Renewable energy

The next wave

Confederation of Indian Industry

Content

The renewable energy space in India 1

Introduction 1
Renewable potential 1

Growth dynamics in the sector 3

Wind energy 5
Solar energy 6
Small hydropower 9
Biomass power generation 10
Other renewable energy technologies 12

Recent regulatory changes 13

CERC tariff regulations, 2009 13
Project-specific tariffs for renewable energy projects 16
Proposed renewable energy certificate mechanism by MNRE 16

Outlook and references 19

Acronyms

Abbreviation Explanation
CERC Central Electricity Regulatory Commission
CFA Central Financial Assistance
CUF Capacity utilization factor
FIT Feed-in tariffs
GBI Generation-based incentive
GW Giga watts
INR Indian rupee
IREDA Indian Renewable Energy Development Agency Ltd.
kWh Kilowatt hour
MNES Ministry of Non-Conventional Energy Sources, which was later
named as Ministry of Renewable Energy (MNRE)
MNRE Ministry of New and Renewable Energy
MW Megawatt
NAPCC National Action Plan for Climate Change
PLF Plant load factor
PPA Power purchase agreement
R&M Renovation and modernization
RPO Renewable purchase obligation
SEB State Electricity Board
SERC State Electricity Regulatory Commission
SEZ Special economic zone
SHP Small hydro plant
SIPS Special Incentive Package Scheme
SPV Solar photovoltaic
WTG Wind turbine and generator
 Introduction
India is home to a vast supply of renewable energy resources and boasts one
of the largest programs for deploying renewable energy products and systems
in the world. In fact, India was the world’s first country to have an exclusive
ministry for renewable energy development, the Ministry of New and Renewable
Energy Sources. India initiated its renewable energy program in 1981 with the
establishment of the Commission for Additional Sources of Energy, which was
later converted into the Ministry of Non-Conventional Energy Sources (MNES) in
1992 and renamed the Ministry of New and Renewable Energy (MNRE) in 2006.

Renewable potential
India has a commercially viable renewable potential of around 85,000 MW, which
includes wind potential of 45,000MW, small hydro of 6,000 MW and 25,000 MW
of biomass/bio-energy. Further, the country has the potential to generate 20 MW
per sq. km. using solar photovoltaic and solar thermal energy.

The latest Ernst & Young’s Renewable Energy Country Attractiveness Indices,
which rank countries based on regulatory environment, fiscal support, unexploited
resources, suitability to different technologies and other factors determining
renewable energy growth in a country, has ranked India fourth on its All
Renewable Index (ARI). India’s consistent top-grade ranking in the ARI over the
past few years is further testimony to the country’s appeal as a renewable energy
investment destination.

Growing clean energy capacity

2009*
FY08
FY07
FY06
FY05

0 2 4 6 8 10 12 14 16

Renewable
*Note: Generation capacity as on 31 July 2009
Source: Ministry of Power, MNRE and Central Electricity Authority (CEA)

1 Renewable energy The next wave

 The renewable energy space in India

Factors such as energy security, the power-generation potential of various

renewable sources, environmental concerns, and the availability of mature
and indigenous technologies for select renewable sources are among the key
imperatives for renewable energy to play a more pivotal role in India’s energy mix.
These factors, along with existing power shortages in the state, have prompted
the government, both at the Central and State level, to recognize the importance
of developing renewable energy sources and formulating policies and measures to
develop the renewable energy value chain.

Untapped renewable potential

► Wind potential of 45000 MW but installed capacity of 10464 MW; nearly
35000 MW yet to be tapped
► Bagasse cogeneration potential of 5000 MW but about 23% of that has been achieved.
► Economically feasible Small hydro potential of 6000 MW but only 2461 MW
realized to date.
► The solar potential of 20 MW/sqkm remains largely untapped for grid interactive
solar power.

Energy security
► India is heavily dependent on conventional sources of fuel for power generation.
► More than 55% of the total intsalled capacity of power generation is coal based.
► Depleting fuel reserves, supply shortages (coal) and heavy reliance on imports
(oil and natural gas) warrant measures to improve energy security by focusing
on renewable energy.

Power shortage
► The country is witnessing a high peak depficit of 12-13% and a sustained energy
shortage of 6-8%
► India needs to bridge the demand-supply gap in order to maintain current levels
of economic growth

Environment concerns
► Although India has one of the lowest per capita pollution rates in the world, it is still
one of the biggest polluters due to its large population
► India is under immense pressure to reduce emissions with new emission reduction
targets coming into place
► To address its growing energy requirements, while considering the global
environmental concerns, India needs to effectively harness Renewable Energy

Renewable energy The next wave 2

 The Electricity Act 2003 provides the overall framework for promoting and
sustaining the growth of renewable energy sources in India. It contains several
provisions to promote the accelerated development of power generation from
non- conventional sources, such as directives to the central and state regulator
to determine tariffs for renewable energy sources and to set renewable purchase
obligations (RPOs) as a percentage of total electricity consumption in the area
of a distribution licensee. It also provides that the State Electricity Regulatory
Commission (SERC) would promote the generation and co-generation of electricity
for renewable sources through suitable measures for connectivity with the grid.

