Can’t erase state power firms’ losses at one go !!

The article in the business daily, LiveMint, provides the quantum of losses of state distribution companies and its impact on achieving the target for power generation set up in the 11th plan.

Are Wind Turbine manufacturers going the Henry Ford way ?

The article  in New York Times speaks about how established power equipment manufacturing company like Siemens which is into other businesses also think about the wind energy sector.

Investors in the sector worry about government policies more than market volatility

The recent news that appeared in NYTimes article  sends some encouraging signal to the renewable energy sector. The renewable energy sector and more specifically wind power sector is becoming more of a mainstream industry than something that was looked upon as surviving under the aegis of government subsidies. Cases are generally referred to the WTO, when the government remains concerned about any sector that has the potential to generate employment but will be unable to do so due to cheap export of products or services. It is not only the government that remains quite confident about the potential of wind energy sector but also the companies that are into manufacturing of wind turbines.

But another article of Knowledge@Wharton refers about how investment in renewable sector has been affected after the economic crisis in Spain, a country that has been in the forefront of power production from non conventional sources. Excessive subsidies over the past decade has  led to over capacity in solar power production, which now is becoming difficult for the government to purchase at a price above the market rate.  In Spain the government is yet to declare the new policies that will affect the sector; causing uncertainty among investors. The Spanish experience can be a good learning for any government agencies while framing policies for the renewable energy sector.

More than market volatility, uncertainty in government policy acts as a deterrent for long term investors in the sector. In both the above mentioned articles this becomes visibly clear. This has led to outflow in some of the clean energy funds which have investment in the developed countries.

Same may not be said about the developing countries. Among the developing countries, governments of both India and China have taken more initiative in reducing green house gas emission. The Ministry of Power of Government of India has already introduced trading of Renewable Energy Certificate in two of the power exchanges. To measure the performance of a state, the Indian Central Government will also take into account environmental factors before providing any kind of financial assistance to the state.

To reduce the dependence on imported oil, China has set itself a target to become the largest producer of electric vehicle by 2012. The Chinese car market has been growing almost 50% a year.  Similarly, Israel also has set a similar goal to make its transport sector “completely free of petroleum” by 2020. Thanks to the technology and infrastructure developed by the Israeli start-up company Better Place.

Shai Agassi, founder and CEO of Better Place, while delivering the 2009 Alfred Deakin Eco-Innovation Lecture said “Things that brought us to the crisis, will not take us out of it.” 

COMMUNITY SUSTAINABILITY FOUNDATION

COMMUNITY SUSTAINABILITY FOUNDATION BY KENERGY WINDFARMS

Kenergy Wind believes that the whole community should benefit from the project, not just those with a direct financial stake. Kenergy Wind will allocate a portion of the Wind farm’s profits to the Community Sustainability Fund . This funding has been accounted for in all financial projections. Community Sustainability Foundation  is a charitable initiative by Kenergy wind farms  based in India dedicated to strengthening local communities, creating opportunities and tackling issues of disadvantage and exclusion. Community Sustainability foundations target grants that make a genuine difference to the lives of local people. It manages funds contributed by Kenergy Wind farms profits , individuals and organisations, building endowment and acting as the vital link between donors and local needs, connecting people with causes, and enabling clients to achieve far more than they could ever by themselves. Its an initiative to uplift the local community where the wind farms will be developed to ensure the development of the local community as well.

Kenergy Community Sustainability Foundation is spearheaded by Ms. Rashi Kapoor 

World's global energy forecast

Interesting Reading

Clifford Krauss article in NY Times on Global Energy Outlook.

Thinking globally acting locally

In the last World Economic Forum - India Economic Summit, Prof C.K Prahalad, was talking about how Indian companies have introduced business models to cater to the domestic customers. This did not require any path breaking innovations or creativity. Neither did Air Deccan innovate alltogether a new model of aircraft to ferry passengers at a cost as low as a glass of beer in any of the five star hotel across India nor did Hindustan Lever changed the composition of the shampoo. But both the companies were able to deliver their products and services to the "aam admi". Whether it is Bharti Airtel outsourcing the whole netowrk to IBM or Dr Aravind Eye Care clinic adopting the model of McDonald. All the leaders of the companies mentioned above had one thing in common. They thought globally but acted locally.

Can something similar happen to the energy sector ? Can power be delivered at a cost that would make providing power subsidy to farmers irrelevant ?  I know the questions that will prop in the mind of readers are about the gigantic challenges. The rate of addition to the existing capacities are abysmally low. There are lot of worries about how to achieve the traget set out in each of the five years plans. But those questions have remained for a long period of time and I do not see them being adressed in the near future.

