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India: Doubling Renewable Energy Capacity Would Have Negligible Impact on Power Tariffs

A study by one of the leading ratings firm in India shows that the cost of doubling the renewable energy generation capacity over the next five years would be negligible.

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The Indian government has announced a the National Action Plan on Climate Change according to which the contribution of renewable energy resources to power generation would be increased to 10 percent by 2015 and 15 percent by 2020, as opposed to the current four percent. The main thrust would be on solar and wind energy infrastructure. The state electricity boards are also mandated to increase purchase of power from renewable energy sources by one percent every year.

Infrastructure development for tapping renewable energy sources for power generation is important as India looks to reduce its carbon emission output to offset international pressure for mandatory emission reduction targets and to reduce its dependence on foreign supplies of energy resources.

While the potential of renewable energy sources is very high in India (about 185 GW), there are several hurdles in making the most of this potential. Solar energy has the maximum potential of about 100 GW and is central to India’s renewable energy policy. The government has announced several incentives for the solar energy sector as it intends to achieve the 2022 goal of 20 GW of installed solar capacity. Feed-in tariff schemes, tax holidays for project developers and freedom to make power purchase agreements to increase revenue are some of the incentives offered by the government.

Wind energy resources, although concentrated in about a dozen Indian states, have the largest share in India’s renewable energy basket. Coastal states are the major producers of power from wind energy. Competitive tariff regime vis-a-vis conventional fuels and availability of technology have favored the growth of wind energy infrastructure. However, there remains a wide gap between the installed capacity and the actual power generated due to the inconsistent nature of wind. Therefore, it is required that the more infrastructure is expanded in areas where the wind speeds are more sustainable, that is, offshore regions. However, the Indian government currently has no plans to tap offshore wind resources.

The current incentives being offered by the government are attracting significant investments. Several state-owned as well as private companies are setting up renewable energy-based power plants. With a plethora of financial incentives many companies view clean energy sector as a golden goose for maintaining their balance sheets in a healthy state.

The government has also announced the renewable energy certificates scheme which will kick off in September. State electricity boards would be able to buy these certificates from the project developers of the renewable energy power plants in case state electricity boards fail to achieve their mandated goals. This would further bring financial incentives for the investors.

Taking in account these incentives it seems highly probable that with the active involvement of the government and the investors the projections made in the report could come true.

The incremental impact on power purchase costs pan-India would be about 1.5 paise a unit in 2011 diminishing to 0.1 paisa by 2015. The maximum impact for any state would be 4.2 paise a unit in 2011, which would go down to about 1 paisa by 2015.

The additional cost in buying one MWh (1000 units) of electricity (generated from conventional and renewable energy sources, combined) would be about 32 cents in 2011 and would reduce to two cents by 2015.

Hat tip: Livemint

Photo credit: james_jhs (Flickr)/ 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.

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Mridul currently works as Head-News & Data at Climate Connect Limited, a market research and analytics firm in the renewable energy and carbon markets domain. He earned his Master’s in Technology degree from The Energy & Resources Institute in Renewable Energy Engineering and Management. He also has a bachelor’s degree in Environmental Engineering. Mridul has a keen interest in renewable energy sector in India and emerging carbon markets like China and Australia.

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