AEI October 2007 Finalbookstore.teri.res.in/docs/newsletters/AEI_ November 2007... · 2012-08-10 · AEI newsletter Issue 4: November 2007 2 * President, AEI; Director-General, TERI,

Editors Mitali Das Gupta and Deepti Mahajan

The AEI (Asian Energy Institute) is a

network of 16 energy institutes from Asian

countries. These include Bangladesh,

China, India, Indonesia, Iran, Japan,

Jordan, Korea, Kuwait, Malaysia, the

Philippines, Pakistan, Sri Lanka, and

Thailand. Besides, there are 14 associate

members, both within and outside Asia.

The AEI was formally established in August

1989. Its aims and objectives are to

promote greater information exchange;

facilitate sharing and dissemination of

knowledge; undertake research and

training activities that are of common

interest to its members; and analyse

global energy developments and their

implications. TER I hosts the secretariat

of the AEI at present. The secretariat

publishes a biannual newsletter that

informs the readers about the diverse

research activities undertaken by the

member institutes. Currently, the AEI is

hosting the regional secretariat for REEEP

(Renewable Energy and Energy Efficiency

Partnership) in South Asia.

November 2007 Issue 4

Asian Energy Institute

Contents

Editorial 2

R K Pachauri

The wind industry in India: policy, regulatory, and

attitudinal issues 4

Rakesh Kacker

Project finance for wind energy: a banker’s

perspective 8

Jotdeep Singh and Rahul Rai

How to find money for your renewable energy

project? 10

Frédéric Crampé

Mixed blessings 11

Marianne Osterkorn

Putting down roots 12

Binu Parthan

About REEEP South Asia Regional Secretariat 15

Shirish S Garud

REEEP projects 21

P Financing for bundled small-scale rural renewable

energy ventures in India

P Removal of financial and institutional barriers in

mainstreaming biomass gasifier systems for thermal

applications in India

P Linking income generation to energy services: solar

lights for silk farmers

AEI_ October 2007 Final.p65 06/12/2007, 5:43 PM1

AEI newsletter

Issue 4: November 2007

2

* President, AEI; Director-General, TERI, New Delhi; and Chairman, Intergovernmental Panel on Climate Change

Editorial

R K Pachauri*

Oil prices have been very close to the $100 mark inrecent weeks, and the outlook does not look verybright. At the same time, there are still over a billionpeople across the globe who do not have access toelectricity. Additionally, the issue of climate change isnow so high in the consciousness of the public as wellas several world leaders, that globally there is greatpressure to reduce the emissions of GHGs(greenhouse gases) with a sense of urgency. All thesefactors clearly require that human society come upwith a totally different scenario of energy in the futurethan what we have seen in the past. For these reasons,as well as for reducing air pollution at the local level, amovement away from fossil fuels is extremely criticalto meet a range of objectives linked with the factorsmentioned above.

Asia has to be in the lead in devising new energysolutions and establishing a new path of energydevelopments that move us in the right direction inthe future. The reason behind the need for Asia totake the lead lies in the fact that economic growth onthis continent is now the fastest of any region in theworld. Consequently, the demand for energy in Asiawill grow rapidly, and since changes will take place ona large base, the absolute impact that Asian energydemand would have on the global energy marketwould be substantial. Significantly, Asia has locationswith very high population density, which makes peopleparticularly vulnerable to the health related impacts ofair pollution. But the most important rationaleperhaps for moving from a fossil-fuel-based energysystem to one that relies substantially on renewableenergy arises out of observed and projected impacts ofclimate change. Since the share of GHG emissionsfrom Asia is on the increase, the future course ofdevelopment on the continent has to be an importantpart of the global solution in providing a significantreduction of emissions of GHGs. Even though theproblem of climate change is the result of cumulativeGHG emissions in the past, exercising the principal ofcommon but differentiated responsibility (as includedin the Framework Convention on Climate Change)would require Asia to play its part, both for globalreasons and for creating an example for other parts of

the world. Even though Asia historically contributedlittle to cumulative emissions of GHGs, by takingeffective measures that would limit future emissions,Asian nations would gain much greater moral andpolitical authority to bring about similar actions on thepart of other countries in the world.

While the share of renewables in current energyproduction is still small, progress in this field in recentyears has been very encouraging. The IPCC(Intergovernmental Panel on Climate Change), in itsFourth Assessment Report of Working Group III, hasclearly assessed that placing a price on carbon wouldbe the most important policy measure for bringingabout reductions in GHG emissions. Therefore, if theworld was to place an appropriate price on carbon, notonly would large scale funding flow into R&D(research and development) for renewables, but thiswould also ensure that these technologies aredisseminated extensively. Consequently, the healthyrate of growth of renewables in recent years wouldimprove even further. Higher prices of oil, which oftenlead to corresponding increases in the price of otherfossil fuels, would provide an even stronger incentivefor development and use of renewable energytechnologies.

The Global Status Report of REN 21 (RenewableEnergy Policy Network for the 21st Century) hasstated that investment in new renewable energycapacity, in 2005, was $38 billion, much higher thanthe $30 billion in 2004. The largest investment tookplace in Germany and China with about $7 billioneach. These were followed by the United States,Spain, Japan, and India. Wind power registered thesecond highest addition with a growth of 24% to reach59 GW (gigawatts) of installed capacity. The overallprogress of annual investment in renewable energy forthe period 1995–2005 is shown in Figure 1. As far asspecific technologies are concerned, the growth inrecent years has been quite impressive – as shown inFigures 2, 3, and 4.

Against this background, there is need for thecountries of Asia to come up with a commonperspective, on the basis of which some collectiveactions could be taken to benefit the region as a


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3Issue 4: November 2007

whole. In particular, the establishment of large-scalecapacity for production of renewable energy deviceswould bring about economies of scale that would helpconsumers in the region across internationalboundaries. Based on this write-up, a suggestion couldbe put forward that the AEI (Asian Energy Institute)becomes a catalyst for developing an Asian perspectiveand a plan of action for development of renewableenergy technologies. One approach by which such aneffort could be initiated is joint communication fromthe heads of the institutions which are part of the AEI,to the President of the Asian Development Bank,seeking seed funding for taking this initiative forward.

Figure 1 Annual investment in renewable energy, 1995–2005Source Renewables Global Status Report (2006), REN 21

Figure 2 Wind power: existing world capacity, 1990–2005Source Renewables Global Status Report (2006), REN 21

Figure 4 Solar photovoltaic: existing world capacity, 1990–2005Source Renewables Global Status Report (2006), REN 21

An attempt at accelerating renewable energy andenergy efficiency in Asia is being made by the variousactivities of REEEP (Renewable Energy and EnergyEfficiency Partnership). REEEP South Asia is housedin the AEI. This newsletter has a special focus on itsactivities and projects, as well as articles by officials ofREEEP International. Comments from the readers onthis editorial are greatly welcome and would help inmaking a beginning towards a brighter renewableenergy future for Asia.

Figure 3 Wind power capacity, top ten countries, 2005Source Renewables Global Status Report (2006), REN 21


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4

The wind industry in India: policy, regulatory, and attitudinalissues

Rakesh Kacker*

Introducing a new technology or idea is a difficult task.On the one hand are genuine difficulties faced inintroducing the innovation and on the other are thoseencountered in scaling it up to commercial proportions.The more difficult task is to make people accept theinnovation, and obtain their cooperation and support inovercoming these inherent difficulties. The windindustry in India is no exception. Accordingly, aftergiving background information, this paper looks at themajor problems faced by this nascent but fast growingindustry. It then tries to address some of the reasons whythe attitude of many people is either hostile or indifferentto this technology.

Growth of the wind industryThe wind industry in India has been growing rapidly inthe last three years. The installed capacity has thus shotup to a little over 7000 MW (megawatts) as of Marchthis year. This increase can be seen from Figure 1.

The bulk of this capacity is in Tamil Nadu, whichaccounts for about 50% of the total installed capacity,followed by Maharashtra, Karnataka, Gujarat, andRajasthan. These five states taken together account for97% of the installation (Figure 2).

