The Coming Changes n India's Renewable Energy Landscape.

When an eye surgery that I was just about to undergo in India had to be rescheduled because of one of India famed power outages, I decided never to go back. I took my business to another country.
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India lacks Energy Security:
India’s lack of energy and power is the bane of India industrial growth story is well documented. Fundamentally, India lacks energy security. Every one touts non conventional energy as the answer. Even the surgeon who was in charge of my surgery claimed he was an expert. To prove it, he showed me his investment with a group of his peers who bought into a wind farm!
What accentuated my panic at the time of the surgery, was that I was coming out of consulting for two projects in India with two persons that had considerable pretentions in running a businesses in Renewable Energy; positioning both these projects to VCs and PE gave me a ring side view of the hype and practicable difficulties that investors should be wary of.

The questions that investors considered before backing out of a renewable energy projects are myriad, but some of them are:

Is alternative energy a real and viable alternative to plug the shortfall, or is it promoted only to monetize carbon credits?

If all these renewable energy technologies could be tapped to its fullest, can India meet its energy needs in the short to medium term? Are the targets realistic? Indeed, are renewable or alternative energy sources important? Is the focus on production misplaced? Is the focus in Carbon Credits diverting financial resources to realistic projects? Is it all muddy water?

DISSERATA:
TWO ISSUES NEED TO HIGHLIGTED THAT MANY FRET OVER BECAUSE IT IS NEVER ADDRESSED ALONGSIDE THE HYPE OF FUNDING RENEWABLE ENERY PROJECTS.
1. The losses in India power supply and distribution make India’s fascination with renewable or alternative energy disingenuous. A SMART GRID solution to address the leakage costs needs to be implemented first to achieve power for all.
2. If implemented aggressively, the Nuclear Agreement with NSG/US will change the renewable energy landscape.
1. IMPLEMENTING SMART GRID TECHNOLOGIES ARE A SOURCE OF RENEWABLE ENERGY.
Today over 25% of the total electrical energy generated in India is lost in transmission (8-12%) and distribution (18-20%). The electrical power deficit in the country is currently about 18-20%. The free distribution of power to groups as part of the political largesse is another topic that needs to be debated another time.

India’s grid is similar in design to the U.S.
As is the case in most of the world, the Indian national grid was not designed for high-capacity, long-distance power transfer. As is the case in the United States, India needs to interconnect regional grids. Although coal and hydro-electric potential has peaked in many parts of India, there are still several regions with excess capacity. Large wind potential and increasing wind capacity in the south and west also create a need for transmission infrastructure.
Unfortunately, like the United States, regions are generally sectionalized, with some asynchronous or HVDC links allowing for minimal power transfer. The biggest difference is that India’s transmission grid only reaches 80% of its population, while the transmission grid in the United States reaches over 99% of its population.

India’s grid is not financially secure.
According to its Ministry of Power, India’s transmission and distribution losses are among the highest in the world, averaging 25% of total electricity production, with some states as high as 62%. When non-technical losses such as energy theft are included in the total, average losses are as high as 50%. The financial loss has been estimated at 1.5-2.0 % of the national GDP, and is growing steadily. At an estimated GDP of a Trillion dollars in 2008, addressing these losses should be the first priority alongside discussions of energy security.

India’s power sector is still largely dominated by state utilities. Despite several attempted partnerships with foreign investors, few projects have actually been implemented. This lack of foreign investment limits utilities’ ability to raise needed capital for basic infrastructure.
This financial frailty, coupled with public ownership of utilities and the related bureaucratic slowness, has made it very difficult for investors to take interest in India’s grid. Despite these problems, prescient U.S. companies such as GE have done business in India for decades and are positioned to help India build the Smart Grid.

Without a SMART GRID in place first, India energy security plans have no meaning, and implementing a SMART GRID should be viewed as an investment in renewable energy technology in itself.

2. THE IMPACT OF THE US-INDIA 123 AGREEMENT ON ALTERNATIVE ENERGY.
With the exception of Hydro Electric and Coal, power from non conventional sources like wind and solar amount to barely 1% of the total power sources.

The water shed event has changed the landscape in was the unanimous lifting of sanction for Nuclear Trade by the NSG towards India following India’s parliament ratifying the 123 Agreement with India between July-September 2008. Cynical Indian power players have not factored this sudden development into their growth plans. These players have invested heavily in hydel, coal (thermal) and other forms of conventional energy and of course some non conventional energy like wind farm and solar.

Some analysts have listed some reasons to avoid non conventional sources of energy like solar, wind or bio fuels, (i) when the wind stops blowing and the sun does not shine, where do we get the power from? (ii) Further, the cost of power from these sources is 2 to 5 times the cost of power from conventional sources. Will bankrupt state utilities opt for these sources in their mix? (iii) Carbon credits justify the additionality argument that bolster the economic case for renewable. But India’s CDM market whilst quite large by the numbers of projects, each project is small and fragmented and promoters cannot/will not compete on price that China’s large projects bring to the Carbon markets.

This recent development of the 123 civil Nuclear Agreement with the US is having promoters and investors relook at India’s power games. The growth of Nuclear and could bury attempts by local entrepreneurs in wind and other non-conventional sources of energy unless. Renewable energy sources around 1% of the total production and this 1% will round down in the decimals in India’s new power calculus. I dare posit that the gradual shift to Nuclear may imply reduction or orphaning non conventional sources that we listed earlier

WILL URANIUM BE THE NEW CARBON? ©
Not so fast. India nuclear prowess in energy and nuclear weapon delivery is mature enough to be taken seriously by the US and other recognized nuclear power states. India’s record and standards of non proliferation are higher than what the NPT demands or what the US, France. China and others employ. To ask India to sign the NPT would require India falling to the standards of proliferating countries that sit comfortably in the UN Security Council. This is not said in jest. India only lacks is a steady source of Uranium and latest civil nuclear technologies.
But Nuclear Energy is not cheap and at current levels of costs and lack of high capacity evacuation lines make it un-bankable. But nuclear energy is totally clean. And that is why investors and India are eyeing Carbon credits to slingshot the additionality argument to justify its economics.

Some analyst indicated that one MW of nuclear energy could deliver upto 50,000 CERs!!! Critics may argue that this is stretching the argument and perhaps being specious. Really? If it displaces tones of C02 from coal fired thermal power and saves Billions of USD in ecological and environmental damages from large hydel (large hydel has very long gestation periods) this is not a stretch. At the current argument of 4,500 CER for new hydel per MW, the cost substitution for thermal and large hydel can be multiple times the investment in nuclear. India is currently (circa August 2008) around 150,000 MW deficient in power.

Let’s go with 10,000 CERs per MW for nuclear energy. If new Nuclear Energy in the next 10 years produces 25,000 MW of power per annum it could generate USD 2.5bn to 12.5Bn in CERs at € 10 per CER.

Still smarting from Australia’s insult by refusing to supply uranium till India signs the NPT, chatter indicates that India is now strategizing to link real trade with nuclear trade. The Indians are lining up loyal suppliers and this will take time.

Once the 123 Nuclear Agreement is ratified by the US Congress, the Economic interests and the Ecological argument will collide dramatically in India’s Civil Nuclear Power game. The Americans and the Indians will be in pole position to gain this bilateral advantage, through their Nuclear Engagement if they can combine Civil Nuclear Energy economics and Carbon Offsets into bankable structures that go beyond 2012.