So leaving the worries behind, we need to think globally and act locally. I belive the answer lies probably in decentralisation of power production and transmission. It is about changing the way power is produced and delivered. Producing energy using renewable sources will help in bringing decentralisation very rapidly and without much hassle.

With most of the countries embracing clean technology for power production the cost of equipments will also reduce. Here we have to take into account the benefits of globalisation. A recent article in New York Times mentioned about how the subsidies offered by Chinese government to the manufacturers of solar collectors help in reducing the cost. Even the most innovative companies of Sillicon Valley are not able to compete with the Chines manufacturers. This reduction in cost of solar collectors will be an incentive for local communities in India to set up their own power producing unit on a co-operative basis. As the plants will be run by the very people who will be the end consumer, I think many of the unasnwered question of yesteryears will not remain. Now suppose a village community has set up a local power producing unit based on solar power can also set up a small hydro unit that will be fully operational during rainy season. This will help in addressing the seasonal effects that hinder power production from any one particular renewable energy source. Usage of smart gird technologies can help the local people in adopting the most efficient means of using the transmission facilites. Smart grid techonolgies also enable in better forecasting of power consumption. So the whole operation of power production and transmission will be within the hand of local authority.

This model of power production and consumption can be done on a pilot basis to check out the feasibility. Successfull implementation will also help government to design their policies that may encounrage similar projects to be take up by other local communities.

Wind Under Our Wings

Here’s an interesting fact. countries with well-endowed fossil fuels such as Nigeria (37 billion barrels of oil reserves) and Iran (150.31 billion barrels) are developing renewable energy at a faster pace than India. “We do not want to be dependent on a single source of energy howsoever large it is today,” says Adeola Elri, senior scientific officer, renewable energy department, Energy Commission of Nigeria.

Both Nigeria and Iran have set a target of 10 per cent of their energy demand being met by renewable energy in the next five years, up from the present 3 and 7 per cent, respectively. In India, renewable energy accounts for nearly 11 per cent of total grid-installed capacity, but contributes just over 4 per cent of that to the total electricity generation mix. The reason: the per unit cost of renewable energy runs very high.

As a consequence, enhancing use of renewable energy is hard, particularly through decentralised distribution grids. “Access to capital, technology development, innovation and strategies are not keeping pace with global development,” says V. Subramanian, former secretary at new and renewable energy ministry (MNRE).

Oddly enough, nearly $3.1 billion has been invested by the private sector in renewable energy till 2009, according to a Ernst & Young report, which ranked India the fourth most attractive destination for investment in renewable energy behind the US, China and Germany. One reason for the disinterest is purely economic. “Traditionally, alternatives have been explored when cost of an existing product is beyond the reach of people,” says Farooq Abdullah, minister for new and renewable energy. That is both realistic and pragmatic.

The other is regulatory policy. Given high costs, renewable energy generation needs well-targeted fiscal incentives: that implies some mix of tax benefits and subsidies. So far, existing policy has failed to generate private sector excitement. Which begs the question: are policy objectives aligned with the interests of those who could build the required generating capacity?

Analysts say incentives do not appear to be aimed at promoting the use of renewable energy. For instance, they have failed to reduce the cost of consumer durables using renewable energy that can be used by masses of people. Instead, the government has imposed directives on distribution companies. The stipulation that power distributors should procure 5 per cent of total energy demand from renewable sources is a diktat, not a market-based mechanism.

Then, companies in the renewable energy business could well use the tax write-offs without adding to enlarging the market meaningfully. “There is a need for serious players to promote renewable energy, who can tap the benefits offered by government,” says Vinayak Mavinkurve, group head, project finance and principal investments at IDFC.

Progress will continue to be slow, said leaders from more than 85 countries participating at the Delhi International Renewable Energy Conference, 2010, if political leadership views renewable energy as an alternative source of energy rather than as the main energy source for the present and the future.

“It is imperative that India looks at other alternatives within renewable sources seriously for its energy security,” says Edward Norrena, sector practice lead (environment and infrastructure) at global business opportunities bureau in foreign affairs and international trade, Canada. “It can exploit its vast coast line and huge biomass and not just focus on wind and solar alone.” MNRE should be the facilitator and not the regulator of a few renewable sources of energy. But is anyone listening?

(This story was published in Businessworld Issue Dated 08-11-2010)