The growth of the wind industry in India has beenmatched by an equally impressive growthinternationally. The corresponding figures of installedcapacity worldwide are shown in Figure 3.

Figure 1 Growth of installed capacity of wind energy in IndiaSource <www.inwea.org>

Figure 2 Cumulative installed capacity in MW as on 31 March 2007Source <www.inwea.org>

Figure 3 Wind energy: installed capacity worldwideSource <www.wwindea.org >

* Secretary General and Chief Executive, InWEA (Indian Wind Energy Association). Email: [email protected] views expressed here are the personal views of the author and do not necessarily reflect the views of InWEA.

Following are the major drivers of this growth.P Renewable energy standards with fixed minimum

procurement targets in renewable/wind energy.P Fixation of preferential tariff for such

procurements.P Growing awareness about the problems of climate

change.P Rising fossil fuel prices and the capacity of wind to

provide long-term stable energy prices.


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Despite the various advantages of wind energy andgrowing competitiveness, the industry faces certainproblems in India, which need to be addressed toensure that growth is sustained in the future.

Renewable Portfolio Standards and tariffsetting in IndiaIn India, Section 86(1)(e) of the EA 2003 (ElectricityAct 2003) requires each state’s regulatory commissionto fix the minimum percentage of consumption thatmust be procured from renewable energy sources.Most of the states have issued orders for an RPS(Renewable Portfolio Standard). A summary of theseis provided in Table 1.

Apart from the five states mentioned in the table,the states of Andhra Pradesh, Kerala, West Bengal,Uttar Pradesh, Madhya Pradesh, Haryana, and Punjabhave also fixed such limits. In a parallel measure, thestate regulatory commissions have also fixed the tariffsfor procurement of energy from renewables. In allstates, except Rajasthan, one single tariff for the entirestate has been fixed. In the case of Rajasthan, thetariffs have been fixed at two levels — a higher tariffhas been fixed for districts with a lower capacityutilization factor. These tariffs have generally beenfixed for a period ranging from 13 to 20 years. Theyare fixed for the entire period or provide for a fixedescalation. Thus, the investors in these states haveguaranteed offtake at pre-determined prices. The mainrisk here is whether the turbines are able to generatethe energy assumed in the tariff calculations andwhether there is sufficient demand in the grid.

Another risk, which is now increasingly becomingimportant, is the rising cost of equipment andfinancing. To the extent that these differ from theassumptions made in the calculations, the investorswould stand to lose.

These risks are inherent in the normative cost plusmethodology that has been adopted for fixing the tariffs.

Given the present market conditions, the use of the costplus methodology is inevitable. However, thismethodology has an inherent failing – it will not be ableto respond to changes in the market parameters speedily.Regulation by its very nature involves a lengthy processof consultation, examination, and fixation of tariffs.Thereafter, there are also provisions for appeal andjudicial review which could lead to even more delays.

Besides the problems associated with the cost plusmethodology, there is also the issue of enforcement oforders issued under Section 86(1)(e) of the EA 2003.If these orders are to be enforced, there should beenough supply to ensure that the percentages fixed bythe regulatory commissions can be adhered to by theutility and other consumers. The regulatorycommissions must also specify the manner in whichthese orders would be enforced. So far, only theMaharashtra Regulatory Commission has specified thepenalty for non-compliance and the manner in whichthis penalty will be recovered from the utilities.

Towards a national Renewable Portfolio

Standard

In order to ensure adequate supply and have aneffective enforcement mechanism, it would benecessary to introduce a system whereby the statesrich in renewable resources can export such energy tothe renewable-energy-deficient states. Such exchangescan be done either through physical transfer ofelectricity generated or through a paper-based tradingmechanism. In the latter case, there will be nomovement of energy but only of the entitlement formeeting the obligation cast on the utility/consumerthrough regulations under Section 86(1)(e) of theEA 2003.

Apart from making it easier for utilities/consumersto comply with regulations, this will also help indistributing the burden of developing renewableenergy resources including wind. At present,renewable energy is not traded across states nor isenergy produced in one state accepted as the means tocomply with the RPS mechanism in other states. Oncetrading – either physical or paper – is permitted andencouraged, the states that do not have muchrenewable energy resources would also be required tofix orders and ensure that these orders are compliedwith. Eventually, a national minimum would need tobe ensured so that all states contribute equitablytowards the development of renewable energyresources.

Introduction of such a system would also help ininitiating an element of market dynamism in the prices

Table 1 Status of Renewable Portfolio Standard percentage fixed indifferent states

State RPS % Comments

Tamil Nadu 10 —

Maharashtra 3 Will increase to 6% by 2010

Karnataka 10 (maximum) The commission has floated a consultation

paper on the issue of increasing this limit

Gujarat 2 —

Rajasthan 2 This figure is for wind energy and would

increase to 7.5% by 2012


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6

of renewable energy. This would help in partiallyovercoming the difficulties associated with the costplus regulated regime. It would also help in movingthe industry eventually to a pricing system determinedby market forces within the ambit of a nationalrenewable energy support and procurement policy.

Wind energy potential in IndiaDirectional change has the ability to free the industryfrom the constraints imposed by a regulated pricingmechanism and would help it move more speedilytowards utilizing the full potential of wind energy inthe country. According to official estimates, the totalpotential in the country is about 45 000 MW in grossterms. Out of this, only about 13 000 MW wasconsidered feasible earlier. These estimates have beenshown to be conservative. Tamil Nadu already has aninstalled capacity of 3500 MW as against the grosspotential of 3050 MW and net potential of 1684 MW.The government has taken up the preparation of aWind Atlas for India in association with RISONational Laboratory, Denmark, which is expected tobe completed by 2008/09. It is expected that a betterestimate of wind energy potential would be madeavailable once this exercise is completed. Meanwhile,going by the conservative estimates and the presentrate of annual capacity addition, there is a hugepotential that remains unexploited. At the current rateof capacity addition, this potential will not beexhausted even by 2020.

While policy and regulatory issues are crucial,there are other important issues which need to beaddressed simultaneously. These include the need forproper micro-site forecasting of wind energygeneration and associated issues of grid integrationand management; providing links between states andregions for better management of fluctuations in windenergy; and utilization of carbon credits to reduce thecost burden of developing the available wind energyresources. The wind industry is rapidly growing and itshould be possible to find equitable solutions thatensure that we utilize our natural resourcesappropriately.

The cost of not using wind energySince wind is a renewable resource which cannot bestored, non-utilization of wind energy potential is apermanent loss of the country’s assets. In many ways,this is very similar to the flaring of natural gas in theearly stages of development of the oil industry. Therewas considerable noise over the flaring of gas, and

various estimates were made of how much the countrywas losing every year. There has unfortunately notbeen similar concern over the loss of our renewableenergy resources.

We must compute the loss due to non-utilizationof wind and deduct it from our national income toensure that there is proper accounting of andreflection on the true efficiency and productivity ofour economy. On the assumption that we would beable to add 3000 MW in the next two years, theannual loss thereafter would be 35 000 MW. This losscan be minimized by taking action now. How muchdoes it cost us if such an action is not taken? Thequantum of this loss has been estimated on thefollowing assumptions.P The total quantum of unutilized capacity is

35 000 MW.P The marginal cost of wind-based electricity is

Rs 3.50 per unit.P The marginal cost of non-renewable energy is

Rs 5.50 per unit (justification of this number maybe seen in the following section of the paper).

P The average capacity utilization factor is 22%.

On the basis of these assumptions, the annual losscomes to Rs 140 billion. As fossil fuel prices continueto rise, these losses would only increase. Solutions toavoid this loss and make better use of wind energy canonly come forth if there is adequate understanding andknowledge about the true benefits of wind energy.

Wind energy: attitudinal problemsMost people have two common problems with windenergy. These are:P The electricity generated by wind turbines is

expensive.P Wind being intermittent cannot be used in any

significant amount.

Is wind energy really expensive?Figure 4 clearly shows that the cost of traded powerhas steadily gone up—the bulk of traded electricity issold at prices that have gone up from a range of Rs 2–3per unit in 2004/05 to Rs 4–6 per unit in 2006/07.Market information suggests that now the bulk ofpower is sold at prices above Rs 6 per unit (Figure 4).Since this power can be scheduled whereas windcannot be (although wind energy production can beforecast), some deduction on this count needs to bemade. On a rough basis, it would be safe to assumethe marginal cost of power at Rs 5.50 per unit.