Select states with RPOs and FIT

State FIT RPO

Andhra Pradesh √ √
Gujarat √ √
Haryana √ √
Karnataka √ √
Kerala √ √
Madhya Pradesh √ √
Maharashtra √ √
Orissa √ √
Rajasthan √ √
Tamil Nadu √ √
Uttar Pradesh √ √
West Bengal √ √

Note: States have promulgated FITs as per the renewable resource available in the state and not
necessarily for all renewable energy sources.

Source: State Electricity Regulatory Commissions’ websites

Sustained measures by the government and regulators and public awareness-

generation campaigns have increased awareness around the benefits of renewable
energy. The Government of India (GoI) has set a target of installing 15% of
additional power generation capacity in the country through grid-interactive
renewable power by 2012. Around 15,000 MW of power is expected to be
generated from renewable sources in the Eleventh Plan period for this purpose. By
2030, the target is to generate 20–30% of power from renewable sources.

3 Renewable energy The next wave

 Growth dynamics in the sector

Renewable energy: achievements as on 31 July 2009

No. Sources/Systems Cumulative achievements
I. Power from renewable sources
A. Grid-interactive renewable power
1 Biomass power (agro residues) 773.30 MW
2 Wind Power 10464.00 MW
3 Small hydro power (up to 25 MW) 2461.00 MW
4 Cogeneration-bagasse 1155.00 MW
5 Waste to energy 59.00 MW
6 Solar power 2.00 MW
Sub-total (in MW) (A) 14914.00 MW
B. Off-grid/distributed renewable power (including captive/combined heat and
power [CHP] plants)
7 Biomass power/co-generated 175.78 MW
(non-bagasse)
8 Biomass gasifier 107.02 MWeq
9 Waste-to- energy 34.06 MWeq
10 Solar PV power plants and street lights 5.00 MWp
11 Aero-generators/Hybrid systems 0.89 MW
Sub-total (B) 322.75 MWeq
Total ( A + B ) 15,236.75 MW
II. Remote village electrification 4,297 villages + 1,156 hamlets
III. Decentralized energy systems
12 Family-type biogas plants 4.12 million
13 Home lighting system 4,50,000
14 Solar lantern 7,30,000.
15 SPV pumps 7,148 nos.
16 Solar water heating: Collector area 2.90 million sq.m.
17 Solar cookers 0.65 million
18 Wind pumps 1,347
IV. Other programs
19 Energy parks 511
20 Akshay Urja shops 284
MWeq. = Megawatt equivalent; MWp = Megawatt peak; MW = Megawatt;
kW = kilowatt; kWp = kilowatt peak; sq. m. = square meter

Sources: Ministry of Power, MNRE and CEA

Renewable energy The next wave 4

 Wind energy
Among the different sources of renewable energy, wind energy is the undisputed
market leader in India, accounting for nearly 70% of total grid-interactive
renewable capacity in the country. With an installed capacity of 10,464 MW,
India has the fifth-largest wind power-installed capacity in the world after the US,
Germany, Spain and China.
Initially, growth in wind energy generation was largely attributed to the
provision of accelerated depreciation. However, last year, the MNRE launched
the generation-based incentive (GBI) scheme to provide a level playing field for
entities such as independent power producers (IPPs) who may not be able to fully
absorb the benefits of such a provision . The scheme offers a GBI of INR0.50 per
kWh of electricity generated, for a period of 10 years for grid-connected wind
farms that do not avail the benefits of accelerated depreciation. However, the
scheme is currently at a pilot stage, and there is a program limit of 49 MW
in aggregate.
Rising wind power generation capacity
12,000 10,464
10,000
8,754
8,000
In MW

7,090
6,000 5,341
4,000 3,594
2,000
0
FY05 FY06 FY07 FY08 FY09*

*Note: Generation capacity as on 31 July 2009

Sources: MNRE and Indian Wind Energy Association

► Import duty concession on specified wind turbine parts

► 80% accelerated depreciation

Central
► Customs and excise duty relief
sector ► Loans through IREDA
► Tax holiday for power generation projects

► Fiscal and financial incentives

► Wheeling, banking, third party sale, buy-back facility by
State Electricity Boards (SEBs)
State ► Capital subsidies and sales tax incentives in certain states
sector ► Soft loans from the Indian Renewable Energy Development
Agency Ltd. (IREDA)
► FIT and RPO of respective states

5 Renewable energy The next wave

Factors that may impede growth
There are several issues that may impede the growth of the wind power
generation sector. These include the following:

Costs and perfromance Investment skew Policiy and Technology and land
investment issues

► Wind power projects on a ► A large portion of wind ► The GBI cap of 49 MW is ► The unique nature of the
turnkey basis cost capacity addition in India too small push IPP acitivy in wind industry in India with
INR 55-60 million/MW. is geared towards wind to a meaningful level. the project developer, EPC
This is significantly higher maximising the fiscal vendor and O&M all being
► The recent Regulatory
than that of conventional incentive of accelerated provided by a single entity
guidelines on sharing of
energy plants. depreciation. This leads is likey to undegro a
environmental credit
to bunching up of new significant change in the
► The average PLF of these benfits with the utility
capacity additions and future with the entry of
plants at around 15% is further reduce the
strains the Discom new pure EPC players
low compared to attractiveness of the sector.
resources in providing offerring WTGs of
international numbers
the evacuation infrastructre vaying capacities.
and is a deterrrent for
IPP activity in the sector. ► This poses significant
challenegs of land
acquisition and technology
selection for deveopers
propsing to set up
new WEG's.

