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Power Sector in India - Solar, Renewable & Wind Energy Sectors

December, 2016

Introduction

Power is one of the most critical components of infrastructure crucial for the economic growth and welfare of nations. The existence and development of adequate infrastructure is essential for sustained growth of the Indian economy.

India’s power sector is one of the most diversified in the world. Sources of power generation range from conventional sources such as coal, lignite, natural gas, oil, hydro and nuclear power to viable non-conventional sources such as wind, solar, and agricultural and domestic waste. Electricity demand in the country has increased rapidly and is expected to rise further in the years to come. In order to meet the increasing demand for electricity in the country, massive addition to the installed generating capacity is required.

India ranks third among 40 countries in EY’s Renewable Energy Country Attractiveness Index, on back of strong focus by the government on promoting renewable energy and implementation of projects in a time bound manner.

Market Size

Indian power sector is undergoing a significant change that has redefined the industry outlook. Sustained economic growth continues to drive electricity demand in India. The Government of India’s focus on attaining ‘Power for all’ has accelerated capacity addition in the country. At the same time, the competitive intensity is increasing at both the market and supply sides (fuel, logistics, finances, and manpower).

Total installed capacity of power stations in India stood at 305,554.25 Megawatt (MW) as of August 31, 2016. Electricity generation rose 5.69 per cent year-on-year to 486.44 BU during April 2016-August 2016.

The Planning Commission’s 12th Five-Year Plan estimates total domestic energy production to reach 669.6 Million Tonnes of Oil Equivalent (MTOE) by 2016–17 and 844 MTOE by 2021–22. India’s wind power capacity, installed in 2016, is estimated to increase 20 per cent over last year to 2,800 MW@, led by favorable policy support that has encouraged both independent power producers (IPP) and non-IPPs. India is expected to add nearly 4,000 MW# of solar power in 2016, nearly twice the addition of 2,133 MW in 2015.

India’s wind energy market is expected to attract investments totaling Rs 1,00,000 crore (US$ 14.91 billion) by 2020, and wind power capacity is estimated to almost double by 2020 from over 23,000 MW in June 2015, with an addition of about 4,000 MW per annum in the next five years.

Investment Scenario

Around 293 global and domestic companies have committed to generate 266 GW of solar, wind, mini-hydel and biomass-based power in India over the next 5–10 years. The initiative would entail an investment of about US$ 310–350 billion.

Between April 2000 and March 2016, the industry attracted US$ 10.48 billion in Foreign Direct Investment (FDI).

Some major investments and developments in the Indian power sector are as follows:

  • French power major EDF Energies, has announced that EDF plans to invest US$ 2 billion in renewable energy projects in India.
  • International Finance Corporation (IFC), the investment arm of the World Bank, plans to invest Rs 840 crore (US$ 125.3 million) in Hero Future Energies Limited, the renewable energy arm of the Hero Group, which will be used to fund the construction of solar and wind power plants.
  • GAIL India Limited plans to enter into a partnership with California-based Bloom Energy Corporation to pursue natural gas-based fuel cell power generation, which is expected to help the country move away from relying on capital intensive fixed power infrastructure to capital light and soft infrastructure.
  • Power Finance Corporation Limited (PFC) has provided a financial assistance of Rs 13 crore (US$ 1.9 million) and collaborated with National Green Highways Mission (NGHM) under National Highways Authority of India (NHAI) for plantations work on NH7 in Nagpur region under their ‘Adopt a Green Highways’ Program.
  • The State Bank of India (SBI) has signed an agreement with The World Bank for Rs 4,200 crore (US$ 626.3 million) credit facility, aimed at financing Grid Connected Rooftop Solar Photovoltaic (GRPV) projects in India.
  • The World Bank Group has committed to provide US$ 1 billion for India’s solar energy projects and plans to work with other multilateral development banks and financial institutions to develop financing instruments to support future solar energy development in the country.
  • The Ministry of New and Renewable Energy (MNRE) has signed an agreement with Germany-based KfW Development Bank to fund the Rs 300 crore (US$ 44.7 million) floating solar project in Maharashtra and Kerala, which is expected to generate over 310 GW of green energy.
  • CLP India, one of the largest foreign investors in India’s power sector, has acquired a 49 per cent stake in SE Solar, a Special Purpose Vehicle (SPV) set-up by Suzlon Group for building a 100 MW solar energy plant at Veltoor in Telangana, for Rs 73.5 crore (US$ 10.96 million).
  • The Ministry of New and Renewable Energy (MNRE) plans to launch an integrated bio energy mission with an investment of Rs 10,000 crore (US$ 1.5 billion) from FY 2017-18 to FY 2021-22, aimed at enhancing the use of bio-fuels like ethanol and biogas and reducing consumption of fossil fuels.
  • Canada's second largest pension fund, Caisse de depot et placement du Quebec (CDPQ), has set up its office in India and committed to invest US$ 150 million in the Indian renewable energy sector over the next three to four years.
  • Sembcorp Industries have launched a 2,640 Mega Watt (MW) Sembcorp Gayatri power complex worth US$ 3 billion in Nellore, Andhra Pradesh which is the largest Foreign Direct Investment (FDI)–driven project on a single site in the thermal power industry in India.
  • SunEdison, world’s largest renewable energy company, plans to continue its focus on ‘Make in India’ by further reducing the cost of renewable energy and developing over 15 gigawatts (GW) of wind and solar projects in the country by 2022.
  • Aditya Birla Group has announced a partnership with the Abraaj Group, a leading investor in global growth markets, to build a large-scale renewable energy platform that will develop utility-scale solar power plants in India.
  • Sterlite Grid, India’s largest private operator of transmission systems is joining hands with US major — Burn & McDonnell for its Rs 3,000 crore (US$ 444.72 million) power transmission project in the Kashmir valley.