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The above analysis does not take into account theenvironmental benefits of wind energy, the positiveimplications of wind energy for energy security, andalso the fact that unlike fossil-fuel-based energy, windenergy can provide stable prices for 20 years. Thus,wind being a cheaper option is certainly no longer indoubt – the only question is whether this margin isRs 2 per unit or more.

Is wind energy unmanageable because it isintermittent?Wind energy being intermittent, people areapprehensive of utilizing it. It is certainly correct thatwind is intermittent (again to be emphasized that itcan be forecast – production of wind energy is notrandom) which places certain limitations on its use.However, it must be noted that currently wind energyproduces only about 2% of the electricity generated inthe country. In Denmark, wind energy contributes20% of the electricity generated. In the state ofKarnataka in India, this number is 10%. With proper

grid management and inter-connections betweenstates and regions in the country, it is certainlypossible to inject more wind energy into the system.At the national level, we are still far away from whatother countries have achieved or what some states inIndia have achieved. Therefore, if there are problemsin the absorption of wind energy, the problem lies inthe domain of grid management and not in the natureof wind energy.

Finally, it is relevant to point out that apart fromwind, managing hydro with fluctuating rainfall andmanaging fossil-fuel-based stations designed for baseload operations in the absence of sufficient peakingpower stations also pose problems in grid management,apart from fluctuations in demand and unscheduledbreak-down of fuel supply chain and generating stationsthemselves. In spite of these challenges in managementof the grid, by and large the grid management system hasworked successfully. There is no reason why the samesystem cannot manage the challenges posed by theintermittent nature of wind energy, especially at thepresent negligible levels of grid penetration. However,unlike fossil-fuel-based plants, wind energy plants havethe risk of the grid not being available.

It also needs to be noted that while fossil-fuel-based plants enjoy a two-part tariff system, wind andother renewable energy sources have a single-parttariff system. This also needs to be factored into thecomparative evaluation of fossil-fuel-based plants andrenewable energy plants. One also needs to take intoaccount the recent high prices of fossil fuels, whichhave led to low utilization of liquid-fuel-plants — thecost of this low utilization is to be borne by theutilities, and ultimately the consumer and the taxpayer.

All these issues and challenges call for a positiveoutlook towards the greater utilization of wind energyin particular, and renewable energy in general. Therecent growth of the industry, as well as the rapidlygrowing realization of the true benefits of renewableenergy, brings hope for the future.

Figure 4 Volume of electricity by the trading licensees and its sale priceSource <cercind.gov.in>


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8

Project finance for wind energy: a banker’s perspective

Jotdeep Singh and Rahul Rai*

India has tremendous wind energy potential that hasgenerated significant interest, domestically andglobally. According to the Ministry of New andRenewable Energy, Government of India, the installedcapacity of wind turbines as on 31 March 2007, wasaround 7.1 GW (gigawatts), constituting about 5% ofIndia’s installed generation capacity. With this, Indiastands fourth in the world in terms of wind energyinstallations.

Wind energy is capital-intensive and hence the costof financing constitutes a large variable in wind energyeconomics. It has a low marginal cost of operation and ahigh proportion of up-front capital costs, owing to whichwind energy projects are usually considerably debtfunded. In India, most financing for wind farms hasusually been in the form of balance-sheet lending, ratherthan project finance based on the expected cash flowsfrom the wind farm alone. Here, we examine the case forproject-specific finance for wind energy.

Project finance, as defined in the Basel II Accord(issued by the Basel Committee on Banking Supervision,International Convergence of Capital Measurement andCapital Standards in November 2005) is ‘a method offunding in which the lender looks primarily to therevenues generated by a single project, both as thesource of repayment and as security for the exposure.Project finance may take the form of financing of theconstruction of a new capital installation, or refinancingof an existing installation, with or without improvements.In such transactions, the lender is usually paid solely oralmost exclusively from the money generated by thecontracts for the facility’s output, such as the electricitysold by a power plant. The borrower is usually an SPE(special purpose entity) that is not permitted to performany function other than developing, owning, andoperating the installation. The consequence is thatrepayment depends primarily on the project’s cash flowand on the collateral value of the project’s assets.’

Financing wind farms through project finance hasevolved to become a standard business practice inEurope. With the emergence of India as a destinationfor installation of wind farms, there is an increasingdemand from project sponsors and investors forproject financing facilities.

Project financing enables sponsors of largeprojects to leverage their assets with minimal or noutilization of existing corporate credit. In a typicaltransaction, the project assets and cash flows aresegregated from the project sponsors andindependently evaluated by the lenders. The creditappraisal and lending decision are based on theinherent economics of the project as opposed to thecredit standing or balance sheet of any sponsor, eventhough the sponsor’s reputation and track record inother ventures matter significantly.

Usually in India, lenders will insist on recourse toproject sponsors’ main balance sheet or indirect creditsupports in the form of guarantees and warranties fromproject sponsors and related third parties to mitigatespecific payment risks. The nature and extent of anycredit support can vary greatly based on the lenders’ riskassessment. The need for such credit support can beminimized as and when the project risks (or perceivedproject risks) are mitigated. Some issues that creategreater uncertainties in India, as compared to the moremature wind markets of Europe, are elaborated below.

Offtake payment riskUsually for wind farm projects in India, electricitysales are made to the SEBs (state electricity boards). Astand-alone financial appraisal of most of the SEBs inIndia will indicate their inability to meet financialcommitments, since in most cases tariff collection bythe SEBs from the final consumers does not cover costbecause of subsidy in tariffs. Ideally, the powerpurchase agreement would be with a utility that has aninvestment grade or better credit rating, and one thatis motivated by an enforceable regulatory requirement,such as a renewable portfolio standard, to meet itsobligation to take electricity under such an agreement.The agreement must be structured to provide theproject company with sufficient revenue toP pay its project debt obligations and all other costs

of operating and maintaining the project, andP to provide the project company and its lenders, as

assignees of the project company, with a reasonableopportunity to cure any default.

* The authors are from Rabo India, a 100% subsidiary of Dutch banking major Rabobank.


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This is usually not the case in India as no SEB hasan acceptable credit standing if looked at from thenumbers on the balance sheet, nor are the renewabletargets backed by enforcement.

Many SEBs have nevertheless had an acceptabletrack record in payments to wind projects. However,in times of economic stress or changes in governmentpolicy, this situation may change, and a compoundeffect of political and credit risk may introducesignificant uncertainty in wind farm lending,particularly in view of the long tenure of the projectdebt.

A significant step towards project finance in Indiacould be taken if renewable targets are enforced, andif there is a separate agreement among the lenders asparties, in which the utility acknowledges and agreesto security interest of the lenders and their step-inrights. The consent agreement should includerestrictions on amending such documents.

Also delays in payments by SEBs to wind farms, ausual feature today, would have to stop. The date ofpayment would become sacrosanct, and governmentowned SEBs would have to adjust their procedures toreflect the seriousness of payment dates. Underproject finance, delayed payments are considered acase of default. If a utility has demonstrated chroniclate payments, no matter how consistently they havepaid eventually, this would constitute a significantcredit risk. However, in our experience, theperformance of some of the SEBs has improved over aperiod of time and the payments are increasingly beingreceived with lesser delays.

Political riskThere are risks related to policy uncertainty that mayarise from change in governments. In some states, thePPAs (power purchase agreements) with the SEBs donot cover the entire tenure of debt. Even when theydo, there is no absolute guarantee that a governmentwill not change it in the future.

Additionally, political violence and local protestsare other elements of risk in India. For instance, thefarmers’ protest in Maharashtra, in April 2007,stopped activities at a wind farm site. Such risks addto the perception among lenders that India’s windfarm approval processes may not be as developed as inthe West.

