. to develop engines that run on different feedstock based biofuels, efficiently. Particularly as India move towards the target of 20% blending of petrol and diesel by 2017

Municipal solid waste to Electricity

Indian Challenge

Lack of reliable data with the urban local bodies on the waste characteristic of their particular region makes it difficult o design the

• appropriate units

Lack of efficient systems for collection and distribution of solid wastes

• leads to irregular supply of raw material
• Current technology to convert MSW to energy in an efficient and environment friendly manner still remains a challenge. Critics have raised questions regarding the toxic emissions from these projects which defeat the basic purpose of being environment friendly.

Opportunity for investor:

• R and D to develop technology which transfers the waste efficiently to electricity.

Even though the report highlights such challenges - it still predicts that in the long run there is every likelihood that India will fulfill its renewable energy potential. It highlights that currently 44% of the 200 million Indian households do not use electricity and so there is huge scope to still invest as India continues to develop. It secondly points out that India imports more than 70% of its oil requirement from the Middle East which it desperately wants to reduce with the Government increasingly stressing renewables as the answer. For example, India is the only country in the world to have a dedicated ministry to develop the renewable and clean technologies - Ministry of New and Renewable Energy (MNRE). Thirdly, the report highlights that India is hugely blessed with an abundance of renewable energy sources, specifically the solar, wind and hydro

CERC restructuring of UI regime: The right foot forward…

We very often do hear about grid indiscipline, over drawl and under drawl, grid collapse in power sector. Power can not be stored and can not be blocked as it flows across the grid. This is the reason distribution utilities do resort to overdrawl of power when in need but the pressure it exerts to the grid system is enormous and sometimes there is a danger of grid collapse. Electrical equipments malfunction at times due to non synchronization of frequency and sometimes failed in operation.

In my perceptions, the distribution utilities drawing more than their scheduled plan are direct theft under the sun. They keep on complaining theft of power by the consumers and non payment by them. There are stringent laws for power theft but why we do not have similar kind of penalties and laws for the utilities which indulge in overdrawl and under drawl.

The UI (Unscheduled Interchange) mechanism is a fantastic concept to induce some kind of discipline to the system but the big question is that whether the way it functions is right or not. There is opposition from the utilities when UI rates are too high. Definitely, it should be high or else it will not serve any purpose. When the UI rate is similar to the power purchase cost, it is quite evident that the utilities will overdraw and will be ready to pay the penalty. Similarly a small variation at the upper side will not make any significant change.

There is one problem in trading of power in the exchanges. The demand supply mismatch at times take the trading of power at a very high rate, a considerable high price than the UI rates so utilities find it easier to overdraw power from the grid. Similarly, very so often, the utilities are not paying the UI charges at regular intervals as they themselves are bankrupt.

We Indians are very smart and can never be self disciplined so laws and rules are made to make us discipline But then we find enormous ways how to nullify all rules in favour of us.

CERC in its effort to induce a strict discipline has notified new regulations on UI for electricity grid operations and also amended the IEGC (Indian Electricity Grid Code).It is operational from April 1, 2009.It rationalizes the UI rates for the entities who abide by the specified grid operation parameters. It also narrowed down the operational frequency range to improve the quality of supply.

The permissible operating range for the grid has been narrowed down by 0.4 Hz. Now the operating range is in between 49.2Hz to 50.3Hz (Earlier it was 49 – 50.5 Hz).The rates are also structured. Differential rates are proposed for drawl of power at normal permissible limits and for excessive overdrawl. So now there is a clear identification of normal operator and habitual defaulter.

The clear signal is that UI mechanism is not for trading of power; rather it is a method to make grid secure and supply quality power to one and all. But utilities tend to take it otherwise and use it for their own benefit.

The other features of the new regulation are:

• Overdrawl below 49.2Hz will pay additional UI charge at a higher rate
• Overdrawl beyond the permissible range would make the entities and the officer in charge such as CEO or MD liable for penal action under sections 142 and 149 of the electricity act,2003.
• The UI rates for generation made symmetrical for over generation and under generation. This step is a welcome move as it will not provide any scope for gaming by the generation companies.
• Review of UI charge every 6 months subjected to fuel price and grid discipline
• Surplus amount in UI pool to be used for strengthening the grid in strategic important area.

In my view, these regulations if implemented in proper manner will go a long way in inducing the much desired grid discipline. Further, the band width should be narrowed down so as to make the grid function in an optimal way and there should not be any scope of overdrawing beyond what is planned. They may resort to load shedding if they wish. Any deviation should be dealt with stringent punishment. Its high time to think beyond the limits so as to make Indian power sector an example for the rest of the world.

Please pour in your thoughts on this issue..

Captive coal block mining: Issues and the way forward…

Infraline has organized a Round Table Conference on “Captive coal block development: issues and the way forwards” on 1^st April at India International Centre in New Delhi. Among others Mr R V Sahi was the moderator of discussion and the eminent panelists were Shri B.M. Verma, Ex Chairman, Jharkhand State Electricity Board, Ex CMD, Uttarakhand Power Corporation, Shri Sanjeev Agararwal, Managing Director, AES Chhatisgarh, Chhitiz kumar ,VP,GE finance.