Sustaining the growth momentum in wind-energy generation would, therefore,

require renewed efforts at resource assessment, identifying new avenues for
growth such as offshore wind and facilitating the entry of multiple wind energy
equipment suppliers in the country. Such initiatives could help reduce overall
costs and improve efficiency in wind generation.

Solar energy
Solar energy is an attractive prospect for India, as the country receives solar
radiation of 5 to 7 kWh/m² for 300 to 330 days in a year. This translates to a
power generation potential of approximately 20 MW/km² for solar photovoltaic
(SPV) applications and 35 MW/km² for solar thermal generation. This implies that
India receives solar energy equivalent to nearly 5,000 trillion kWh/year, which, in
turn, is equivalent to 600 GW. This far exceeds the country’s current
energy consumption.

India ranks fifth in SPV installations and ninth in solar thermal application
installations in the world. India has 10–12 manufacturers producing around
100 MW of SPV cells and approximately 20 manufacturers with a total installed

Renewable energy The next wave 6

 capacity of 120 MW in module manufacturing. India also has a large number
of integrators-cum-service providers (around 80), with a total capacity of
approximately 245 MW.

KWh/sq.m
6.6–6.4
6.4–6.2
6.2–6.0
6.0–5.8
5.8–5.6
5.6–5.4
5.4–5.2
5.2–5.0
5.0–4.8
4.8–4.6
4.6–4.4

Sources: TERI Presentation, ASSOCHAM South Asia Renewable Energy Conference, New Delhi

According to estimates by TERI, 492 x 10^6 MU/year electricity can be

generated if 1% of land is used to harness solar energy for electricity generation
at an overall efficiency of 10% However, despite the potential and presence
of solar manufacturing capacity in India, the progress has been slow. This is
largely on account of the extremely high capital cost of around INR170 m/MW.
Consequently, the cost of generation, at around INR15 per kWh is manifold when
compared to the cost of generating INR2–3/units from conventional sources.

The GoI has been cognizant of this concern, and as such, is making efforts
to reduce the capital through economies of scale in production and market
simulation measures. These include initiatives such as the GBI scheme, the Special
Incentive Package Scheme (SIPS) and the National Solar Mission, which is being
further supplemented with state-level measures such as the Solar Energy Policy
in Gujarat.

7 Renewable energy The next wave

The MNRE’s GBI scheme works toward guaranteeing a power purchase rate of
INR15 for SPV and INR13 for solar thermal energy per unit. However, there is a
program cap of 5 MW per developer, 10 MW per state and 50 MW in aggregate.
This incentive is expected to be a balancing figure, to be paid to a solar energy
generator after deducting the tariff as per the PPA signed by the developer.

The SIPS, on the other hand, seeks to reduce capital costs through economies of
scale in production and government subsidies to lower capital investment on solar
equipment manufacturing facilities. Under the SIPS, the GoI is expected to provide
grants of up to 20–25% for setting up fabrication units in the country, depending
upon their location in a special economic zone (SEZ) or non-SEZ area. The unit
can claim incentives in the form of capital subsidy or equity participation.

The proposed National Solar Mission under the National Action Plan on Climate
Change (NAPCC) seeks to provide long-term vision for the development of solar
energy in India. The draft objectives of the proposed mission include:

• ►20,000 MW of installed solar generation capacity by 2020 and 100,000 MW by

2030, or 10–12% of total power generation capacity estimated for the year
• Solar power cost reduction to achieve grid tariff parity by 2020
• Achieve parity with coal-based thermal power generation by 2030
• 4
► –5 GW of installed solar manufacturing capacity by 2017
The mission proposes a phased approach for meeting these objectives, and a
number of measures supporting the objectives have been detailed in the
proposal document.

Several state governments have also been proactively promoting the development
of solar energy in their respective states. The most notable of these is the Solar
Energy Policy of Gujarat, under which the state government aimed to set up 500
MW of grid-interactive solar power by 2104. However, the state government
recently went one step further by allocating 716 MW of solar power capacity to
34 developers.

Renewable energy The next wave 8

 Factors that may impede growth
The high capital cost of solar energy projects is often cited as the stumbling block
in the establishment of substantial grid-interactive solar capacity. However, most
industry authorities agree that such costs are likely to decrease in the near future
as large planned manufacturing capacities initiate production in countries such
as China, particularly in SPV. This has created a “wait-and-watch” situation, with
most developers waiting for costs to decrease.

Solar technology, both SPV and solar thermal, is rapidly evolving in terms
of system performance, efficiency and longevity. Still newer and promising
technology is also on the anvil, thus leading to uncertainty in terms of the
selection of technology for augmenting capacities.

Technical and operational experience as well as human resources to build and

operate such large solar capacities is very limited globally and still further in India.
Developing large solar capacities in the country requires considerable investments
and efforts for developing supporting human resource requirements for the
manufacture, construction, commissioning and operation of solar cells and
power plants.