Grid riskWind projects in India encounter challenges inadequately integrating their operations with thetransmission grid on schedule and ensuring its reliableavailability. The non-suitability of the gridinfrastructure to accept variable loads is seen as a keyrisk. With the low proportion of wind energy in totalgeneration, this issue has not warranted muchattention yet, but with increase in the share of windenergy, it is expected to pose a challenge. Tocompound this issue, most of India’s transmission anddistribution networks suffer from underinvestment inthe areas where a favourable wind profile is found.There have also been cases where the wind farm isready for operation but part of the infrastructure, asfar as the SEB is concerned, is not ready for offtake,thereby creating challenges with regard toconnectivity. Strong government signals, through‘must run’ directives for renewable energyinstallations, would force grids to put in placeprocedures to work with wind energy.

Wind profile riskWind profile is another significant credit concern for awindfarm project. The more accurate and the morehistorical data that is available for assessing the windprofile of a particular site, the less is the uncertaintyinvolved. The C-WET (Center for Wind EnergyTechnology) and some others have donecommendable work in spotting high wind potentialareas, and related measurements that have helped thewind sector take off in India. This now needs to betaken to the next stage, with more sophisticatedmeasurements, and measurements at heights for whichpresent-day windmills are being developed.

Wind power has enjoyed steady growth over thelast decade, and that growth is expected to continueboth in Europe and in India in the coming years.Given the increasing number of credible sponsors withwell-established relationships with the lendingcommunity, the improving credit position of many ofthe utility offtakers, and the increasingly favourableregulatory environment, some project financing forIndian wind farms can be expected in any case.However, for a major shift towards non-recourseproject finance in wind energy in India, some of thesuggestions made above could help considerably.


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10

How to find money for your renewable energy project?*

Frédéric Crampé#

Although there is no shortage of funds for financiallyviable projects, the immature nature of the green energymarket makes it hard for entrepreneurs and financiers tofind each other.

REEX (Renewable Energy Exchange)1 aims to fillthis gap by connecting capital with clean energy projects.REEX is uniquely positioned as a financial intermediary,focusing on renewable energy and energy efficiencysectors in Asia. In other words, the company helpsproject developers to raise finance through matchmakingwith financial institutions, development banks, corporateinvestors, clean energy private equity funds, and carbonfunds. ‘Our goal is to accelerate the implementation ofgreen projects, so we are not asking for exclusivemandates with clients,’ says REEX Chairman MikeAllen. ‘It’s up to REEX to be faster and better at fund-raising. Project developers appreciate keeping theirflexibility and we are confident in the business model aswe have tight relationships with a large group of investorsand lenders. Incentives are aligned since REEX gets asuccess fee only at financial closure.’

REEX began in Singapore in mid-2006, supportedby an advisory board of people from major institutions—

REEEP (Renewable Energy and Energy EfficiencyPartnership), DEG, EcoSecurities, E+Co, CVC Group,SEFI/BASE, IUT Global, and Greenbank Capital. Itwas funded by REEEP and DEG, the developmentfinance arm of Germany’s KfW Bank. REEX is sourcingand reviewing biofuel and infrastructure powergeneration investment opportunities across Asia (wind,biomass, biogas, and hydro, among others). For the pre-selected projects, REEX provides the necessary addedvalue to end up with a bankable deal ready for debt and/or equity financing. As of February 2007, REEX has 20projects in the pipeline, ranging from $5 million toseveral hundred million. For example, REEX will soonbe closing a $16 million financing transaction for a11.5 MW (megawatts) biomass power plant in Malaysiausing Palm Empty-Fruit-Bunches. Other deals inadvanced due diligence phase include the expansion ofan energy service operations company with projects inGuam and the Philippines, an M&A (mergers andacquisitions) transaction for a solar business, and seedcapital for a biogas developer with power plant projectsin Vietnam, India, and Indonesia.

About REEEP

REEEP (Renewable Energy and Energy Efficiency Partnership) is an active, global public-private partnershipthat structures policy and regulatory initiatives for clean energy, and facilitates financing for sustainable energyprojects. Backed by national governments, businesses, banks, and NGOs, REEEP is uniquely placed tocontribute to international, national, and regional policy dialogues.

The REEEP International Secretariat, Vienna, engages political, financial, and business support to reducethe risk inherent in implementing new policy and financing initiatives. With a network of eight regionalsecretariats, and more than 3500 members, REEEP has the ability to affect change worldwide. The regionalsecretariats are located in Central Europe, East Asia, Latin America, North America, Russia, and the FSU(former Soviet Union), Southern Africa, South Asia, South-east Asia, and the Pacific. Through its relationshipwith the MEDREP (Mediterranean Renewable Energy Programme), REEEP has representation in NorthAfrica.

The partnership has funded more than 98 high quality projects across the world that remove market barriersto clean energy in the developing world and economies in transition. These projects are beginning to delivernew business models, policy recommendations, risk mitigation instruments, and training tools.

* From the REEEP (Renewable Energy and Energy Efficiency Partnership) South-east Asia and Pacific Regional Secretariat.# General Manager, REEX (Renewable Energy Exchange).1 For further information on REEX, please visit <www.reexasia.com>.


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Mixed blessings

Marianne Osterkorn*

Biofuels offer many socio-economic benefits, but these needto be balanced against environmental impacts.

The maize industry in South Africa is diversifying andprospering. Ethanol Africa, a South African companythat plans to produce ethanol from yellow maize,wants to soon list on London’s AIM (AlternativeInvestment Market). There are around 9000commercial maize producers in South Africa. Thecountry produces 8.8 MT (million tonnes) of maize onaverage per year, making it the country’s largestproduced crop. Ethanol could provide a new andmuch welcome source of earnings.

Ethanol Africa, which is one of the companiesleading this move, plans to open eight ethanol plantsover the next six years, the first of which will belocated in Bothaville. All will be located inland in thecentral and eastern part of the country. ‘The socio-economic benefits of biofuels are extremely clear—there’s a huge positive argument for it,’ emphasizesJo Kruger, the company’s Managing Director.

The prospect is an exciting one. Employmentcould increase significantly as a result of developmentof biofuels. A 2003 study by Earthlife Africa suggestedthat if South Africa substituted 15% of its petrol withbioethanol, 62 000 direct jobs would be created. Thisis one reason why Ethanol Africa plans to eventuallyspread its operations to other African countries suchas Zambia, Mozambique, and Tanzania. This is also amajor reason why several African governments, suchas that of South Africa, have opted to take the biofuelsroute. In South Africa, maize, sugarcane, soya, andlesser-known perennial plants are all feedstockoptions.

But while it is hard to dispute the numerouseconomic and low carbon benefits arising from theindustry’s development, several environmentalproblems (as well as some positive environmentalspin-offs) are already becoming visible.

The maize industry has been criticized for usingfossil fuels at every stage in the production process. Itscultivation uses fertilizers and tractors, followed byenergy used for processing and transportation.According to the World Conservation Union, ‘maizefarming appears to use 30% more energy than thefinished fuel produces, and leaves eroded soils and

polluted waters behind.’ Some studies confirm that atthe very least, maize shows only a marginal positiveenergy balance in comparison to other crops, whileothers show its energy balance to be negative.

Since the sugar–bioethanol chain, which hasprovided huge benefits for Brazil, could also createjobs and income for several African countries, manycountries are considering it as an option. A UK–Brazil–South Africa partnership study published inJuly 2006, on behalf of the UK Office of Science andInnovation, said that sugar cultivation could be morethan doubled to 1.5 million hectares in the southernAfrican region over the next 10–15 years. If so,sugarcane production would meet more than twice thecurrent regional sugar consumption need whilecreating 7.3 billion litres of bioethanol each year. It isan attractive option and ‘has the potential to be amongthe lowest cost and lowest CO2 fuel chains,’ accordingto the study’s authors.

According to the South Africa Sugar Association,there are about 47 000 registered sugarcane growers inSouth Africa, producing an average of 22 MT ofsugarcane. About 80% of the production comes fromlarge commercial players.

