Foreign Investment

Opportunities and Challenges for India’s Renewable Energy Sector

Renewable Energy Sector

Energy is an important issue across the world for socioeconomic development. The environmental concerns arising due to the use of non-renewable energy have led the world to shift towards the use of renewable forms of energy at a fast pace. Renewable energy means energy generated from renewable sources, which can be restored quickly as per human demand. Renewable resources emit less carbon into the atmosphere. The renewable energy generated can be used for generating electricity, heating and cooling of air and water, vehicles, stand-alone power system, or Remote Area Power Supply (RAPS) for rural areas. Renewable energy is expected to cover the electricity demand and reduce emissions. At present, every economy is aiming to mainstream energy sources. Using renewable energy is a way to create a sustainable world. The non-renewable sources of energy generation, such as coal, oil and natural gas, have been the cause of greenhouse gas emissions. The shift towards sustainable development has raised the standard of living, requiring cleaner and more reliable sources of electricity. India is an energy surplus country and is moving rapidly towards renewable energy technologies.

India is one of the most fast-paced developing countries. India is experiencing significant economic growth. The increasing appetite for renewable energy is driving inclusive growth. As per the REN21 Renewables 2022 Global Status Report, India ranks 4th in the Renewable Energy Installed Capacity, 4th in Wind Power capacity and again 4th in Solar Power capacity. India stands 3rd in total renewable power capacity addition. It has the 4th largest installed capacity of wind power in the world. It also has the 3rd largest new solar photovoltaic (PV) capacity in the world.

Why is there a need for renewable energy in India?

India is a vast country with the world’s largest population. The population significantly affects the energy demand. No doubt India is an energy surplus country, but the population is the reason behind the energy scarcity despite having achieved rapid economic growth. The economic growth in India escalates the energy demand. On the other hand, due to the huge population and environmental degradation, India faces the challenge of sustainable development. There still lies a gap between the demand and supply of power. This gap is expected to reduce in the future as the Indian government is continuously involved in developing the renewable energy sector.

Types of Renewable Energy

  1. Solar Energy

Solar Energy is the energy produced from the light and heat of the sun. When the light and heat from the Sun are stored using technology and used to generate electricity using solar power, heating water using solar thermal energy and solar architecture. Solar technologies convert sunlight into electrical energy through photovoltaic (PV) panels or mirrors that concentrate solar radiation. Solar energy is a renewable energy that can be either active or passive. India has the 4th largest solar installed capacity in the world. The government initiative in promoting solar energy is the National Solar Mission and the “Made in India” initiative. The off-the-grid and decentralized solar photovoltaic application program of 2018 deploys solar lanterns, solar streetlights, solar pumps, solar home lights, etc. It also promotes the establishment of 25KW size solar power plants in areas where the grid power does not reach or is not reliable.

2. Wind Energy

Wind Energy [1]is generated when the wind is used to produce electricity. The kinetic energy of air in motion is converted into energy. The wind turbines or the windmills rotate the blades, which converts the kinetic energy into rotational energy, which in turn is transferred to the generator to produce electrical energy. The development of the wind industry is on the rise as all major global players in wind power have established their presence in India.

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3. Hydro Energy

Hydro Energy is the oldest and largest source of renewable energy. The natural flow of moving water, i.e. either running or falling water is used to generate electricity. India is rich in water bodies, which makes it suitable for hydro energy projects.  Hydro energy projects are classified as large, small, micro and mini hydropower projects. India also has a completely dedicated automatic supervisory control and data acquisition (SCADA) which is based on a hydraulic turbine R&D Laboratory at the Alternate Hydro Energy Center (AHEC) at IIT Roorkee. The laboratory serves as a design and validation facility.

4. Bio Energy

Bioenergy is a renewable source of energy from organic materials such as plants, agricultural wastes and vegetable wastes from houses, etc which is known as biomass. Biomass can be used to produce transportation fuels, heat, electricity, etc. The carbon produced by the biomass and wastes can be reused. Modernization has promoted the use of bioenergy in India. The New National Biogas and Organic Manure Programme (NNBOMP) was launched with the objective to provide clean gaseous fuel for cooking as biogas is a sustainable alternative to traditional cooking fuels.