The burgeoning nature of the solar energy industry requires an integrated

approach, wherein industry, R&D, government, researchers and not-for-profit
organizations collaborate to not only address capex costs, efficiency and
technology, but also provide a systemic platform for enhancing R&D efforts, both
in terms of incremental technology enhancements and disruptive technology.

Small hydropower
The first small hydro project was set up in 1837 in Darjeeling. In India, projects
up to 25 MW classify as small hydro. The installed capacity of small hydro power
(SHP) in India has grown from 1.7 GW in FY05 to 2.3 GW in FY09. Private
sector investments have largely driven this growth, as the technology for SHP
is relatively mature, and the MNRE has created a database for potential sites by
collecting information from various sources and the country’s state governments.

Rising SHP generation capacity

3,000
2,500 2,430
2,000 2,046
In MW

1,748 1,905
1,500 1,693
1,000
500
0
2005 2006 2007 2008 2009*

*Note: Generation capacity as on 31 March 2009

Source: MNRE and CEA

9 Renewable energy The next wave

The MNRE has a database of 5,415 potential sites with an aggregate capacity of
14,305.47 MW. A master plan has also been prepared for the participating states
to identify SHP potential in a systematic manner and state-wise strategies.

The MNRE also provides a number of incentives for taking up small hydro projects
in the country. Some of these measures are:

• Support for the preparation of a detailed project report (DPR): INR0.125 million to
INR0.5 million per MW (Range: 10 MW to 25 MW)
• There are special incentives for the northeast region and Sikkim, where a capital
grant of INR22.5 million per MW is available for SHP projects. For other states,
the grant is INR15 million per MW.
• Financial support for the renovation, modernization and capacity upgrade of
old SHP stations to the extent of INR26 million per MW or 75% of the R&M cost,
whichever is lower, is offered.
• IREDA provides soft loans for setting up SHP projects, each with a capacity of up
to 25 MW.

Factors that may impede growth

• Most SHPs are located in the challenging Himalayan region. Its difficult terrain and
remote location leads to higher project development and operational costs.
• Another setback for such SHPs is silting during monsoons, which further reduces
the operating lifecycle of equipment.
• The bidding process for SHPs in certain states has seen the entry of traders who
primarily bid to make short-term profit through the onward sale of the project at
a premium. This further reduces the viability of the project and delays setting up
new capacities.
• Project developers often have limited experience in engaging local communities
and/or rehabilitating displaced communities from project sites, thereby leading to
local resentment toward the creation of new capacities.
• SHPs have a longer gestation period as compared to other renewable sources,
since it requires a detailed and reliable assessment of hydrological, geological,
seismological and environmental conditions, which are carried out over a
longer period.

Biomass power generation

Biomass power generation comprises the use of agro or forest biomass residue
waste to generate electricity. The availability of biomass in India is estimated at
around 540 million tons per year, including residues from agriculture, forestry
and plantations. It has been estimated that only around 20–25% of this may be
available for power generation after accounting for various other end uses such

Renewable energy The next wave 10

 as for fodder, as fuel for domestic cooking and other economic purposes. The
technology used includes direct combustion, cogeneration and gasification. The
grid-interactive biomass-generation capacity was approximately 2 GW as of 31
July 2009. Bagasse-based cogeneration is the largest contributor, with 1155 MW,
while agri-residue-based power accounts for the remaining 773 MW. In addition,
India has 175.78 MW of off-grid biomass power capacity. An indicative table for
the growth of biomass power over the years is provided below.

S.No. State upto 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Total
31.03.2003
1 Andhra Pradesh 160.05 37.70 69.50 12.00 22.00 33.00 9.00 334.25
2 Chattisgarh 11.00 – – 16.50 85.80 33.50 9.88 156.10
3 Gujarat 0.50 – – – – – – 0.50
4 Haryana 4.00 – 2.00 – – – – 6.00
5 Karnataka 109.38 26.00 16.60 72.50 29.80 8.00 12.00 274.28
6 Madhya Pradesh 0.00 1.00 – – – – – 1.00
7 Maharashtra 24.50 – 11.50 – 40.00 38.50 41.50 155.50
8 Punjab 22.00 – – 6.00 – – – 28.00
9 Rajasthan 0.00 7.80 – 7.50 8.00 – 8.00 31.30
10 Tamil Nadu 106.00 44.50 22.50 – 42.50 75.00 18.20 308.70
11 Uttar Pradesh 46.50 12.50 14.00 48.50 – 79.00 172.00 372.50
Total 381.30 129.50 136.10 163.00 228.10 266.00 270.50 1,677.13
Source: MNRE

11 Renewable energy The next wave

Factors that may impede growth
• The biomass market is largely unorganized and little comfort exists for securing
fuel supplies by way of contracts such as an FSA.
• Biomass as a generic term includes various species and types, some of which may
require special treatment before being used as fuel depending upon technology
being used, e.g. briquetting and/or drying.
• Biomass price can typically be characterized as a low mean price (INR1/kg) fuel
with high seasonal variations. Orders of various SERC’s reflect the difficulty in
pricing biomass. Distributed availability of biomass necessitates collection and
transportation further adding up costs.
• States such as Bihar, Punjab, Rajasthan and Madhya Pradesh have a catchment
area approach to setting up biomass power projects, which limit project size over
a defined area.

