India has the capacity and demand for renewable energy. All it needs is the right nudge
mydigitalfc.com: By D Govardan Dec 25 2015 , Chennai, Talk about renewable energy sources in India and what comes to mind instantly is wind. Other sources like hydro and nuclear have contributed to the larger power sector scenario. But in the current environment, they are all passé. In the immediate past, or more specifically the BJP government’s regime, it is solar energy that has hogged the limelight, pushing the once-popular wind energy into a distant second, at least in terms of public imagination. Not just have the Centre and the state governments been talking and pushing solar energy to the forefront, the industry too, has joined in, possibly for its own reasons. One, to make hay while the sun shines and two, to establish a credible base in a fast-growing sunshine industry. It has also attracted other bees to the hive, like private equity (PE) and venture capitalists (VCs), which are willing to put their stake on everything solar. At the recent COP21 Paris Summit, India has committed itself to ensuring that about 40 per cent of all its energy sources by 2030, will be from renewable sources, largely keeping solar in mind. It is already pushing the case of solar, with a target of 100 gw solar energy installed capacity in India by 2022. Even though both wind and solar energy are today pegged at the same levels, in terms of established capacities, that is around 24 gw, solar has clearly outshined wind. Says Rahul Goswami, managing director, Greenstone Investment Bank, which has facilitated investments and M&As into the country’s renewable sector: “While the potential for wind energy in India is around 75 gw roughly and what has been tapped so far is about 22 gw, the potential for solar is about 750 gw in the long run and only 24 gw has been tapped so far. As a result, the market for solar is going to outwit wind over the next 25 years in India.”
The potential : But despite the stress on solar, wind energy has made a strong comeback in the last one year. For one, wind energy’s technology and credibility is time tested, as against solar. The establishment of the wind sector over the past two decades or more has slowly but firmly created an ecosystem of its own. “Wind energy market exists in about seven odd states in the country, as against solar that is all over the country. However, within those wind states, the potential is a very significant, says Sridhar Narayan, managing director, Global Environment Fund, GEF Advisors India. He adds: “What has increased the market potential is better technology turbines and higher hub height. While over 10 years ago, it used to be 50 metres, it then increased to 80 metres and now we are seeing 100-metre units. The higher you go, the more energy you can generate from wind. The potential is very high and technology is there to tap it.” There was a time when 250 kw turbines would attract awe, but today it is not surprising to see a 2.0 mw large turbine getting installed. Technology has grown manifold, both in terms of capacity and efficiency. Observes Venkatachalam, managing director, Orient Green Power, which has been working on various sources within renewable energy: “The country surely has a large wind potential to tap. While earlier at 80-metre hub height, the potential was estimated to be around 100 gw, with newer turbines coming in with a hub height of 100 metre and above, the potential has now gone up to 302 gw. Hence, there is still large untapped potential within India.” Industry insiders point to the country’s renewable energy potential. “As a country, we have a target of 200 gw of renewable energy by 2022. Of this, wind energy has to meet a target of 60 gw. The country, as of March 31, 2015, already had 24 gw. We have to add a minimum of 36 gw in the next six years, which is a fairly large plan,” says Madhusudan Khemka, chairman, Indian Wind Turbine Manufacturers Association (IWTMA). Looking back at the last three years, India has added 3.2 gw in 2012-13, 1.7 gw in 2013-14 and 2.1 gw in 2014-15. This year, we expect to add anywhere between 2.8 - 3.0 gw. At the same time, the country has a potential of more than 100 gw, based on a 80-metre hub height, whereas most wind turbines in new technology are closer to 100 metres. This means, much more potential exists than 100 gw, Khemka explains. The financers, especially the PEs/VCs, have taken note of the potential that wind offers in India. After a low of two years, in 2013 and 2014, PEs/VCs have pumped in about $312 million by way of investments into Indian wind energy companies involving three deals in 2015 alone. These were $22.4 million invested by Clearwater Capital into Suzlon Energy in February this year, followed by a $25 million investment by SoftBank Corp into SBG Cleantech in June and a whopping $265 million by Goldman Sachs, Global into ReNew Wind Power in October this year, says data from Venture Intelligence, a firm that tracks PE/VC funds across sectors in India.