But sugar production has created major concernsin recent years. Future potential is limited in SouthAfrica and one reason for this is the industry’s largeconsumption of water. Sugarcane is a water–intensivecrop that remains in the soil for the whole year. A2005 WWF (World Wildlife Fund) study found that600–1000 litres of water is used to produce 1 kgof sugar, or one million litres of water to produce12.5 tonnes of commercial cane. Solutions are needed,especially in arid countries. WWF’s response has beento create a Sustainable Sugar Initiative, through whichit plans to develop a set of standards for use byinvestors and producers. In South Africa itself, there islittle physical room for sugarcane expansion. Krugerestimates that at most there could be enough for twosugarcane-based ethanol plants. However, newplantations and plants in neighbouring countries suchas Mozambique will be under pressure to considerthese issues.

Perhaps some of the most interesting developmentsare in the more unusual tropical plants being consideredas biofuel feedstock, many of which show a higher yield

* International Director, REEEP (Renewable Energy and Energy Efficiency Partnership)


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than maize and sugarcane. Simon Wilson is managinga South African biodiesel project for REEEP(Renewable Energy and Energy EfficiencyPartnership) which is funding several biofuel projectsin Africa. He points out that the issue is a complexone — studies have noted negative environmentalimpacts from many of these plants, which are oftengrown on land that is degraded and not viewed asentirely arable. ‘Given that marginal land is often arefuge for wildlife and biodiversity, it is likely thatenergy crops will have some of their greatest impact onthese resources, as is already being seen in South EastAsia with the expansion of oil palm plantations intosecondary forests which in turn is having a clearimpact on orangutan populations, for example,’ heexplains. Africa is an enormous and unique continent,and the development of biofuels, whether throughtraditional crops or tropical plants, is in many ways astep into the unknown.

Annie Sugrue, the South African coordinator forthe international NGO (non-governmentalorganization), CURES (Citizens United forRenewable Energy and Sustainability), is interested inthe potential benefits of biofuels, but says that ‘theissues are not fully understood.’ She believes that afull life-cycle analysis for different crops needs to bedone.

Nevertheless, some positive environmentalbenefits have been noted from plants being considered

as biofuel feedstocks in South Africa. According toSugrue, perennial crops including jatropha, moringa(a tree whose bark, leaves, and other parts can all beused), and two local plums, could be the way forward,not least because they are more productive. Jatropha,the tree cultivated by biodiesel companyD1 Oils in Southern Africa, can generate 2.5 tonnes ofbiofuel/hectare in comparison to, for instance, soya,which averages 0.8 tonne/hectare.

There are other benefits too — ‘We have lots ofarable land but it’s degraded, but long-term cropssuch as these help to stabilize and improve it overtime,’ Ms Sugrue says. Many sustainabilitycampaigners favour the development of food foreststhat include different types of plants (trees andbushes) of different species and different heights.

It is a tricky problem. The financial gains fromdeveloping biofuels are attractive, since a high importdemand is likely from mature economies in theEuropean Union and Far East. But many of theenvironmental issues still need to be worked through.REEEP as an organization will continue to support thedevelopment of biofuels to reduce GHG (greenhousegas) emissions, but the partnership will always ensurethat projects have a comprehensive approach — thatbiofuel production considers sustainability, economicdevelopment, and land use holistically. REEEP doesnot support biofuel production that involvesdeforestation or displacement of food crops.

Putting down roots

Binu Parthan*

Only an in-depth, integrated approach to energy accessensures a sustained income rise.

Shaffiudin is an entrepreneur who not only wants toincrease his income but also wants to help otherinhabitants of Chintapally, a town 150 km fromHyderabad in the Indian state of Andhra Pradesh. Heran a telephone kiosk and photocopying service formonths, but found it difficult to expand his business dueto lack of capital. Moreover, power failures due to gridproblems led to loss of income. It was a situation hecould have been locked in indefinitely because of the

conservative approach of most Indian banks to businessin poor communities.

In 2006, he was spotted by S3IDF (Small ScaleSustainable Infrastructure Development Fund). RusselldeLucia, S3IDF’s founder, calls his organization a socialmerchant bank. It is a fund that helps develop small-scale environment-friendly enterprises, which in turnhelp the poor increase their earnings and well-beingeither as providers or users of infrastructure services —energy, water, communications, and transport. Fundingranges from $100 to $5000, and 60 investments havebeen made while 130 are in the pipeline.

* Deputy Director – Program Coordination, REEEP (Renewable Energy and Energy Efficiency Partnership) International Secretariat.


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‘In a lot of our deals, poor people end up owning theassets,’ says deLucia, and this distinguishes the projectsfrom the few alternatives in existence. S3IDF differs frommicro-finance providers who tend not to handleinfrastructure investment.

‘For most of our projects, either we find a localentrepreneur who wants to help solve an infrastructureproblem or we actually invent a new business,’ heexplains. The micro-entrepreneur acts as the lynchpin ofa project that can flourish locally and help make moremoney for people in poor communities. In this case,Shaffiudin’s entrepreneurial skills were alreadydeveloped, and his business was already in place. Whathe needed was reliable power (used for his billingservice) and sympathetic bankers. S3IDF’s expertisehelped to overcome many of the financial obstructions.The organization provided him a loan of $1300 to installnew printers and computers for digital imagery andemail access, facilities from which both the localcommunity and students could benefit.

Shaffiudin is gradually repaying the loan withincome derived from charging customers, who may, inturn, increase their own income through the servicesavailable. This spider’s web effect, arising from oneinitial outlay is the hallmark of the social merchantbanking pioneered by deLucia and his colleagues.

The new ICT (Information and CommunicationsTechnology) centre uses computers powered byrooftop solar panels, a typical feature of S3IDFprojects, which often use clean energy. They are morereliable than traditional power sources, and canbecome viable through administration of specialfunding structures. Funding from the REEEP(Renewable Energy and Energy EfficiencyPartnership) was included in the S3IDF transactions.

In general, S3IDF prefers to use credit guaranteesrather than full loans as this encourages local banks toparticipate in projects from the start, but inShaffiudin’s case, the bankers’ ignorance of thebusiness model obstructed this route. ‘Our mission isto try and change the mindset of local banks; wecontinue the dialogue with them afterwards toconvince them to complete full loans to suchenterprises,’ says deLucia.

Now that the project is implemented, it can act asa model to demonstrate the viability of such projects.In future, it will be replicable in other parts of thetown and further afield, and funded by localinstitutions such as the rural network of smallergrameen banks.

The work is typical of the approach of both S3IDFand SELCO (Solar Electric Light Company), withwhom it sometimes collaborates. Often using

innovative financial structures, S3IDF and SELCOcreate the first infrastructure link in a value chain thatgenerates new incomes. SELCO works mainly on thetechnology side, providing solar lighting andelectricity, clean water, and wireless communications.It has sold, serviced, and financed over 70 000 solarelectric units to its customers. It works with a numberof different financial partners, in addition to S3IDF.SELCO was deliberately created as a for-profitcompany rather than an NGO (non-governmentalorganization), in order to encourage transparency andaccountability in the organization’s work, forcing goodbusiness sense into all its programmes so that they aretuned into local economic conditions. ‘It’s a massivechallenge. Governments may sometimes provide thefinance, but who takes up the task of creating a supplychain?’, asks Harish Hande, SELCO’s Director.

Both S3IDF and SELCO are working on dozens ofpro-poor projects in India that benefit from REEEPbacking, and focus on improving access to differentkinds of infrastructure – from ICT to electricity,heating, cooking and lighting, and thereby generateincome. For instance, REEEP is funding an S3IDFproject to substitute kerosene with LPG (liquefiedpetroleum gas) stoves fitted with pressure cookers.

S3IDF provides a single comprehensive source offunding, and technical and financial expertise to poorpeople ignored by conventional banks. Given thesuccess of the Chintapally project, it is difficult inhindsight to see why banks are so reluctant to getinvolved in the first place. But deLucia believes thatmost mainstream Indian banks would neitherunderstand nor establish contact with customers withsuch requirements. They would not be aware of thetechnology involved, and would nearly always demandcollateral in return for a loan, something unavailableto the poor. Only small loans of below $100 do notrequire collateral. Their loans do not reach thosebelow the poverty line as they deal mainly withmiddle-class and wealthy people. In many cases thepoor often do not have knowledge of the process ofprocuring a loan.

