Delhi must think twice before going solar

Ashish Gupta, Observer Research Foundation

The Delhi Dialogue Commission recently presented the draft solar policy for Delhi in a meeting with Non Government Organisations (NGO’s), discoms, power department officials and others. The highlights of the policy included developing Delhi as a solar city and generating about 1,000 MW between 2015 and 2020 when the policy will be implemented.

The draft policy is also proposing various incentives for making the proposed policy a success. But unfortunately the stakeholders who participated in the meeting expressed concern over the viability of such policy on a large scale. Even the discom officials were not sure whether the proposed policy will be a boon or bane for them. The NGOs who participated in large numbers are of the view that without government support the proposed policy will not take off. The proposed policy is based on the pattern of Haryana Solar Policy.

On September 3, 2014, Haryana government released order no. 22/52/2005-Spower making solar power mandatory for all industries, schools, hospitals and commercial institutions. Even after having a coherent and straight forward policy the solar power deployment did not take off in a big way. From 2011 – 2015, Haryana has added only 18.8 MW solar power capacity. This simply gives an indication that there are no consumer groups, be it commercial institutions, malls, office spaces, rich bungalows, schools, hospitals etc who are seriously interested in deploying solar rooftops. Though many are of the view that this is because of the lethargic implementation of the policy in the State ground reality suggests otherwise. This is quite evident from the data on solar power capacity in the state showing clear preference for the cheap (coal) as a source of power generation. This also means that poor deployment is not due to policy lacuna but is due to commercial concerns.

India has been making a strong push for solar energy since 2010, but installing solar panel kits to meet residential electricity still remains a distant dream because of the high initial costs involved. Coming to Delhi the net metering scheme that would have facilitated excess energy generated through rooftop solar systems to be sold to the power grid has not taken off. Even with net metering the scheme may not have taken off. The government needs to learn from its past mistakes and find out why the policy failed.

Apart from that, the Delhi government must differentiate between myth and the reality.  It is believed that solar power is comparable to coal based electricity as the tariff bids have come down sharply. The big question is how did the tariffs came down? That is because of the huge subsidy extended by the government to the developers including but not limited to 30% viability gap funding, accelerated depreciation, 30% capital subsidy etc. Added to this is the reduction in global price of solar equipment on account of subsidies extended to manufacturers in China as well as the tariff subsidies offered in countries like Germany which has created artificial demand.  Surprisingly even after getting such a huge subsidy, solar power tariffs still do not match coal electricity prices. Even the few installations that have been made are due to huge subsidy/ incentives given by the government.

The situation has changed for the Ministry of New & renewable Energy (MNRE) as it has stated via order no. 5/34/2013-14/RT, that due to limited budgetary provisions, it may not be possible to provide central assistance / capital subsidy to all categories of beneficiaries. Therefore all State Nodal Agencies, State Departments, Commercial Establishments, Channel Partners, System Integrators etc. are advised to set up grid connected rooftop projects without waiting for the subsidies of MNRE.

Therefore if the Delhi government implements the policy in haste by making it mandatory for all the government institutions, commercial establishments etc to install solar rooftop, it is going to be huge burden not only on the utility but also on the government. Whether Central or State assistance it ultimately means taxpayers money. Why should the common man be penalised for policies that are not viable? The Delhi government must weigh the pros and cons of the proposed policy and only then try to implement it on large scale.

Views are those of the author                    

Author can be contacted at ashishgupta@orfonline.org

Courtesy: Energy News Monitor | Volume XII; Issue 11

 

 

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August 2015: Living with Low Oil Prices

Lydia Powell and Akhilesh Sati, Observer Research Foundation

Global energy news in the month of August was dominated by the fall in oil prices. Around the third week of August WTI prices breached the floor of $ 40/bbl and continued to stay around that level till the end of the month leading to predictions of $ 20/bbl in the future. Many observers said that low oil prices were a great opportunity for India as it can use the savings on imports and subsidies to boost growth. But reality is not likely to be that simple, especially when the drop in crude prices is put in the context of impending gloom in the global economy.

The Governor of the Reserve Bank of India and the Ministers handling economic affairs rushed to assure that India is protected from global economic turmoil and that India can take the place of China in driving global growth. The probability of this materialising is low. When the world is awash with capital, labour and commodities (including oil) as the Wall Street Journal put it, what special offer can India make to the World to facilitate growth? If we take into account that one of the causes for lower oil prices is slowing global growth and the consequent decline in demand for oil in emerging markets (including India), expectation that lower oil prices will result in growth becomes a flawed circular argument. In the last decade India’s growth has coincided with growth in oil demand and high oil prices which imply a fairly high degree of correlation between global economic and energy market conditions (Chart 1)

Chart 1: Economic growth and Oil Consumption Growth Rates (2002-2014)

image (1)

Sources: RBI (from 2002-03 to 2013-14), CSO (2014-15, data point in graph is for Q1 of 2014-15) & PPAC for Oil Consumption.