Other renewable energy technologies

The MNRE is proactively pursuing the development of other renewable sources
such as energy from urban and industrial waste, geothermal energy and ocean
energy and alternative fuels such as hydrogen, fuel cells and bio fuel. The Ministry
is implementing broad-based programs on these frontier technologies, and has
taken several initiatives to accelerate their development and demonstration with
the participation of premier research and academic Institutions, universities,
laboratories and the industry.

Renewable energy The next wave 12

 CERC Tariff Regulations, 2009
The recent Central Electricity Regulatory Commission (CERC) (Terms and
Conditions of Tariff) Regulations, 2009 under Section 61, read with Section 178
(2) (s) of the Electricity Act 2003, are in pursuance of the requirement under the
Electricity Act 2003. These regulations encompass wind, small hydro, biomass,
non-fossil fuel-based cogeneration projects, SPV and solar thermal, which are
either owned centrally or supply power to more than one state.

Eligibility and other principles

Type of project Eligibility criteria
Wind Located at wind sites with minimum annual mean
wind power density (WPD) of 200 watt/m2, measured
at a hub height of 50 m using the new wind turbine
and generator (WTG).
Small hydro Located at sites approved by state nodal agencies or
the state government, using new plant and machinery
and with an installed capacity of 25MW or less.
Biomass Biomass projects using new plant and machinery,
based on the Rankine Cycle, using biomass fuel,
provided that the use of fossil fuel is restricted to only
15% of total fuel consumption
Non-fossil Fuel-based In accordance with the definition and use of new plant
Cogeneration: topping cycle and machinery.

Topping cycle mode Provided that the sum of the useful power output and
one half of the thermal output is greater than 45% of
the facility’s energy consumption during season
SPV and solar thermal Based on MNRE-approved technologies

The control period for this order is three years, ending on 31 March 2012, while
the tariffs shall be valid for 13 years. However, this is with exception to small
hydro, ASPV and solar thermal projects.

The renewable energy tariff has been designated on a cost-plus approach as a

single part tariff consisting of various constituents such as capital cost, return on
equity (ROE), debt-equity ratio, interest rate, depreciation, interest on working
capital and operational and maintenance (O&M) expenses.

13 Renewable energy The next wave

 Recent regulatory changes

Financial principles overview

Type Wind Small hydo SPV Solar thermal Biomass Non-fossil

fuel-based
cogeneration
Capital cost INR51.5 million/ INR50-70 million/ INR170 million/ INR130 million/ INR45 million/MW INR44.5 million/
MW MW (depending on MW MW MW
size of plant 25
MW–5 MW)
Debt-equity 70:30 70:30 70:30 70:30 70:30 70:30
ratio
Loan tenure 10 years 10 years 10 years 10 years 10 years 10 years
Interest Avg. ( 1 year) Avg. ( 1 year) Avg. ( 1 year) Avg. ( 1 year) Avg. ( 1 year) LTPR Avg. ( 1 year) LTPR
charges LTPR of SBI + LTPR of SBI + LTPR of SBI + LTPR of SBI + of SBI + 150bp of SBI + 150bp
150bp 150bp 150bp 150bp
Depreciation 10% ,salvage 10% ,salvage 10% ,salvage 10% ,salvage 10% ,salvage value, 10% ,salvage
value, 90% value, 90% value, 90% value, 90% 90% depreciation value, 90%
depreciation depreciation depreciation depreciation depreciation
Capacity 20–30% 45% for HP, 19% 23% 60% during UP, AP-455 TN and
utilization depending on Uttarakhand, NE stabilization, Maharashtra – 60%
factor (CUF)/ Annual Mean Wind states and 30% 70% during the
Other states: 53%
Plant load power density of for others remaining part of
factor (PLF) 200->400 W/m2 the first year,
80% thereafter
Auxiliary – 1.0% – 10% 10.0% 8.5%
consumption
Station heat – – – – 3800kcal/kWhr 3600Kcal/kWhr
rate
Fuels - - - - Calorific values Calorific values
and cost of fuel and costs of fuels
for various states for various states
provided. Fuel provided. Fuel
price indexation price indexation
mechanism also mechanism also
indicated indicated
ROE Pre Tax 19% pa for Pre Tax 19% pa for Pre Tax 19% Pre Tax 19% Pre Tax 19% pa for Pre Tax 19% pa for
first 20 years, pre first 20 years, pre pa for first 20 pa for first 20 first 20 years, pre first 20 years, pre
tax 24% thereafter tax 24% thereafter years, pre tax years, pre tax tax 24% thereafter tax 24% thereafter
24% thereafter 24% thereafter
Interest on Previous year avg. Previous year avg. Previous year Previous year Previous year avg. Previous year avg.
working capital short-term PLR of short-term PLR of avg. short-term avg. short-term short-term PLR of short-term PLR of
SBI + 100bp SBI + 100bp PLR of SBI + PLR of SBI + SBI + 100bp SBI + 100bp
100bp 100bp