Government Initiatives

The Government of India has identified power sector as a key sector of focus so as to promote sustained industrial growth. Some initiatives by the Government of India to boost the Indian power sector:

  • The Government of India plans to set up a US$ 400 million fund, sourced from The World Bank, which would be used to protect renewable energy producers from payment delays by power distribution firms, while at the same time protecting the distribution firms from the shrinking market for conventional grid-connected power, caused by wider adoption of roof-top solar power generation.
  • The Ministry of Power plans to set up two funds of US$ 1 billion each, which would give investment support for stressed power assets and renewable energy projects in the country.
  • Mr Piyush Goyal, Minister of State with Independent Charge for Power, Coal, New and Renewable Energy and Mines, launched an online portal for star rating of mines, which will bring all mines to adopt sustainable practices, and thereby ensure compliance of environmental protection and social responsibility by the mining sector.
  • The Ministry of New and Renewable Energy (MNRE), which provides 30 per cent subsidy to most solar powered items such as solar lamps and solar heating systems, has further extended its subsidy scheme to solar-powered refrigeration units with a view to boost the use of solar-powered cold storages.
  • Mr Piyush Goyal, Minister of State with Independent Charge for Power, Coal, New and Renewable Energy and Mines, inaugurated the Tarang (Transmission App for Real Time Monitoring & Growth) mobile app and web portal for electronic bidding for transmission projects, which is expected to enhance ease, accountability, transparency, and boost investor confidence in power transmission sector.
  • The Ministry of Shipping plans to install 160.64 MW of solar and wind based power systems at all the major ports across the country by 2017, thereby promoting the use of renewable energy sources and giving a fillip to government's Green Port Initiative.
  • The Government of India and the Government of the United Kingdom have signed an agreement to work together in the fields of Solar Energy and Nano Material Research, which is expected to yield high quality and high impact research outputs having industrial relevance, targeted towards addressing societal needs.
  • The Ministry of Petroleum and Natural Gas is seeking to enhance India's crude oil refining capacity through 2040 by setting up a high-level panel, which will work towards aligning India's energy portfolio with changing trends and transition towards cleaner sources of energy generation.
  • The Government of India plans to start as many as 10,000 solar, wind and biomass power projects in next five years, with an average capacity of 50 kilowatt per project, thereby adding 500 megawatt to the total installed capacity.
  • Mr Piyush Goyal, Minister of State (Independent Charge) for Power, Coal and New & Renewable Energy outlined Government of India’s goal to provide electricity to every home in India by 2020, while also focussing on ensuring the cost of power is affordable to everyone.
  • Government of India has asked states to prepare action plans with year-wise targets to introduce renewable energy technologies and install solar rooftop panels so that the states complement government's works to achieve 175 GW of renewable power by 2022.
  • The Government of India announced a massive renewable power production target of 175,000 MW by 2022; this comprises generation of 100,000 MW from solar power, 60,000 MW from wind energy, 10,000 MW from biomass, and 5,000 MW from small hydro power projects.

The Road Ahead

The Indian power sector has an investment potential of Rs 15 trillion (US$ 223.67 billion) in the next 4–5 years, thereby providing immense opportunities in power generation, distribution, transmission, and equipment, according to Union Minister Mr Piyush Goyal.

The government’s immediate goal is to generate two trillion units (kilowatt hours) of energy by 2019. This means doubling the current production capacity to provide 24x7 electricity for residential, industrial, commercial and agriculture use.

The Government of India is taking a number of steps and initiatives like 10-year tax exemption for solar energy projects, etc., in order to achieve India's ambitious renewable energy targets of adding 175 GW of renewable energy, including addition of 100 GW of solar power, by the year 2022. The government has also sought to restart the stalled hydro power projects and increase the wind energy production target to 60 GW by 2022 from the current 20 GW.

Exchange Rate Used: INR 1 = US$ 0.0149 as on September 21, 2016

References: Media Reports, Press Releases, Press Information Bureau (PIB)

Note: # - as per global clean energy communications and research firm Mercom Capital Group | $- as per data from Central Electricity Authority | ^- according to data from Bridge to India