The price of the Indian crude basket fell by about 4 percent from $ 59.07/bbl in April to $ 56.30/bbl in July. The price in July 2015 represents a 50 percent fall from the average price of $ 111.89/bbl of the Indian crude basket recorded in the year 2011-12. In 2011-12, the import of 171.7 Million Tonnes (1.26 billion bbls) of oil cost around $139.7 billion. The import of 189.4 Million Tonnes (1.39 billion bbls) of oil in 2014-15 cost only $112.7 billion. However the depreciation of the rupee shaved off a large share of the wind fall savings from lower import bills (Chart 2)

Chart 2: Oil Import volume and cost in Dollars and Rupees

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The other significant oil related development in August was the impact of the change in Iran’s position in the geo-political context. There was plenty of news on increasing oil investments in Iran, settling pending payments of over $ 6.5 billion towards oil imports from Iran and so on. There was even talk of reviving the decade old $22 billion long LNG deal. The oil deals with Iran may materialise but the prospects of an LNG deal materialising look remote at this point. There was even talk of reviving the Oman-India underwater pipeline. The fall in the price of natural gas and oil may be driving the revival talks but ironically it is generally the case that high prices for oil and gas rather than low prices that make capital intensive projects such as the Oman-India project viable.  On the domestic front, we can probably expect yet another formula for difficult gas soon. This may add to complexity of multiple pricing schemes that co-exist in the country rather than facilitate increase in production and consumption of gas.

Low oil prices also led to talk of filling up strategic reserves at the cost of Rs 11.5 billion. The reduction in subsidies for petroleum products and the growth in the number of people giving up subsidised LPG were all hailed as achievements of what is called ‘Modi Magic’ by the media. Whether the magic will work when oil prices increase is an open question.

Another issue that came up in August in the context of oil was the need for a single regulatory authority for ensuring the safety of oil and gas installations and infrastructure. This is a welcome move as multiple authorities have given rise to turf wars as well as ‘not my problem’ syndromes. There was also news on mandatory 10 percent blending of ethanol and the setting up of bio-diesel retailing stations. Whether this policy was motivated by the need to create an outlet for the products of the sugar industry or if it was motivated by the need to reduce dependence on oil was not clear.

Some promising news on under-ground coal gasification (UCG) and coal bed methane (CBM) also emerged in August. A product-pipeline to Nepal was proposed. Though a small step in the context of South Asian regional integration in the energy context, it could become a giant step in the bilateral relationship between India and Nepal.

On the power sector, the news was mixed. There was little or no news of power outages and coal shortages which dominated summer news last year. However the news that thermal coal imports increased by 24 percent to 33 MT is very surprising given that demand for power is not growing at the same pace. It is likely that there is more to this development than just supply and demand fundamentals. The historic problem with distribution companies continued to grab the headlines with the Delhi discoms topping the table. As pointed out in the article last week, efficiency has not automatically trickled down to the entire system with the entry of the private sector in distribution. One troubling piece of power sector news that hardly anyone would have noticed is the revival of conflict between India and Pakistan over constriction of power projects on the western tributaries of the Indus by India. While there is nothing new in the positions taken by both countries the prospect of a storm gathering after a relatively long period of calm on this front is troubling.

On the renewable energy front there was no shortage of positive news as it has been the case since the magic of Modi took over. Companies ranging from Adani to ACME were committing investment in solar projects. The World Bank, for its part said that it would no longer fund coal projects. This is unlikely to hurt coal investments in India as it capable of funding its own projects. Overall energy news coverage by the Indian media in August did not reflect the serious energy implications of the growth challenge that the World including India faces. The media appears to remain hypnotised by the power of magic to transform the energy sector. We hope they are right but if they are wrong we may have to brace ourselves for trouble.

Views are those of the authors                    

Authors can be contacted at lydia@orfonline.org, akhileshs@orfonline.org

Courtesy: Energy News Monitor | Volume XII; Issue 11

 

 

Coal Needs Priority

Ashish Gupta, Observer Research Foundation

The long term technology and fuel scenario clearly shows that the coal is to remain a key fuel for Indian economy in general and power sector in particular. Until any technological breakthrough is achieved in power generation the coal option will continue to be the main component of India’s energy basket. Therefore what are the possible ways through which coal can be made more sustainable? The possible solution needs to be one which has long term vision and planning and an efficient implementation strategy, reliable monitoring and review mechanism. The solution has to take care of the concerns of all the stakeholders in the total value chain.