Renewable energy The next wave 14

 Type Wind Small hydo SPV Solar thermal Biomass Non-fossil
fuel-based
cogeneration
O&M First year at INR1.2 million to INR0.9 million/ INR1.3 million/ INR2.0–.2.5 INR1.335 million/
INR0.6 million/ INR2.1 million MW for the first MW for the first million/MW MW
MW depending on year. year.
Escalation @
capacity and
Escalation @ Escalation Escalation 5.72% per annum
location of plant.
5.72% per annum @ 5.72% @ 5.72%
Escalation @
per annum per annum
5.72% per annum
Rebate 2% for payment 2% for payment 2% for payment 2% for payment 2% for payment 2% for payment
through LC, 1% through LC, 1% through LC, 1% through LC, 1% through LC, 1% if through LC, 1% if
if paid within if paid within if paid within if paid within paid within a month paid within
a month a month a month a month a month
Late payment Beyond 60 days of Beyond 60 days of Beyond 60 Beyond 60 Beyond 60 days of Beyond 60 days of
surcharge billing, 1.25% billing, 1.25% days of billing, days of billing, billing, 1.25% billing, 1.25%
per month per month 1.25% 1.25% per month per month
per month per month
Sharing of 100% to the 100% to the 100% to the 100% to the 100% to the 100% to the
CDM benefits developer in year developer in year developer in developer in developer in year developer in year
1, 10% per year 1, 10% per year year 1, 10% year 1, 10% 1, 10% per year 1, 10% per year
to beneficiaries, to beneficiaries, per year to per year to to beneficiaries, to beneficiaries,
progressively progressively beneficiaries, beneficiaries, progressively progressively
increasing by 10% increasing by 10% progressively progressively increasing by 10% increasing by 10%
per annum till it per annum till it increasing increasing per annum till it per annum till it
reaches 50% reaches 50% by 10% per by 10% per reaches 50% reaches 50%
annum till it annum till it
reaches 50% reaches 50%
Subsidy by To be considered To be considered To be To be To be considered To be considered
central/state while determining while determining considered considered while determining while determining
government tariff tariff while while tariff tariff
determining determining
tariff tariff
Taxes and Pass through Pass through Pass through Pass through Pass through Pass through
duties as per actual as per actual as per actual as per actual as per actual as per actual
insurance insurance insurance insurance insurance insurance
Capital cost Yes, based on Yes, based on – – Yes, based on Yes, based on
indexation WPI for steel WPI for steel WPI for steel WPI for steel
mechanism and electrical and electrical and electrical and electrical
machinery machinery machinery machinery
Source: CERC (Terms and Conditions for Tariff determination from Renewable Energy Sources) Regulations, 2009

15 Renewable energy The next wave

Project-specific tariffs for renewable energy projects
The CERC has recognized the diverse and nascent nature of renewable energy
technologies, which may require special consideration through the provision for
project-specific tariffs. The provision allows developers to approach the central
regulator for approving the cost- and performance-related parameters of their
proposed technology. This is the first time that a project-specific tariff has been
allowed in the cases of renewable energy projects. Specifically, this would include
a variety of projects, as provided in the accompanying list.

Project specific tariffs for:

• Municipal solid waste projects
• Any other renewable energy technologies approved by MNRE
• Renewable energy projects commissioned before notification of these regulations,
but no PPA in place
• Solar PV and solar thermal projects where the developer wishes to opt for project
specific tariffs
• Hybid solar thermal plants
• Biomass projects other than those based on Rankine cycle

This provision is a positive affirmation that there are several new and emerging
technologies in renewable energy, whose costs and operational parameters
may not be benchmarked effectively. Further, such projects may be of different
economically feasible capacities, and the ownership and funding arrangements for
such projects may vary significantly. This provision may be still more relevant in
the context of a proof of concept technologies attempting economies of scale for
the first time and because RPOs, by and large, continue to be blind to technology
in the country. Such project-specific tariffs will ensure that promising but not yet
commercially proven technologies have the potential to become commercial and
the opportunity to compete with their more commercial renewable peers, such as
wind energy.

Proposed renewable energy certificate mechanism by MNRE

The MNRE, according to the directives of the NAPCC initiated a study to develop
a renewable energy certificate (REC) mechanism, which is expected to enable a
large number of stakeholders to purchase renewable energy cost-effectively.

Renewable energy The next wave 16

 Drivers and objectives for an REC mechanism in India
While India is abundantly gifted with a variety of renewable energy sources, not
all states are endowed with the same level of renewable energy sources. There
are RPOs for power in many states, as directed by the respective SERCs under
the EA 2003. However, a number of states are not in a position to generate
enough electricity through renewable energy sources to meet their target RPOs.
Currently, RE-scarce states are not able to procure RE generation from other
states. The main objectives of the proposed REC mechanism in India are:

• Reducing transaction costs in RE

• Creating competition among different RE technologies
• Developing an all-encompassing incentive mechanism for RE
• Effectively implementing RPO regulation in all states across India
• Increasing flexibility for participants to carry out RE transactions
• Overcoming geographical constraints to harness available RE sources
• Reducing risks for local distribution licensees
RECs have been used extensively as a successful market-based policy instrument
to promote renewable energy in many countries, such as Australia, Japan, the US,
the Netherlands, Denmark and the UK. However, these schemes vary in detail and
need to be customized for local legislations and market situations. The MNRE has
already uploaded on its web site a draft report on the proposed REC framework
for broader discussion.