Government Initiative and Schemes for Transition to Renewable Energy Sector

  1. Technological Initiative

To promote research, development and demonstration (RD&D) in the renewable energy sector, the Technology Development and Innovation Policy (TDIP) was released on 6th October 2017. This policy aims to evaluate resources, progress in technology, presentation and commercialization of renewable energy technologies in the country. It also aims to promote the production of renewable power devices and systems domestically. It deals with RD&D-supported technology development and demonstration in wind, solar, wind-solar, hydro, biofuel, biogas, geothermal energy, etc. This initiative encourages the exploration of innovative approaches to obtain long-term targets. In addition to this initiative, we have the Impacting Research Innovative and Technology (IMPRINT) program which seeks to develop engineering and technology on a national scale regarding renewable technology. This project is financed by the Ministry of Human Resource Development (MHRD) by up to 50% of the total cost.

2. Financial Initiative

The Ministry of New and Renewable Energy (MNRE) provides 100% financial assistance to government and NGOs established in the renewable energy sector and up to 50% financial support to industries. A policy framework in this regard was developed for the identification of projects, formulation of projects, granting approvals and financing. Financial support was also granted for organizing awareness programs, demonstrations, workshops, assessment studies, surveys, etc. For innovative projects, the finance will be provided via a start-up support mechanism.

3. Policy and Regulatory Framework Initiatives

The Indian Government is continuously working towards better regulatory policies relating to renewable energy. Some of the major regulatory framework initiatives are as follows:

  1. Wind-Solar Hybrid Policy

In 2018, the government announced the Wind-Solar Hybrid policy to promote a large grid-connected wind-solar PV hybrid system. This promotes efficient utilization of transmission infrastructure as well as land. This system addresses the intermittency challenge of one source of renewable energy by combining it. A combination of solar and wind will help achieve better grid stability. The only condition, in this case, is that one resource must have 25% of the rated power capacity of other resources.

2. Product Linked Incentive (PLI) Scheme

The PLI Scheme has been extended to High-Efficiency Solar PV Module. This will enhance India’s manufacturing capabilities and exports. The scheme also focuses on direct employment of around 30,000 and indirect employment of around 1,20,000 people. R&D under this scheme aims to achieve higher efficiency in solar PV modules.

3. International Solar Alliance (ISA)

ISA is a treaty-based inter-governmental organization that aims to mobilize an investment of more than USD 1000 billion by 2030. The funds will be used for the massive deployment of solar energy. It aims to scale up solar energy and reduce the cost of solar power generation. This treaty was entered into between the Prime Minister of India and the President of France on 30th November 2015.

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4. Clean Energy Ministerial (CEM)

CEM is a high-level global forum that promotes policies and programs for advancing clean energy technology. These initiatives and campaigns are based on common interest areas between participating governments and stakeholders. There are 29 participating CEM members. The motto of CEM is to encourage and facilitate the transition to a global clean energy economy.

5. Mission Innovation (MI)

MI is a global initiative that aims to catalyze a decade of action and investment in RD&D to make clean energy affordable, accessible and lucrative. It is an initiative taken by 23 countries along with European Commission.

Investment in Renewable Energy Sector

India’s top priority is to ease doing business in India. The government has framed policies and programs to liberalize the environment and attract foreign investment in India. These foreign investment policies also include policies to revamp the country in the renewable energy sector. In this regard, the government has permitted 100% foreign investment via an automatic route and expedited the approval process. The government has taken further initiatives to increase investments in the renewable energy sector. These measures include:

  1. The Inter-State Transmission System (ISTS) charges for the inter-state sale of solar and wind power have been waived off for projects which will be commissioned by 20th June 2025.
  2. The government has provided a declaration of trajectory for Renewable Purchase Obligation (RPO) up to 2022.
  3. Ultra Mega Renewable Energy Parks will be set up to provide land and transmission to RE developers on a plug-and-play basis.
  4. New transmission lines are to be laid and new sub-stations capacity for evacuation of renewable power are to be created.
  5. Project Development Cell is to be set up for attracting and facilitating investments.
  6. Standard bidding guidelines are to be framed for a tariff-based competitive bidding process to procure Power from Grid Connected Solar PV and Wind Projects.
  7. Orders were issued by the Government that power shall be dispatched against a Letter of Credit (LC) or advance payment to make sure timely payment is made to RE generators by distribution licensees.
  8. Some additional steps have been taken by the government to promote wind energy. They are as follows:
    1. Concessional custom duty exemption has been provided on certain components which are required for manufacturing wind electric generators.
    2. Generation Based Incentive (GBI) is provided to wind projects commissioned either before or on 31st March 2017.
    3. Technical support like wind resource assessment and identification of potential sites is provided by the National Institute of Wind Energy, Chennai.
    4. Viable Gap funding option for offshore Wind Energy.

