Monthly Non-Fossil Fuels News Commentary: January – February 2017
Energy news was preoccupied with budget expectations and budget outcomes in February even though the budget was announced about a month before its usual date supposedly to break away from colonial traditions.
The Budget did not disappoint expectations from the solar sector as it let the sun shine on solar power generators. There was an announcement of another 20 GW of solar park development in phase II and a slew of duty reductions on components for fuel cell-based power generating and biogas systems, as well as wind energy equipment. The Budget announced solar power supply at about 7,000 railway stations and also proposed massive cuts in excise and customs duties on materials used in solar and wind plants. It also announced the second phase of solar park development for 20 GW capacity. Zero BCD on solar tempered glass for use in manufacture of solar cells/panels/modules from the present BCD of 5 percent was also proposed. Reduction of CVD on parts/raw materials for manufacture of solar tempered glass for use in solar photovoltaic cells/modules, solar power generating equipment or systems, flat plate solar collector, solar photovoltaic module and panel for water pumping and other applications, to 6 percent from existing 12.5 percent was also proposed. It also proposed to reduce the BCD, CVD and SAD of 24 percent on resin and catalyst for manufacture of cast components for Wind Operated Energy Generators to 5 percent.
Opening one more window for more sun shine, the MNRE was reported to be exploring a change in the tariff structure for electricity from solar energy. The proposal is to introduce a fixed-cost component to the tariff for electricity generated from renewable energy sources such as solar or wind so as to prevent discoms from backing off from procuring electricity generated by such projects, as they will have to pay the fixed tariff component even if they do not buy the electricity contracted for. Such a tariff mechanism already exists for electricity from conventional sources such as coal and gas which has two parts—a fixed cost, which is the investment incurred towards power generation equipment, and a variable cost or the cost of fuel. This is a step in the right direction as it will actually increase the tariff of renewable energy and bring it on par with conventional energy which include a fixed part for capacity and network maintenance. The MNRE was said to be working on a set of guidelines to provide compensation to solar power generators in case they are asked to back-down capacity by distribution companies. This would offer more sunshine for the solar sector. This was supposed to ensure that power distribution companies do not arbitrarily cut off solar and wind power or ask power generators to back-down capacities. This provision should also be extended to other generators to level the playing field. The impending imposition of GST and its impact on the bidding rate for solar power which has become the most watched number after GDP was discussed by many. According to CEEW the solar sector was expected to see tariffs rise by nearly 10 per cent if current tax exemptions were curtailed in the roll out of the GST. Multiple GST rates and their uncertain applicability to different equipment and services for solar projects was a growing concern from solar project developers and investors, the report said. It also observed that GST could also impact the second phase of solar park development for additional 20 GW capacity announced in the budget. CEEW also felt that GST could increase capital cost of a solar project by Rs 4.5 million/MW if current tax exemptions were curtailed, setting back the sector in terms of cost competitiveness by about 18 months. Do these observations give away the dirty little secret of incentives that prop up the solar sector?
Moving to hydropower, the quiet contributor of non-fossil fuel based power, news on Pakistan’s resolution that asked India to immediately suspend the ongoing construction of the Kishanganga and Ratle hydro power projects in J&K was spotted in the international news. The two projects are being constructed on the Jhelum and Chenab rivers under the provisions of the IWT. The resolution also asked the World Bank to set up a Court of Arbitration to mediate the dispute over the IWT between the two countries. It said that under IWT, it is the responsibility of the World Bank to play its role without further delay. It is not clear why the IWT once thought to water tight is leaking into primary domains of conflict between India and Pakistan!
The power ministry was also reported to be considering renewable energy status to supplies from large hydropower projects to help keep power tariffs low under the proposed GST. The ministry, which has sought zero rating or deemed export status for solar power projects on the grounds that levy of GST will substantially increase tariffs, now wants the same to be extended to supplies for under-construction hydropower projects. These supplies are currently exempt from excise duty or enjoy concessional value-added tax of 0-5 percent and a central sales tax at 2 percent. Under GST all central and state taxes on goods and services are expected to be replaced by a single levy of 18 percent, pushing up the cost of these supplies, which in turn is expected to increase the cost of power. About 11 GW of hydro power capacity is expected to be added over the next five years and a GST rate of 18 percent would inflate capex by 10-12 percent.
On the nuclear side, the proposal from the DAE to construct two PFBR of 600 MW each at Kalpakkam, besides the present one of 500 MW capacity was reported. The 500 MW PFBR, which is to be functional by October, will be the first PFBR in the world for commercial use. It is not clear what is motivating India as it is essentially pursuing what the rest of the world has abandoned primarily on commercial and also on safety grounds. The DAE was also reported to have a proposal for building 12 nuclear reactors to ramp up power generation in the country. Of the 12 reactors 10 reactors will be indigenous PHWR while the other two will be Light Water Reactors of Kundakulam units 5 and 6 of 1,000 MW each. Staying with Kudankulam, the second 1,000 MW unit of the power plant was expected to start commercial operations this fiscal. The second unit of the project was made critical in July 2016 and connected to the grid in August.