17 Renewable energy The next wave

Explanation and mechanism of the proposed REC

REC purchase agreement/trading

RPS obligated entities including

Renewable energy
Electricity to grid Grid Electricity from grid Discoms, open access users,
Generators
captive generators etc.

Redemption of REC
Application and issuance of REC

REC registry
SLDC Confirmation of Energy Accounting
(National level)

Compliance reporting

State renewable
SERC Quarterly reporting
monitoring committe

Source: Adapted from Report on Development of Conceptual Framework For Renewable Energy Certificate Mechanism for India

Renewable energy The next wave 18

 Outlook

India is faced with the dilemma of not only sustaining its economic growth but also
with the global threat of climate change. Difficult times call for novel measures,
and the current global debate on the emission ceiling for developed versus
developing nations provides ample justification for ”pro-active” government
participation to spark off the next cycle of growth and employment generation.
Much like IT and networking, which led to wealth creation in the 1990s and the
housing and finance sectors that spurred growth in the first decade of the new
millennium, the central government needs to champion the cause of renewable
energy. The geopolitics of the last century has largely been centered on countries
and regions that have held the key to the world’s quest for energy- fossil or
nuclear. Governments both at the central and state level should take a proactive
approach to enable India to position itself as the global energy lifeline of
the future.

19 Renewable energy The next wave

 References

“The Indian Renewable Power Sector,” ICRA Limited, June 2008, via
Thomson Research.

“India Energy Sector,” Credit Suisse, 11 November 2008, via Thomson Research.

“Renewable Energy,” LSI Financial Services, April 2009.

“Achievements,” Ministry of New and Renewable Energy website, http://mnes.nic.

in/achievements.htm, accessed 27 July 2009.

“Renewable Energy Potential - Estimated Medium Term (2032),” via

InfralineEnergy database, accessed 27 November 2009.

“Power section,” InfralineEnergy website, http://www.infraline.com/powersector,

accessed 27 November 2009.

“Report on Development of Conceptual Framework For Renewable Energy

Certificate Mechanism for India,” Ministry of New and Renewable Energy website,
http://mnes.nic.in/pdf/MNRE_REC_Report.pdf, accessed 27 November 2009.

“V Subramanian, MNRE report, “Renewable Energy - Status and Future,” Scribd

website, http://www.scribd.com/doc/15880300/Renewable-Energy-in-India-
Status-and-Future, accessed 25 November 2009.

“Renewable Energy Country Attractiveness Index August 2009,” Ernst & Young
website, http://www.ey.com/Publication/vwLUAssets/Renewable_energy_
country_attractiveness_indices_August_2009/$FILE/Renewable_energy_country_
attractiveness_indices_August%202009.pdf, accessed 25 November 2009.

“Introduction,” Centre for Wind Energy Technology website, http://www.cwet.

tn.nic.in/html/national_eighth.html, accessed 25 November 2009.

“Determination of Tariff for procurement of power by distribution licensees and

other from solar energy projects,” Gujarat Electricity Regulatory Commission
website, http://www.gercin.org/docs/What%27s%20New%20in/Solar/SOLAR%20
ORDER%20-SEC220709.pdf, accessed 25 November 2009.

“4th South Asia Renewable Energy Conference 2009 — TERI presentation,”

ASSOCHAM website, http://www.assocham.org/4asia/index.
php?page=presentations, accessed 25 November 2009.

Renewable energy The next wave 20

 Notes

21 Renewable energy The next wave

Renewable energy The next wave 22
 About CII
Confederation of Indian Industry

The Confederation of Indian Industry (CII) works to create and sustain an

environment conducive to the growth of industry in India, partnering industry and
government alike through advisory and consultative processes.

CII is a non-government, not-for-profit, industry led and industry managed

organization, playing a proactive role in India’s development process. Founded
over 114 years ago, it is India’s premier business association, with a direct
membership of over 7800 organizations from the private as well as public sectors,
including SMEs and MNCs, and an indirect membership of over 90,000 companies
from around 385 national and regional sectoral associations.

CII catalyses change by working closely with government on policy issues,

enhancing efficiency, competitiveness and expanding business opportunities
for industry through a range of specialised services and global linkages. It also
provides a platform for sectoral consensus building and networking. Major
emphasis is laid on projecting a positive image of business, assisting industry
to identify and execute corporate citizenship programmes. Partnerships with
over 120 NGOs across the country carry forward our initiatives in integrated
and inclusive development, which include health, education, livelihood, diversity
management, skill development and water, to name a few.

Complementing this vision, CII’s theme for 2009-10 is ‘India@75: Economy,

Infrastructure and Governance.’ Within the overarching agenda to facilitate India’s
transformation into an economically vital, technologically innovative, socially and
ethically vibrant global leader by year 2022, CII’s focus this year is on revival of
the Economy, fast tracking Infrastructure and improved Governance.

With 64 offices in India, 9 overseas in Australia, Austria, China, France, Germany,

Japan, Singapore, UK, and USA, and institutional partnerships with 213
counterpart organisations in 88 countries, CII serves as a reference point for
Indian industry and the international business community.