S3IDF adopts a somewhat different approach thanorganizations that focus on macro goals to improveenergy and computer access. One such approach isembodied in the visionary initiative spearheaded byProf. M S Swaminathan over 10 years ago, andformalized in 2003, as a consortium of NGOs,academics, and corporations in the National Alliancefor Mission 2007. This initiative’s goal is to make‘every village a knowledge centre’ by bringing thebenefits of Internet connectivity to India’s ruralpopulation living in over 600 000 villages. The


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Government of India has funded and placed thisvision in the framework of the NeGP (Nationale-Governance Plan), with the aim to providegovernance and other services, in an integratedmanner, at the doorstep of the citizen. It seeks toestablish a network of more than 100 000 CSCs(common services centres) as internet-enabled front-end delivery systems or access points for variousgovernment and private services to the citizens. This isprimarily targeted towards rural areas of the country,based on an entrepreneur-based PPP (public–privatepartnership) model, with an equitable geographicalspread. The roll-out of the CSCs is proposed by theend of 2007.

deLucia and Harish Hande applaud thegovernment’s intentions, yet have chosen a morehands-on entry point. They bring themselves to focuson market linkages. Such linkages can be overlookedby the government which concentrates on the bigpicture yet does not necessarily have the resources tosteward along the interconnected factors that facilitatesuccess at a micro-economic level and contribute togreater success at the macro level.

The linkage approach means ensuring that the newtechnology, be it telephony, heating, lighting orcomputers, is not just physically installed but meshedwith both income generation strategies and humannetworks in the wage-earning and financialcommunity. This social penetration strategy is morelikely to generate sustained development in marketsand earnings. It is possible, suggests Hande, that80% of the computer centres will not be working intwo years’ time because of the lack of consideration ofthese factors.

‘Poverty is a complex issue. If you do not create alinkage (between technology, markets, and people),the technology is of no use,’ states Hande. In anotherproject supported by REEEP, SELCO and its partnersfunded dozens of new solar-powered sewing machinesoperated by self-employed seamstresses living inAhmedabad, in Gujarat. The women earlier usedmanual sewing machines. The unit output from each

sewing machine leapt from two to eight shirts per day,massively increasing productivity. The financialinstitutions were not convinced that this would beviable, that the women would be able to produce thework on a regular basis, and that there would be amarket for the extra shirts. The REEEP funding inthis case was specifically used to convince financialinstitutions and purchase some of the requiredequipment. It was SELCO’s job to make themunderstand that this was possible by creating marketlinkages. ‘I have always wanted to disprove the myththat you cannot run a commercial venture while tryingto reach social objectives,’ states Hande. He currentlyhas REEEP funding to establish income-generatingactivities in connection with solar installations,including a project to install 30 new solar-poweredtelephone booths in Mangalore and40 solar home lighting systems in Udupi, pioneered bya local entrepreneur as in the Chintapally case.‘Transaction costs are high and the REEEP cashbuffers the costs,’ he says.

Many of the projects can get extra funding fromcarbon credits sold to Western carbon offsetcompanies, since a 40 watt solar panel used instead ofa diesel generator, for instance, saves about 250 kg ofCO2 per year. According to Hande, more clean energyprojects might go ahead if the government removes anew uniform tax which affects clean energy, andintroduces tax incentives instead. Hande thinks thatmore progress can be made if state governments workwith local banks. Banks have a specific portfolio on,for instance, agricultural business, but renewableenergy is not considered separately.

deLucia uses renewable energy wherever possible,both for environmental reasons and also because ‘itcan be quite cost-effective when the grid is unreliable,’he explains. In some areas, peak use of the grid is soexpensive that clean energy may be a viable option,especially if innovative finance is used. Clean energy isalso suitable for rural areas where no grids exist in thefirst place, or where there are serious voltagefluctuations.


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About REEEP South Asia Regional Secretariat

Shirish Garud*

REEEP SA RS (Renewable Energy and EnergyEfficiency Partnership, South Asia Regional Secretariat)was established in 2005 under the AEI (Asian EnergyInstitute), for the monitoring of REEEP projects andpreparation of case studies. Since then, the Secretariathas expanded its activities manifold. It now plans tospread its activities across all the countries in the region,and develop joint projects/activities with othersecretariats. During the current year, six projects havebeen approved for the region under the sixth call forfunding. The selected projects cover a diverse range ofareas including energy efficiency projects and micro-finance options for renewable energy.

Energy scenario in South AsiaSouth Asia (comprising India, Pakistan, Nepal,Sri Lanka, Bhutan, Bangladesh, and Maldives), with apopulation of above 1.3 billion, is home to about one-fifth of the world’s population. With South Asiapoised for higher growth, sustainable energy supply iscritical. Energy demand projections show that thedemand for energy in this region is set to increasesharply over the next three decades. Availability ofadequate energy that ensures, or at least is compatiblewith, long-term human well-being and ecologicalbalance, is key to sustainable development in theregion. The South Asian region thus faces thechallenge of meeting the rapidly increasing energydemand as well as conserving natural resources andprotecting the environment.

According to the EIA (Energy InformationAdministration), the primary energy consumption ofSouth Asia increased by nearly 52% in the periodbetween 1993 and 2003. The per capita primaryenergy consumption for South Asia is about 0.61 toe(tonnes of oil equivalent), which is very low as comparedto the world average of 1.68 toe. Similarly, the per capitaconsumption of electrical energy is 393 kWh (kilowatt-hour), which is lower than the world average of2429 kWh. The energy intensity, however, is one of thehighest. Energy intensity, measured as total energy useper unit of GDP (gross domestic product), is about0.65 toe/$1000 for South Asia as compared to a worldaverage of 0.29 toe/$1000.

The total installed power generation capacity inSouth Asia is about 148 000 MW (megawatts),dominated by India (with an 82% share), followed byPakistan (11%). The extent of the network andelectricity access remains limited, especially for the ruralsector within the region. Electricity demand in most ofSouth Asia currently outstrips supply, and the region ischaracterized by shortages of supply as a result of limitedgenerating capacity; low plant load factors due to ageinggenerators and poor maintenance of equipment atexisting plants; and loss of power and theft overtransmission lines (REEEP 2006).

A large proportion of the power generated comesfrom thermal power plants mainly because of heavydependence of India on coal-based generation.Bangladesh and Pakistan too are heavily reliant onthermal plants for power generation. In the case ofNepal, Bhutan, and Sri Lanka, the generation mix isdominated by hydropower. Only India and Pakistanhave nuclear facilities that account for 3% and 2% ofeach country’s electricity generation respectively(REEEP 2006). Out of the installed power generationcapacity in the region, renewable constitutes onlyabout 5%.

Another critical issue in South Asia is that ofaccess to energy. A large segment of the populationdoes not have access to commercial energy sourcesand is dependent on traditional biomass. Traditionalbiomass is one of the main sources of energy inBhutan, Maldives, Nepal, and even India. About 60%of the region’s population does not have access toelectricity (Table 1). Further, the countries in the

* Co-coordinator, REEEP SA RS (Renewable Energy and Energy Efficiency Partnership, South Asia Regional Secretariat)Email: [email protected]

Table 1 Level of electrification in South Asia

Electrification Population without

(%) electricity (million)

Bangladesh 20 104

India 43 579

Nepal 15 19

Pakistan 52 65

Sri Lanka 62 7

South Asia 41 775

World 72 1644

Source IEA (2004)


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region, except Bangladesh, are heavily dependent onimports for commercial fuels like oil and gas. Table 2provides an overview of the energy sectors of six SouthAsian countries – India, Pakistan, Nepal, Sri Lanka,Bhutan, and Maldives.

Regional Secretariat activitiesThe activities of the SA RS serve to fulfil the overallobjectives of the REEEP programme. During the year2006/07, the Secretariat has been monitoring theongoing projects, and has been handling the responseto the sixth call for proposals by the REEEP IS(International Secretariat). The South Asia Secretariatplans to engage in additional activities to make itspresence felt in the region. A meeting of experts wasorganized to identify regional priorities.

Following are the priorities identified at themeeting.