Rest of the World
Going by news reports, Europe is continuing to lead the charge against high carbon energy, notwithstanding Trump. According to a new report released by the EU it is on track to reach its 20 percent renewable target by 2020, having covered 16 percent of its final energy consumption with renewables in 2014. However this does not mean that member states have reached their national goals. In 2014 all EU countries – except the Netherlands – showed a renewable energy share which was equal to or higher than their indicative pathway. In 2015, 25 Member States exceeded their indicative pathways, with some even surpassing their 2020 targets. By 2030, the EU has set a target of at least 27 per cent of renewables in energy consumption. Reaching this target would help reduce GHG emissions to meet the EU target of at least 40 per cent GHG reduction by 2030.
According to European wind association more than 12 GW of new wind capacity were added in the EU raising the installed wind capacity in Europe to 153.7 GW. Investment in new onshore and offshore wind farms reached a record €27.5 bn. According to the GWEC, global wind additions reached 54.6 GW in 2016, raising total capacity to nearly 487 GW. Ten country accounted for 88% of total installations, with 47.9 GW installed. As in previous years, China was the largest installer in 2016 with nearly 43% of global installations. The country installed 23.3 GW in 2016 and reached 168.7 GW. This is twice the installed capacity in the US. European utilities also announced that they will not reduce their investments in renewables if US President Donald Trump lowers US climate goals.
For its part, Sweden has agreed to pass a law in the coming months to force the government to reduce fossil fuel use through tougher targets revised every four year, in order to completely phase out GHG emissions by 2045. Sweden plans to cut its domestic GHG emissions by at least 85% by 2045, compared to 1990 levels. Remaining emissions would be offset by compensation actions, such as planting forests (carbon sinks) or investing in GHG emission cut measures abroad. The EU as a whole has already approved an 80-95% reduction target in GHG emissions by 2050. It is not clear if the greying of the EU is behind the greening of the EU.
Not to be undone by the EU China’s installed PV capacity was reported to have more than doubled last year, turning the country into the world’s biggest producer of solar energy by capacity according to its NEA. Installed PV capacity rose to 77.42 GW at the end of 2016, with the addition of 34.54 GW over the course of the year. China is expected to add more than 110 GW of capacity in the 2016-2020 period. Solar plants generated 66.2 billion kilowatt-hours of power last year, accounting for 1 percent of China’s total power generation. The country aims to boost the mix of non-fossil fuel generated power to 20 percent by 2030 from 11 percent. It is know that China is the only force holding up the secular decline of the nuclear sector. China’s plans took a controversial turn when it announced that it plans to build 20 floating nuclear power stations in the future, which will significantly beef up the power and water supplies on the South China Sea islands. China currently has 23 nuclear power generating units in operation and 27 under construction, about one-third of the world’s unfinished nuclear units. China will reportedly prioritise the development of a floating nuclear power platform in the coming five years, in an effort to provide stable power to offshore projects and promote ocean gas exploitation. The development of the facility is said to be a crucial part of the country’s five-year economic development plan, running through 2020.
The news from nuclear stalwarts Japan and France was less sensational. The plan to remove spent nuclear fuel from Tokyo Electric Power Co Holdings Inc’s Fukushima Daiichi nuclear plant was reportedly postponed again due to delays in preparation. Work is now set to begin in fiscal 2018 at the earliest. Removal of the spent fuel from the No. 3 reactor was originally scheduled in the first half of fiscal 2015, and later revised to fiscal 2017 due to high levels of radioactivity around the facilities. The timeline has been changed again as it was taking longer than expected to decontaminate buildings and clean up debris, the news agency reported.
The French government was reported to have reached an agreement with state-controlled utility EDF on the conditions under which the company will shut down France’s oldest nuclear plant. EDF and the French government agreed in August on a €400 million compensation package for the closure of the Fessenheim nuclear plant. The government decree to halt operations at Fessenheim would be subject to the company obtaining necessary official authorization for its new generation EPR reactor in Flamanville.
MW: Megawatt, GW: Gigawatt, BCD: Basic Customs Duty, PV: Photovoltaic, GHG: Greenhouse gas, NEA: National Energy Administration, GWEC: Global Wind Energy Council, PFBR: Prototype Fast Breeder Reactors, PHWR: Pressurised Heavy Water Reactors, J&K: Jammu and Kashmir, US: United States, IWT: Indus Waters Treaty, CVD: Countervailing Duty, SAD: Special Additional Duty, Discoms: Distribution Companies, MNRE: Ministry of New and Renewable Energy, EU: European Union, CEEW: Council on Energy, Environment and Water, GST: Goods and Services Tax, DAE: Department of Atomic Energy