I had an opportunity to present my views to the august gathering and I was the first speaker at the round table discussion.

My Views:

1. Till date, 198 coal blocks with reserves of 42 billion tones were allocated, but production commenced from only 23 blocks which is around 24million tones this year. It is projected to grow at CAGR of 24% to achieve 55MT by the end of 11^th plan, but the govt have projected a production of 104MTs in the terminal year of 11^th plan which seems quite unreachable looking at the slow pace of captive coal production.
2. Issues are plenty, starting with all governmental procedures, clearances from different ministry, land acquisition, R&R problems, mafias and naxalites menace coupled with lack of expertise and technological constraints.
3. For an unexplored block, the time line as suggested by the MoC is almost 72 months or 6 years.
4. Problem starts with allocation of coal blocks which is done under some recommendations from the ministry, no clear rules and guidelines. Then, time taken for grant of prospecting license, preparation of geological report with the help of CMPDIL, all clearance related issues and at last the land acquisition problems.
5. I suggested to form a/ many separate autonomous body for all geological surveys and report preparation without any interference from CMPDIL
6. A shell company like in case of UMPPs be made to facilitate all clearance from the ministry and if possible help in land acquisition and at the time of allocation of the coal block , the shell company be transferred to allocate which could save precious time for coal block development.
7. Coal blocks retained by CIL which it plans to explore after 5 years must be freed from its clutches and be allocated to private/govt parties for development.
8. Strict monitoring is utmost necessary so as to keep a regular check on the progress of coal blocks. A stick and carrot approach from the govt will help streamline the process.
9. In case of joint allocation time line must be fixed for the consortium partners so as to make a consensus decision as to which options they do agree to. If they fail to get into a consensus, coal blocks must be de-allocated and they should not be given any chance for further allocation of coal blocks.

Besides I have also raised question about coal block allocation to

1. Sasan UMPP and its diversion of coal to other plants

• In case of Sasan UMPP, MoC allowed for diversification of surplus coal to the same end use but to a different plan ( in case of Sasan UMPP, it is chitangi power plant developed by RPL in state of MP)
• The govt has approved the mine plan of RPL for a coal production of 20MTPA while the requirement of the UMPP comes around 15MTPA.The surplus coal thus generated will be used in Chitarngi power plant
• As such, RPL do not have an requirement of Chhatrasal coal block which was allotted for Sasan UMPP and the coal production from this block can not be treated as surplus coal and can not be diverted to chitrangi power plant as suggested
• The development of this coal block would be easier for RPL in an economic point of view as it is adjacent to the coal blocks developed by it. But the question lies…can it be considered as surplus coal of sasan UMPP. If not, then should MoC allow the coal to be used at other power plants of RPL or the coal block be de allocated from RPL?

The second issue I had raised was about the allocation of 2 coal blocks for CTL projects recently.

• What is the necessity to allocate 2 CTL blocks when Govt could have allocated 1 block for trial basis so as to find out the viability of the project
• Is it not that by allocating two coal blocks, the Govt had unnecessarily blocks a huge resource of coal quantity?
• What is the economic sense of coal block allocation at this time when recession is gripping the world economy and the oil is well below the $50 mark?

Experts View:

• In their presentation, besides MoEF clearance, other major issues that surfaced are
• Infrastructure development/sharing in case of coal block development
• Trust between private agencies which prepare GR with CMPDIL
• Commercial terms of agreement with CIL and subsidiaries for their infrastructure and expertise sharing
• Independent autonomous status to CMPDIL in line with CEA in power sector.
• Formation of coal regulator at the earliest
• Mining lease transfer to lenders in case of defaulting in the part of the developer
• Commercial sale of coal so as to attract foreign players to the coal mining
• Allocation through competitive bidding
• Govt should facilitate or help in land acquisition problems as it helps the govt undertaking through an act.
• Right choice of model of contract ( MDO, JV etc)

After individual presentations, Mr Shahi opened the forum for discussions and invited comments specifically any suggestion to CIL, Ministry fo Power, Ministry of Coal for captive coal block development.

After an intense questions answer session, it was concluded that Government should act as a facilitator in obtaining all the clearances, even it should transfer the PL at the time of coal block allocation.

All agree to suggest for an independent autonomous CMPDIL , it should come out of the clutch of CIL and act independently as technical expertise provider. There may be some kind of commercial agreement with CIL to share the already available infrastructure with them or else the coal block allocattees should form a forum to take up this issue and must contribute to tackle this issue in a larger way.

Though the discussions ended in a high note but some questions remained unanswered. The coal scenario is detoriating day by day and India resorts to high volume of import to mitigate the deficit part of coal demand, is it not the right tome for the Govt to look forward and take some drastic decisions so as to kick start the captive mining in a big way?