Transport Infrastructure

The inland transport and waterways infrastructure needs to be enhanced in a planned way so as to facilitate the uninterrupted coal supply.

Blending of Coal

Coal blending can be used to improve the overall quality of the coal fired in boilers by properly mixing high ash coal with low ash or high calorific value coal like imported coal. Tata Mundra is a real-time example where imported coal is blended with the Indian coal in the ratio of 30:70.

Supercritical Technologies

Indian coal is used more efficiently with the use of supercritical and ultra-supercritical steam parameters. These technologies are proven and are deployed commercially worldwide. India has already ventured into supercritical technology. NTPC Sipat Stage-I will be 660 MW Supercritical technology units. Bharat Forge Ltd and Alstom announced on 10th November, 2008 to create a joint venture to manufacture state-of-the-art supercritical power plant equipment in India. Bharat Heavy Electrical Ltd is developing the 800 MW supercritical boilers.

Oxyfuel Combustion & Fluidized Bed Combustion (FBC)

The oxyfuel combustion process uses oxygen instead of air for combustion and recycles the flue gases. The high CO2 concentrated flue gas facilitates carbon capture. On the other hand, FBC technology has been developed for burning lower-quality, high-sulphur and high moisture-content coal. Given the low quality of Indian coal the FBC process can be of great importance. In India, Circulating Fluidized Bed Combustion (CFBC) boilers for unit size upto 250 MW are commercially available whereas in China and Europe proven designs of CFBC boilers for 600 MW are easily available.

Some of the important FBC processes are: Bubbling Fluidized Bed Combustion (BFBC) and Pressurized Fluidized Bed Combustion (PFBC).

Gasification of Coal

In general, Indian coal is not responsive to the “standard” gasification process. Most proven technologies such as slagging, entrained-flow gasifier is not compatible with most Indian coals because of high ash and ash fusion temperature. The best way to gasify Indian coal is through using fluidized-bed and moving-bed gasifiers.

In addition to combustion, coal gasification followed by combined cycle operation (Integrated Gasification and Combined Cycle (IGCC)) is expected to be deployed commercially with the goal of achieving increased efficiency and easier capture of CO2. Some of these technologies will capture significant market shares worldwide in the next 20 to 30 years.

Coal Beneficiation

A study conducted by Central Mine Planning & Design Institute Ltd in 1998 and Central Mine Planning & Design Institute Ltd / Bharat Heavy Electrical Ltd / Maharashtra State Electricity Board in 1999 found that washing of Indian Coal can give 34-25 percent ash after washing with yield of 81-60 percent  and the average ash content in the reject is about 63 percent.  Beneficiation of coal is a proven technology which can improve its quality and consistency. A study conducted by Railways on the beneficiation on thermal coal transportation showed that it would considerably improve the loading capacity of wagons, their life and also “release” carrying capacity on the saturated rail network[1].

Moving on to UCC

The use of Ultra Clean Coal (UCC) and Ultra Super Clean Coal in direct carbon conversion fuel cells can give more than 80-85 percent efficiency. It can reduce greenhouse gas emissions from power generated by 10 percent to 20 percent[2].

Road ahead for India

In future efficient use of coal resource needs to be given top priority. This is the only in which we can extend the life of our coal reserves. The whole planning needs to be done in such a way that there is an operational and strategic fit and the long term interest of various stakeholders in the entire system is protected.

Views are those of the author                    

Author can be contacted at ashishgupta@orfonline.org

[1] http://www.indiacore.com/bulletin/papers-tpi2009/VN-Choudhary-NTPC-Coal-for-Power-Generation-in-India-Paper.pdf

[2] http://www.asiapacificpartnership.org/pdf/CFE/meeting_melbourne/CFE-06-3UltraCleanCoal.pdf

Courtesy: Energy News Monitor | Volume XII; Issue 9

 

Privatising Power Sector NPAs

Lydia Powell and Akhilesh Sati, Observer Research Foundation

The laws and policies on electricity enacted in the early 2000s following the liberalisation of the economy renewed hope of greater private sector participation, higher levels of efficiency and consequently lower costs. The land mark electricity act 2003 (EA 2003) was passed a decade ago. Within the framework of the EA 2003, progressive policies enshrined in the National Electricity Policy 2005, the Tariff Policy 2006, Rural Electrification Policy 2006 and the National Electricity Plan 2012 have been introduced.

