Renewable energy finds many takers; vies with fossil fuel: Exim Bank

The new world order in the age of energy security is projected to be renewable, shows a trend revealed by the Export Import Bank of India (Exim Bank) in its latest study. Renewable energy sources accounted for 47 per cent (140 GW) of the new capacity added to world’s grids (about 300 GW) during 2008 and 2009, says the study by Exim Bank. The total investment in renewable energy capacity generation in 2009 was US$ 150 billion, which was around 40 per cent of the annual investment in upstream oil and gas industry, which was a little over US$ 380 billion.

An analysis of the new renewable energy technologies (solar photovoltaic (PV), wind and biomass), indicates a clear shift in global preference towards these technologies. In terms of international trade, global exports of identified renewable energy supply related products amounted to US$ 284.8 billion, showing an average annual growth of 20.8 per cent during the 5-year period 2004-2008. As against this, India’s exports aggregated US$ 3.4 billion while imports were US$ 4.2 billion in 2008. Germany was India’s largest trading partner for the identified renewable goods and equipments in 2008 (two-way trade of US$ 1219 million), followed by China (US$ 1059 million).

The Exim Bank study views that renewable energy is being used as a primary instrument for achieving the twin objectives of energy sufficiency and climate change mitigation. The study titled “New Renewable Energy in India: Harnessing the Potential”, was released by H.E. Shri Shivraj Patil, Governor of Punjab, at the inaugural function of XIth Commonwealth-India Small Business Competitiveness Development Programme held in Chandigarh, on February 13, 2011. H.E. Shri Kamalesh Sharma, Secretary General, Commonwealth Secretariat, graced the occasion and received the first copy. The study notes that the key drivers which are likely to further India’s cause to promote the use of renewable energy include: energy security, climate change, and opportunities in the carbon market.

According to the study, PV panels/modules represented a share of 37.2 per cent in global exports of US$ 116 billion of solar energy related goods and components. PV panels/modules was also the largest item exported by India in 2008 under the PV and related goods category, with exports aggregating US$ 529 million – more than six-fold increase over 2004. India had a share of 1.2 per cent in global exports in the PV category, making it the 15th largest exporter. Spain was the largest export destination accounting for 40 per cent of India’s total exports of PV panels/modules in 2008.

World exports of wind turbines grew from US$ 1.1 billion in 2004 to US$ 5.3 billion in 2008. India, which had negligible exports of wind turbines in 2004 (US$ 1 million) increased its exports phenomenally to US$ 651 million to emerge as the third largest exporter in 2008 (compared to its 12th rank in 2004). USA (31 per cent share) was India’s largest export destination for wind turbines followed by Brazil, Australia, Portugal and Spain.

The Exim Bank study states that power generated from biomass also increased significantly in many developing countries. China’s capacity increased 14 per cent in 2009 to 3.2 GW, while India, which generated 1.9 TWh of electricity with solid biomass in 2008, had a biomass power capacity of 1.5 GW in 2009. By the end of 2009, India had installed 835 MW of solid biomass capacity fuelled by agricultural residues (increase of about 130 MW in 2009) and more than 1.5 GW of bagasse cogeneration plants (up nearly 300 MW in 2009, including off-grid and distributed systems).

The study observes that availability of capital is one of the major constraints inhibiting the realization of the potential of renewable energy. Inability of firms in obtaining finance for renewable energy projects has often been seen as a strong deterrent to investments in many countries around the world, including India. The main hurdle in investment in renewable energy remains the high up-front costs, particularly for installing equipments. To some degree, the study views that, strengthening capacity building, promoting enabling environment, developing policy frameworks, and improving demands for renewable energy technologies (RET) can help in mitigating the steep transaction costs and create markets for RET. Such capacity building initiatives are a prerequisite to stimulate investments in the renewable energy sector.

In the Indian context, the study states that a well constructed policy support mechanism by the Governments, both at the Centre and at the State levels, including fiscal incentives, is crucial for the success of renewable energy programs. Such mechanisms are required to help support shifting the investment paradigm of energy sector away from the typically undervalued investment costs of fossil fuels.

India has been at the forefront of renewable energy technology with the country being amongst the first in the world to have a full fledged Ministry catering to this niche sector. However, the success level has been relatively moderate as compared to China, which has moved ahead within a short span of time. India, unlike many other countries, has a distinct advantage in generating energy from all the three emerging renewable energy technology fields – PV, wind, and biomass – which need to be rightly leveraged, so as to realise the untapped potential. Suitable mechanisms need to be created to overcome the barriers at the early stage of project development while simultaneously creating enhanced deal flow for later stage private and foreign institutional investors.