Published on August 13th, 2010 | by Mridul Chadha0
India's Largest Oil-marketing Firm to Invest $430 Million in Clean Energy
Indian Oil Corporation is looking to diversify into renewable and nuclear energy sectors and has earmarked $430 million for investment in the next five years.
The move comes as no surprise as several other government-owned oil companies have showed interest in investing into renewable energy infrastructure. IOC is looking to develop wind energy, solar energy and tidal energy for commercial sale of power. Additionally, it is also looking to form a joint venture with the Nuclear Power Corporation of India to take full advantage of investment opportunities resulting from the Indo-US nuclear deal.
The company already generates power from wind energy for captive use but intends to foray into power generation for commercial sale, either to the power exchanges or to the grid itself. The company is looking for sites in Rajasthan and Tamil Nadu for setting up solar and wind energy plants; both these states have significant wind and solar energy resources. The company has also registered for roof-top solar installations implying that it could look into small-scale installations coupled with feed-in tariff schemes that ensure higher revenue due to higher tariff rates.
Several oil companies in India are looking to secure their revenue lines by investing into new areas which are supported by the government through various financial incentives. Through the National Solar Mission, which aims at 20,000 MW solar installation by 2022, the government is offering millions of dollars in subsidies for investors looking to set up solar power plants. This is a golden opportunity for the oil companies which have suffered tremendous losses in recent years owing to government subsidies on oil products.
The government recently reduced some subsidies on the petroleum products, freeing the sector of government control to some extent. But this was a good news not only for the public sector companies but also for the private oil companies, like Reliance Industries. Private companies had sold off their filling stations as they could not compete with the government-supported low fuel prices, but now the private companies are making a comeback. Therefore, the public sector companies are looking to invest in safer and high-growth yielding sectors.
Additionally, the government is offering attractive incentives like tax breaks, subsidies on equipment purchase and high tariff rates which can complement IOC’s oil revenue. During the first phase of the National Solar Mission, India aims at installing 1,000 MW of solar power systems, up from the current 12 MW. The government has announced attractive tariff rates at which power will be procured from these power plants. These tariffs are five to seven times more than the tariff rates for coal-fired power plants. The government has also set up a solar energy security fund which will be used to pay the project developers in case the state electricity boards fail to honor their commitments to purchase power from them.
Similar incentives are in place for other renewable energy resources as well. Wind already enjoys a favored status among all renewable energy sources as it has achieved tariff parity with conventional energy sources to some extent. The state governments have been directed by the central government to meet at least ten percent of their power demand from renewable energy sources by 2010. The central government will also introduce the Renewable Energy Certificate (REC) scheme which will work in a way similar to the Clean Development Mechanism. States will be required to fulfill their clean energy commitments but if they fail they can buy RECs from authorized clean energy projects. Thus opening up an additional stream of revenue for the project developers.
These initiatives by the Indian government are attracting several private and state-owned investors who wish to make the most of the impending renewable energy revolution. Slowly, but surely, healthy market conditions for the growth of renewable energy technologies are developing in India. No surprise then that state-owned companies are looking to make up for their years of losses by investing in these technologies.
Hat tip: Financial Chronicle
Photo credit: Amaresh S K (Creative Commons)
The views presented in the above article are author’s personal views and do not represent those of TERI/TERI University where the author is currently pursuing a Master’s degree.