Some of the achievements of the new policy regime include de-licensing of power generation, de-licensing of rural power generation and distribution, permission for trading electricity, liberal provision for captive generation, extended powers for regulatory commissions, unbundling of transmission & distribution,  promotion of renewable energy and the formation of the Appellate Tribunal for Electricity.

image (1)

The Central Electricity Authority (CEA) lists its achievements under the new policy regime in its comprehensive data publication for 2015. According to the publication March 2015 registered a record capacity addition of 6630.9 MW. In total 22,566 MW of capacity was added between April 2014 and March 2015 exceeding the target of 17,830 MW. 68.9 percent of the generation target for the 12th plan has already been achieved with two more years to spare. Apart from this the booklet from CEA gives a long list of achievements where targets have not only been met but also surpassed in adding transmission lines, increasing transformation capacity, increasing peak generation and so on. While these are commendable achievements, one should keep in mind that these are measured against planned targets in increasing electricity supply and related infrastructure. A more qualified measure of achievement would compare advances in efficiency in the system and in the delivery of electricity.  Towards this end, let us take a closer look at the data from the CEA.

As per the data, the share of the private sector in generation has increased exponentially after the enactment of the electricity act of 2003. The share of the private sector in generation capacity overtook the share of central sector generation capacity in 2013 and it overtook state sector generation capacity in 2015 (Chart 1). Capacity addition by the private sector grew at a compounded annual average growth rate (GAGR) of a phenomenal 37.25 percent (albeit from a smaller base) between 2003 and 2015 against 13.5 percent for the central sector and 5.5 percent for the state sector. As of March 2015 power generating capacity in the hands of the private sector accounted for over 38 percent of generation capacity compared to roughly 34 percent for the state sector and 27 percent for the central sector.

image (2)

If we look at the data for actual generation we get a more interesting picture. The central sector dominates with a share of about 38 percent in generation followed by the state sector with 35 percent and private sector with 27 percent as of March 2015 (Chart 2). The private sector led with CAGR in generation of 29 percent followed by 11 percent for the central sector and 3 percent for the state sector. Before we come to conclusions let us also look at some other parameters. If we look at specific generation or the giga watt hours of electricity generated per mega watt of capacity, a measure of economic efficiency (in terms of capacity utilisation), there is an overall reduction of the from 7.59 in 2001 to 6.01 in 2015 (Chart 3). The reduction is most dramatic for the private sector for which the ratio fell from 4.43 to 2.71 between 2001 and 2015 compared to a fall from 6.37 to 5.45 for the central sector.

Between 2001 and 2015 growth in consumption and capacity addition were balanced. Power generation capacity grew by about 7 percent between 2001 and 2015 and consumption grew by about 6 percent. However, if we look at the period between 2011 and 2015 a mismatch between growth in capacity addition and growth in consumption is revealed. Between 2011 and 2015 capacity addition grew by about 12 percent (led by the private sector which recorded a CAGR of about 31 percent) while consumption grew by about 7.5 percent. Did the private sector actually contribute to reducing the overall economic efficiency of the system?

image (3)

In the last two months credit rating agencies as well as the Reserve Bank of India have raised concern over Non Performing Assets (NPAs) with Public Sector Banks (PSUs). A significant share of these NPAs concerns the power sector, especially the distribution segment. However many generation assets of the private sector are also in the list of ‘stranded assets’ which are likely to turn into NPAs. There are media reports of private generators queuing up to pass on their stranded assets to NTPC, a public sector company and a bench mark for efficiency in the sector (a detail account of success story of NTPC can be found in The Bloom in the Desert: The Making of NTPC by D.V. Kapur)

Few issues can be raised at this point. First is a question over why the private sector is generating NPAs. Should not the superior knowledge of the private sector enable it to make better investment decisions than that of the public sector? Given the state of the distribution companies why did private generators decide to invest in generation? Were they led by media stories of infinite demand for electricity in India and not by any considered thought on where the demand is and how it can be monetised? Some may respond saying that the private sector is a victim of an unequal playing field that favours the public sector. The public sector generators are able to finalise power purchase agreements (PPAs) with state distribution companies (which have a monopoly) while the private sector is not. Then the question arises as to why banks lend to private generators that do not have PPAs?

The period when the private sector was investing in generation assets we were bombarded with stories on coal shortages, inefficiency in coal production and the poor governance of CIL. Such stories have disappeared from the headlines in the last one or two years. Clearly CIL has not changed in terms of efficiency or governance. Then what has changed? Is it the private sector interest in generation assets that has changed?

Mistakes can be made by anyone and a capitalist system does accommodate mistakes. But the rate at which the private sector in India is making mistakes by creating energy assets that quickly turn into stranded assets leaves one wondering if this is part of their business model? The private sector routinely blames poor governance of the sector by the government and asks for bailouts making it seem like a penalty for lack of reforms (that favour the private sector). The government rushes in with tax payer money and the cycle goes on.

Views are those of the authors                    

Authors can be contacted at lydia@orfonline.org, akhileshs@orfonline.org

Courtesy: Energy News Monitor | Volume XII; Issue 9