In comparison, the PEs/VCs invested a mere $84 million across three deals in 2013 and another $194 million involving four deals in 2014. However, in 2012, the country’s wind energy sector had received $444 million across seven deals, says Venture Intelligence. In terms of number of deals funded and the amount pumped in 2015, it clearly indicates that wind energy is back in the reckoning.
Salil Garg, director and head, corporates, India Ratings & Research, points out that wind energy started earlier than solar energy in India and accelerated depreciation benefits helped increase the capacity. Hence, wind surely had a head start over solar and its cost too, was not as high as grid power.
For instance, when solar per unit was going at Rs 12-13, wind energy was available at around Rs 6 per unit. While technology has improved, the cost has come down further in solar than wind. The latest tender has gone for Rs 4.63 for solar, a price line expected in 2016, which has instead come a year earlier. Reputed players like SoftBank and SunEdison are in the forefront.
“On the other hand, the cost per mw has not come down in the case of wind, as has happened in the case of solar. In the case of wind energy, all good category A sites have been exploited. Now, we are left with category B and other sites are still to be tapped. Still, I agree that wind also has enough growth potential, with the government targeting to increase wind capacity to 60 gw by 2022. At the most, we could add 4-6 gw per annum of wind capacity. While earlier only primary states like Tamil Nadu, Maharashtra and Rajasthan were in the forefront to tap this opportunity, we now have secondary states like Andhra Pradesh, Madhya Pradesh, Gujarat and Karnataka getting into this in a focused manner now,” Garg points out.
“Independent power producers (IPPs) are getting into this in a big way and have got funding from PE funds. Further, the grid is much better placed now to evacuate and take the generated power, even as the hub height of windmills has increased from 80 metres to over 100 metres now. With steel prices also decreasing, this will lead to lower prices of wind mills, even though it may not fall as drastically as solar. While the cost of solar power could drop further, it may not happen beyond a level with wind. Yes, there is offshore wind potential that is yet to be tapped.
However, the cost of setting up offshore windmills is very high, at least 3-4 times than onshore. Hence, someone can only try on an experimental basis,” he adds. At the end of 2015, the country’s installed wind energy capacity is about 24 gw. Over the next 3-4 years, the country can add about 3-4 gw on average per year and further enhance it to 4-5 gw over the next seven years overall. “This way, we can reach the targeted 60 gw capacity. While solar power need not be established in a very specific land and location, considering the number of sunny days that several states experience across India, wind needs specific locations,” Garg observes.
There is little doubt that wind energy has received a shot in the arm with the government’s push on renewable energy.
“One of the major drivers of the Indian wind energy sector today, as compared to decades ago, is the government’s push of renewable energy. In the recently submitted Intended Nationally Determined Contribution (INDC), India has pledged to source 40 per cent of its installed electric power capacity from non-fossil fuel based energy sources by 2030.
The pledge involves more than a five-fold increase in renewable energy capacity from 35 gw at present to 175 gw, which includes a commitment to achieving 100 gw of solar energy capacity and 60 gw of wind energy capacity by 2022. This move has certainly helped build up a conducive policy environment. Over the last five years, the wind sector has seen 17 per cent annualised growth in installed capacities owing to favourable policies,” says Ramesh Kymal, managing director, Gamesa India, the wholly owned Indian subsidiary of Spanish wind major, Gamesa.
Production capacity
As of now, the combined production capacity of established and reputed players to make wind turbines is around 9,500 mw in the country, while the internal target is around 6,000 mw per annum over the next few years. “The Indian wind industry is a true example of Make in India and its vision. On an average, the industry has achieved more than 75 per cent indigenisation. Many companies from the country are exporting wind turbines, where as other renewable energy projects are mainly based on imports,” says IWTMA’s Khemka.
He claims wind turbines produced in India are at par with world-class technology available in Europe and the US. India has the latest technology, with all required certifications by globally renowned third party certifying agencies, while in other parts of the renewable sector certification norms are not followed very strictly.
Certification for every wind turbine installed in India is mandatory as per National Institute of Wind Energy norms, which means no wind turbine can be installed in India by compromising technology, safety and quality, he points out. The performance of wind turbines are at par with developed markets in Europe and the US, where average machine availability is almost 97 per cent. The installed cost of wind energy, calculated as cost of generation per kwh, is lower in India — even lower than China.