Policy and regulationP Decentralization of policy development and

facilitation by working with utilities, municipalcorporations, and district committees.

P Paying heed to market distortions for off-gridapplications and energy efficiency issues.

P Promotion of grid-based renewables throughmarket-based instruments.

P Technology intervention as means to promote newfinancing and policy instruments.

Business and financeP Creation of opportunities for bundling of project

investments to provide adequate scale that will attractfinance.

P Provision of finance for multi-country implementationof projects on demonstration of technologies.

P Mechanisms for mitigating or managing investmentrisk.

P Addressing specific needs for financing anddeveloping credible ESCOs (energy servicecompanies).

P Provision of finance to address problems of the small-scale sector.

P Access to finance available through carbon marketand other such mechanisms.

P Development of management and decision-makingtools to enhance capacity of stakeholders, and help inproject development and implementation (these toolsshould address the gaps in conventional decision-making by stakeholders such as interaction with banksand financing institutions which are new to theconcept of energy efficiency and renewable energyutilization).

P Development of partnerships among stakeholderswithin the region (these partnerships are expected toaddress barriers in development of projects such asgaps in technology and inexperience inimplementation of projects).

P Addressing procurement policies in large governmentsector organizations in order to decide procurementon life-cycle savings and energy efficiency.

The findings of the experts’ meeting were reportedand discussed during the Regional Secretariat’smeeting in September 2007 and the regional boardrepresentatives’ meeting in Vienna in October 2007.

REEEP SA RS plans to organize the followingevents.P Global project managers’ meeting: The Secretariat

is privileged to host REEEP’s annual global projectmanagers’ meeting in February 2008. This meetingis likely to be attended by about 40 projectmanagers from across the world.

P Special event on ‘risk management in renewableenergy projects’: Scheduled for February 2008, thisevent will be organized during the DSDS (DelhiSustainable Development Summit), immediately afterthe global project managers’ meeting. With increasinginterest in renewable energy projects and theincreasing renewable energy market size, riskmanagement in these projects is becoming crucial.The special event will thus cover an important butoften neglected issue.

The SA RS also plans to organize a workshop onenergy efficiency in hotels and small-scale industries inBhutan, and further promotional activities in othercountries. It seeks to develop best practices, with casestudies focusing on successful projects in energyefficiency and renewable energy. Experts from theregional secretariat will contribute articles and paperson relevant topics to reputed publications.


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I Energy provision

Main sources of energy

Reliance on imported energy

Extent of the network

Capacity concerns

Potential for renewable energy

Potential for energy efficiency

For electricity

P Thermal – 84%

P Hydro – 12%

P Nuclear – 3%

P Others – 1%

P Small amount of imported coal for electricity

generation

P Oil and gas imports – 70%

P Rural household electrification – 44%

P Urban household electrification – 88%

P Currently ‘peak’ and energy deficits.

100 000 MW needed to meet the increasing

demand by 2012

P Five regional transmission and distribution

networks need to be interconnected to create

a National Grid adding 60 000 km of lines by

2012

P Wind power – 45 GW

P Small hydro – 15 GW

P Biomass power – 19.5 GW

P Biomass gasifiers – 16 GW

P Biomass cogeneration – 3.5 GW

P Urban and industrial waste-based

power – 1.7 GW

NA

For electricity

P Thermal – 63.7%

P Hydro – 33.9%

P Nuclear – 2.4%

For energy (in general)

P Oil – 30%

P Natural Gas – 50%

P Coal – 6.5%

P Hydro –12.7%

P Nuclear – 0.8%

Oil imports – around 16.4% of the

country export earnings

P Half of population has access to

electricity

P Half of population has access to

electricity

P The current issue is to cover actual

and future deficits. By 2010 it will

be necessary to add 5500 MW

P 2010 – 0.84 Mtoe

P 2015 – 1.6 Mtoe

P 2020 – 3 Mtoe

P 2025 – 5.58 Mtoe

P 2030 – 9.2 Mtoe

NA

P Hydro – 92%

P Thermal (mainly coal) –

8%

P Electricity – 10% of

electricity demand is

imported from India

P Coal – 97% imported

P Net importer of petroleum

products

P 40% of the population

has access to electricity:

33% are connected to the

grid and 7% use

alternative sources

P High disparity in electricity

in rural and urban areas

P Power shortage leading to

power imports and high

reliance on hydro

P Slow expansion of the grid

because of geographical

difficulties

P Need for coordinated use

of renewable energy

sources

P Hydro potential – 83 GW

P Other renewable energy

potential is yet to be

determined

NA

Table 2 South Asia overview

India Pakistan Nepal


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18

II Energy market

Ownership

Structure/extent of competition

III Energy policy and regulation

Existence of an energy framework

and programmes to promote

sustainable energy

Role of government


Limited private ownership:

P Over 88 % of the electricity generation is

owned by the states and the central

government, as well as almost all

transmission facilities. Private distribution is

limited to the states of Orissa, Delhi, West

Bengal, Maharashtra, Gujarat, and UP

P The main gas utility (Gas Authority of India) is

state-owned as well as other firms in the

refining and distribution activities

P Vertical separation in generation,

transmission, and distribution

P No competition at the electricity retailing level

P Competition in generation is allowed by the

Electricity Act (2003)

P An integrated energy policy is being

developed by the Planning Commission of

India

P A National Electricity Policy, including the

development of renewable energy, run by the

Ministry of Power

P A National Tariff Policy provides guidelines for

purchase of renewable power

P Ministry of Power: prepares power sector

policies

P Planning Commission: currently developing

an integrated energy policy

P Other policies are prepared by the respective

government departments, including:

• Ministry of New and Renewable Energy

• Ministry of Coal

• Ministry of Petroleum and Natural Gas

• Department of Atomic Energy

• Central Electricity Authority

The main companies are state owned:

P The WPDA (Water and Power

Development Authority) owns three

generators, one transmission, and

eight distribution companies

P The PAEC (Pakistan Atomic Energy

Commission) owns two nuclear

power plants

P The KESC (Karachi Electricity Supply

Company) is partially publicly owned,

however plans exist for its full

privatization

P Other IPP (independent power

producers)

P The companies owned by WPDA are

vertically separated but KESC

operates as a vertically integrated

utility

P PAEC nuclear power plants and other

IPP are connected to the national grid

P Transmission is responsibility of the

Dispatch Company

P Competitive bidding schemes have

been established for attracting new

generation capacity

P The Energy Security Action Plan

issued in 2005 is the most recent

policy enacted by the government.

P The National Environment Policy in

Pakistan (2005) stated that the

government would promote energy

efficiency and renewable energy

sources.

P A draft of new Policy for Development

of Renewable Energy has been

published (January 2006)

P The NEC (National Economic Council)

makes energy policy and approves

plans related to the electricity sector

P The NEC works to plans formulated by

the Energy division of the Planning

Commission

P State owned

monopolies in the

electricity and oil

industries run by the

Nepal Electricity

Authority and the Nepal

Oil Corporation

P The Nepal Electricity

Authority is vertically

integrated utility

P No competition at any

industry level

No specific policy focusing

on sustainable energy.

However, there are the

following programmes:

P The Biogas Support

Programme

P The Renewable Energy

Project

P The Energy Sector

Assistance Programme

P The National Planning

Commission developed

a Five-year Plan that

included energy

planning


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Government agencies in sustainable

energy

Energy regulator

Date of creation

Regulatory framework for

sustainable energy

Regulatory roles

P The Ministry of New and Renewable Energy:

promote renewable energy technologies at

a Central Government level.

P The Bureau of Energy Efficiency under the

Ministry of Power

P State level agencies for promoting and

implementing renewable energy

programmes

P CERC (Central Electricity Regulatory

Commission) was established in 1998

<http://www.cercind.org/>

P 18 States have also formed their own

SERCs (State Electricity Regulatory

Commissions)

P The Electricity Act (2003) mandates SERCs

to specify a percentage of energy to be

procured from renewable energy sources.

P The Energy Conservation Act (2001)

P CERC roles include regulation of tariffs for

generation companies and promoting

competition.