Confederation of Indian Industry

The Mantosh Sondhi Centre
23, Institutional Area, Lodi Road,
New Delhi – 110 003 (India)
Tel: + 91 11 2462 9994-7
Fax: + 91 11 2462 6149
Email: ciico@cii.in
Website: www.cii.in

Reach us via our Membership Helpline:

+ 91-11-435 46244 /+ 91 99104 46244
CII helpline toll free No: 1800-103-1244

23 Renewable energy The next wave

Ernst & Young offices
and contact details
Ahmedabad Kolkata Arun Srivastava
2nd floor, Shivalik Ishaan 22 Camac Street Executive Director
Near CN Vidhyalaya Block ‘C’, 3rd floor Infrastructure, Real Estate & Government
Ambawadi Kolkata - 700 016 Ernst & Young Pvt. Ltd.
6th Floor, Hindustan Times Building,
Ahmedabad - 380 015 Tel: + 91 33 6615 3400
Kasturba Gandhi Marg, Connaught Place
Tel: + 91 79 6608 3800 Fax: + 91 33 2281 7750 New Delhi, India
Fax: + 91 79 6608 3900 Phone: +91 11 4363 3119
Mumbai e-mail: arun.srivastava@in.ey.com
Bengaluru 6th floor & 18th floor, Express Towers Mobile: +91 98110 09211
“UB City”, Canberra Block Nariman Point Fax: +91 11 4363 3200
12th & 13th floor Mumbai - 400 021
No.24 Vittal Mallya Road Tel: + 91 22 6657 9200 (6th floor)
Somesh Kumar
Associate Director
Bengaluru - 560 001 Fax: + 91 22 2287 6401 Infrastructure, Real Estate and Government
Tel: + 91 80 4027 5000 Tel: + 91 22 6665 5000 (18th floor) Ernst & Young Pvt Ltd
+ 91 80 6727 5000 Fax: + 91 22 2282 6000 6th Floor, Hindustan Times Building,
Fax: + 91 80 2210 6000 (12th floor) Kasturba Gandhi Marg, Connaught Place
+ 91 80 2224 0695 (13th floor) Jolly Makers Chambers II New Delhi, India
15th floor, Nariman Point Phone: +91 11 4363 3118
e-mail: somesh.kumar@in.ey.com
Chennai Mumbai - 400 021
Mobile: +91 9811009212
TPL House, 2nd floor Tel: + 91 22 6749 8000 Fax: +91 11 4363 3200
No. 3 Cenotaph Road Fax: + 91 22 6749 8200
Teynampet
Chennai - 600 018 Jalan Mill Compound
Tel: + 91 44 4219 4400 95 Ganpatrao Kadam Marg
+ 91 44 6632 8400 Lower Parel
Fax: + 91 44 2431 1450 Mumbai - 400 013
Tel: + 91 22 4035 6300
Gurgaon Fax: + 91 22 4035 6400
Golf View Corporate Tower B
Near DLF Golf Course New Delhi
Sector 42 6th floor, HT House
Gurgaon - 122 002 18-20 Kasturba Gandhi Marg
Tel: + 91 124 464 4000 New Delhi - 110 001
Fax: + 91 124 464 4050 Tel: + 91 11 4363 3000
Fax: + 91 11 4363 3200
Hyderabad
205, 2nd floor Pune
Ashoka Bhoopal Chambers C-401, 4th floor
Sardar Patel Road Panchshil Tech Park
Secunderabad - 500 003 Yerwada (Near Don Bosco School)
Tel: + 91 40 6627 4000 Pune - 411 006
Fax: + 91 40 2789 8851 Tel: + 91 20 6603 6000
Fax: + 91 20 6601 5900
Ernst & Young Pvt. Ltd.
Assurance | Tax | Transactions | Advisory
Confederation of Indian Industry
About Ernst & Young
Ernst & Young is a global leader in assurance, tax,
Confederation of Indian Industry
transaction and advisory services. Worldwide, our 144,000 The Mantosh Sondhi Centre
people are united by our shared values and an unwavering 23, Institutional Area, Lodi Road, New Delhi – 110 003 (India)
commitment to quality. We make a difference by helping Tel: 91 11 24629994-7 • Fax: 91 11 24626149
our people, our clients and our wider communities achieve email: ciico@cii.in • Website: www.cii.in
their potential.

For more information, please visit

www.ey.com/india
Ernst & Young refers to the global organization of member firms of
Ernst & Young Global Limited, each of which is a separate legal entity.
Ernst & Young Global Limited, a UK company limited by guarantee, does not
provide services to clients. Ernst & Young Private Limited is one of the Indian
client serving member firms of Ernst & Young Global Limited.

Ernst & Young Pvt. Ltd. is a company registered under the

Companies Act, 1956 having its registered office at
22 Camac Street, 3rd Floor, Block C, Kolkata- 700016

© 2009 Ernst & Young Pvt. Ltd.

All Rights Reserved.
Information in this publication is intended to provide only a general outline
of the subjects covered. It should neither be regarded as comprehensive nor
sufficient for making decisions, nor should it be used in place of professional
advice. Ernst & Young Pvt. Ltd. accepts no responsibility for any loss arising
from any action taken or not taken by anyone using this material.

??? Renewable energy The next wave.

Artwork by Jayanta Ghosh