Opportunities and Challenges in Renewable Energy Sector

Demand for energy  leading to rapid growth  India is the third largest energy-consuming economy across the globe. India also made significant progress towards universal electrification but it still has one of the largest energy demand growth globally.  Three-fold challenges are faced while expanding reliable energy access. They are: Expansion and use of reliable energy access while maintaining affordable prices for consumers and financial stability for DISCOMIntegration and increase in the shares of renewable energy at the same time and in a secure and reliable manner Reduce emissions and achieve social and climatic objectives and also economic goals.
Power system flexibility  The Indian sources have potential sources of power system flexibility in renewable-rich states. This power system flexibility includes not just demand-side flexibility, power plant flexibility, storage and grid flexibility but also market and regulatory solutions that are to be implemented by 2030. For this, every state should determine an optimal mix of flexibility keeping in mind the regional and national context.Power System flexibility and its challenges are different in every state depending upon the availability of renewable energy, financial stability, etc.
Policy and tariff reforms  Policy and tariff reforms will support the transformation of electricity demand from passive consumption to proactive participation. As we already know that agricultural users balance the power supply and demand through involuntary irrigation load shifting. Policy and tariff reforms can increase the participation from the agricultural sector, buildings and industry. The hourly shift in agricultural demand already provides a significant source of low-cost power flexibility in India.One of the challenges can be to maintain a balance against its potential impact on the water stress of regions.
Rooftop solar systemsThere is a rise in rooftop solar systems. Rooftop solar systems are system-friendly and support low-voltage networks with voltage stability and reactive power.A cause of concern could be the impact of the increase in rooftop solar systems on the financial stability of DISCOM, its distribution systems, demand forecast uncertainty, etc.
Barriers to inter-state stateThere is a requirement to comprehensively review and remove the wholesale and retail market barriers by introducing new technologies and creating an equal playing field for all resources. The barriers to inter-state trade can be removed by changing the wholesale market and power purchase agreements.The present regulatory and market framework has significant gaps and barriers in power system flexibility response, pumped-storage hydro batteries, and power plant flexibility.
Curtailment riskCurtailment is done for system security considerations. To address curtailment risk. Discussions on the future of the must-run status of solar and wind must go on. It is important to formulate practical contractual structures and policies regarding compensation for curtailment.Higher the flexibility, the lesser the curtailment. Less curtailment leads to reduced system operating costs and lower CO2 emissions. Thus, an increase in curtailment without taking any mitigating measures is a concern.
The cost of wind and solar is going downThe reduction in the cost implies that the demand for wind and solar is increasing. Cost reduction is also the reason for the rapid transformation in global electricity.The reduction in the cost of wind and solar will reduce the investments and manufacturing in this sector.
Role of GovernmentGovernment finalizes all the wind and solar PV projects and provides government-backed auctions and incentives such as tax credits, rebates, concessions, etc.Postponement and delay in projects create uncertainty and increase the risk to investors and finance.
WeatherRenewable sources of energy depend upon weather and topographical conditions. India is rich when it comes to renewable energy such as sunlight, water and air. This makes India a lucrative and feasible option to invest in renewable energy.Renewable sources depend upon the weather and topography of the place. If it is not favorable, then renewable source becomes inefficient and unfeasible. For example: On a windy day more electricity will be generated as compared to a non-windy day.
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The world is in the midst of a paradigm shift from non-renewable energy to renewable energy. India having abundant renewable energy, is experiencing rapid growth in the use of the renewable energy sector. Further government is also taking initiatives to promote foreign investments in the renewable energy sector. Foreign investments will draw new technologies for better generation and storage of renewable energy. However, there remain certain obstacles that need to be removed by the government for the free flow of investments and development of the renewable energy sector. All-in-all, it can be said that India has come a long in renewable energy but has a long way to go to fully rely upon renewable energy.

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