Khemka says eight potential states in India, which include Madhya Pradesh and Rajasthan, were non-potential wind states, five years ago. They have changed because of new technology machines, which give good generation even at low wind speeds.
Policy concerns
What India needs now are consistent policies by the governments, especially state governments, and lack of complete evacuation facilities, that have held back domestic growth.
“Wind is basically a financial product, with an EBIDTA of 85- 90 per cent. And reasonable energy tariffs are also available in most states. However, the electricity generated varies from high-wind states to low-wind states. While it is around 27-30 per cent in Tamil Nadu, it could be around 23-24 in other states. And the payback period is over 10-15 years. At the same time, wind is a fluctuating power and there are challenges in evacuation that still need to be overcome,” says Orient Green Power’s Venkatachalam.
What the industry needs, he says, is a proper ‘scheduling and forecasting’ approach. Of course, the Centre is looking at integrating states to form at least a southern grid. Once the grid is strengthened and properly connected by implementing a proper green grid corridor, more people will look at investing in the wind sector.
“There are challenges in terms of policy uncertainties. States are adopting ‘feed-in-tariff’ over a fixed regime period and they announce a different tariff for another regime period. This was felt last year, when there were uncertainties in tariff, with states like Maharashtra not signing power purchase agreements (PPAs),” says Global Environment Fund’s Narayan.
He also draws a comparison between the two renewable sources. When it comes to wind, it is a more established technology and proven over a longer period of time, whereas in the case of solar, one cannot be actually sure on what could be the output and what level of degradation will take place over 15 years. It is still evolving. But, with wind it is difficult to drop prices like in solar, where panels come from China, which has several players and they are getting competitive in pricing the panels for larger market share. At the same time, it is also possible that solar prices may be bottoming out, he points out.
“In the case of IPPs and PEs, over the last 6-7 months, solar has taken the lead. At the same time, prices are coming down and IRR too, has reduced. However, with wind and given the tariff, the returns are reasonably high,” feels Narayan.
From the financing point of view, the Indian wind industry will require huge round of funding to achieve the set target of 60 gw. The industry has already seen a shift from retail investment to IPP culture backed by private investors during the last few years. It is just that the country has to encourage these kinds of investments by creating conducive environment for the investors.
With wind energy marching towards grid parity, such a trend will only make India a preferred destination for investment. A recent Crisil report has pointed out that with improved regulatory and financial environment, India is expected to have over $15 billion investment by 2020 into the sector.
Export potential
The Indian wind turbine industry is well placed to tap any emerging export potential opportunities that arise. It has the spare capacity available to produce turbines, with built-in annual capacity at around 9,500 mw and domestic demand pegged at the most to 6,000 mw per annum.
However, logistics and transportation costs may be an area of concern, since larger the turbines, the greater is the problem of transporting them to even the nearest ports for its further onward journey.
But, companies like Gamesa and ReGen are already into it. Says Gamesa’s Kymal: “What we make in India are export-ready, hence we have a great advantage of technical skills, which brings down the cost of the manufacturing and gives us a distinct edge. We have been exporting to certain countries such as Sri Lanka. Today, we have a domestic demand to be met, which once full filled, will look at exploring other markets.”
Points out Khemka, also managing director of ReGen Powertech: “In terms of exports, since we have the latest technology and all international certificates for quality and design, we have the potential to export our wind turbines to other developing markets at competitive prices. We are already the market leader in Sri Lanka and are exploring markets like Bangladesh, Philippines and African countries for exports.
And this is one area where the Chinese have been kept at an arm’s length. “Indian wind industry quality is really top class and certified. We have not allowed low-quality Chinese products to come into the country. India can surely become a manufacturing and export hub, provided one takes care of the freight cost,” says Venkatachalam.
The potential and domestic demand is there, as is the capacity to produce wind turbines and the advantages of becoming a true hub for manufacturing for at least the developing markets, if not global.
What the Indian wind energy industry needs is consistent government policy and a grid system, if not green corridor, in place to evacuate the generated power to end-users. Once that is done, it will be time for favourable winds to blow India’s way. It is pretty certain that signatories at Paris would be watching it as well. govardand@mydigitalfc.com. Source: mydigitalfc.com