P SERCs roles include tariff regulation and

promotion of cogeneration and electricity

generation from renewables

P The Alternative Energy

Development Board in charge of

facilitating, promoting, and

encouraging the development of

renewable energy

P The NEPRA (National Electric

Power Regulatory Authority)

established in 1997

<http://www.nepra.org.pk/>

P The OGRA (Oil and Gas Regulatory

Authority) created in 2000

NA

P NEPRA: licensing, tariff regulation,

market surveillance in the electricity

industry

P OGRA: licensing, tariff setting,

promotion of competition, market

surveillance in the oil and gas

sectors

P The Alternative Energy

Promotion Centre in charge

of promoting alternative

sources of energy in rural

areas

P Tariff Fixation Commission.

It is not, however,

considered a Regulatory

Authority

P Electricity Act 1992

(Regulations –1993)

P The Tariff Fixation

Commission fixes the

electricity tariff and other

charges on the basis of the

rate of depreciation,

reasonable profit, changes

in consumer price index,

and so on

P Administration of subsidies

and transfers to low-

income groups

I Energy provision

Main sources of energy

Reliance on imported energy

Extent of the network

Capacity concerns

Sri Lanka

Electricity:

P Hydro – 37%

P Thermal (mainly oil) – 63%

Primary energy:

Biomass (47%); Oil (43%); Hydro (3%)

P Net importer of oil

P Primary energy imports – 43%

P Urban – 85%

P Rural – 47%

P Estate – 50%

Limited capacity for increasing hydroelectric

generation. New capacity should be met mainly

with thermoelectric supply

Bhutan

Electricity:

Hydro – 99.9%

P Net importer of oil

P Primary energy imports – 50%

P Electricity is imported from India

during winter months

P Rural – 30%

P Urban – higher but rate not known

P No capacity concerns for the

moment. Bhutan has excess supply

that is exported to India.

Maldives

The main power generation

source is diesel

Net importer of fossil fuels.

P 200 inhabited islands have

electricity supply but not all

have continuous supply

P Capacity largely fossil fuel

dependent

P The government is

exploring renewable energy

as an option for replacing

generators destroyed by

the Tsunami


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Potential for renewable energy

Potential for energy efficiency

II Energy market

Ownership

Structure / extent of competition

III Energy policy and regulation

Existence of an energy framework

and programmes to promote

sustainable energy

Role of government/department

P Biomass electricity – 1.8 GW

P Wind energy – 2.4 GW

P Small hydro – 250 MW

NA

State owned companies CEB (Ceylon

Electricity Board) and CPC (Ceylon Petroleum

Corporation ) are responsible for electricity and

petroleum supply

P CEB is a vertically integrated power utility.

P Competition and generation and retail level

exists. IPP supply energy competitively to

CEB

P A national energy policy is under

preparation

P The Electricity Reforms Act includes

privatization and other reforms in the

electricity sector

P Sri Lanka Rural Electrification Policy

(2002) has the objective to expand access

to electricity to 75% of population by 2007

P Renewable Energy for Rural Economic

Development, project under

implementation

P The Ministry of Power and Energy play the

central role in the energy sector

P Small hydro plants – 30 GW

P Solar and wind energy resources

mapping are developing

Many small and medium enterprises

have potential for implementing energy

efficiency technologies

P BPC (Bhutan Power Corporation) is a

state-owned utility. Other energy

generators are state-owned as well.

P Petroleum products are distributed

by three private owned companies:

Bhutan Oil Distributors, Damchem

Petroleum Distributors, and Druk

Petroleum Corporation. The

petroleum supply comes form

two Indian public companies:

Bharat Petroleum and Indian Oil

Corporation

P BPC is vertically integrated –

generation, transmission and

distribution. There are other state-

owned generators

P There is no competition

P Electricity Act (2001)

P An Integrated Energy Management

Master Plan is currently under

development

P There is no specific programme to

promote sustainable energy,

however some donor agencies are

supporting projects on sustainable

energy

The DoE (Department of Energy) under

the Ministry of Trade and Industry is

responsible for the overall planning and

development of the energy sector

P Medium to good

potential for wind power

NA

The STELCO (State Electric

Company Limited) is a State

owned utility providing

electricity in 23 islands. The

other islands have power

organized by the island

community or private owners

P STELCO is a vertically

integrated utility

P There is no competition

P There is no specific

energy policy or

sustainable energy

programme. However the

energy policy is

embodied in a National

Development Plan

2001–2005. In the

energy sector, this plan

proposed the use of

sustainable energy for

power generation, and

the use of efficient, low

emission combustion

systems in transport and

electricity generation

P The Ministry of Planning

and National

Development is

responsible for overall

planning, including the

energy sector

Sri Lanka Bhutan Maldives


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P There is no separate agency for promotion

of sustainable energy. This is handled by the

ministry of Power and Energy

P The Energy Conservation Fund has been

established in order to finance and promote

projects related to energy conservation and

energy efficiency

P The Public Utility Commission of Sri Lanka

created in 2002

<http://www.pucsl.gov.lk/>

P The Electricity Reforms Act (2002)

P The Public Utilities Commission of Sri Lanka

(2002)

P The Energy Conservation Fund (1985)

P Licensing, tariff regulation, standards

setting, and promotion of competition

P Renewable Energy Division under

the Department of Energy

P National Environment Commission

is responsible for environment

protection

BEA (Bhutan Energy Authority)

<http://www.bea.gov.bt/>

P The Electricity Act 2001 has no

specific mentions for Sustainable

Energy

P Regulation of tariffs, standards,

codes, principles, and procedures

The Ministry of Energy,

Environment, and Water has

a specific role in energy

supply and environmental

protection

Maldives Electricity Bureau

<http://www.meew.gov.mv/

mea/>

NA

NA

Government agencies in sustainable

energy

Energy regulator

Date of creation

Regulatory framework for

sustainable energy

Regulatory roles

Sri Lanka Bhutan Maldives

ReferenceIEA (International Energy Agency). 2004World Energy OutlookParis: IEA

REEEP (Renewable Energy and Energy Efficiency Partnership). 2006Policy and regulatory reviewVienna: REEEP

Mtoe – million tonnes of oil equivalent; GW – gigawatt; MW – megawatt

Source REEEP (2006)

REEEP projects

Following are summary reports of three REEEP projects

Financing for bundled small-scale ruralrenewable energy ventures in IndiaREEEP Project 2007/08

e3V (Environment Energy and Enterprise VenturesPrivate Ltd), Yes Bank Ltd, and the GEI-A (GlobalEnvironmental Institute – Americas) are jointlyimplementing a project titled ‘Financing for bundledsmall-scale rural renewable energy ventures in India’.The project is supported by REEEP and the BlueMoon Fund, in conjunction with GEI-A and privatecapital from team members.

At present, small-scale RE (renewable energy)ventures in rural India have difficulty in accessingfinance. Major banks in India do not have established

internal practices dedicated to financing bundles ofsubject ventures. Further, banks in India haveextremely limited experience in successfullyintegrating and securing carbon finance withconventional financing for such bundles. As such, thechallenge is to provide these ventures with access toreasonably-priced capital that permits them to defraythe associated high upfront costs. The e3V/Yes Bank/GEI-A team aims to address this issue, and to defineand make operational a new credit practice in YesBank focused on financing small-scale RE ventures inrural India.

The project will target small-scale (defined by theteam as ventures requiring under £100 000) REventures in rural India. The team will work together to


AEI newsletter


22

steam generation, and hot air generation. Thesethermal requirements are presently met either throughcombustion of fossil fuels like coal, lignite, diesel, andfuel oil, or through electricity. Every year, about 246MT (million tonnes) of agro-residues are producedout of which about 100 MT remain unutilized. Mostof the biomass utilized is consumed for generatingheat with methods that are energy inefficient.

There are over one million SMiEs that burnbiomass fuel for different industrial processes. Thereare 22 major industrial sectors where boilers supplyprocess heat up to a temperature of 150 °C. Besides,they are used in the commercial sector, for instance, inhotels, guest houses, and hospitals. The use ofbiomass gasifiers for thermal applications is mostappropriate in this temperature range and hence canbe very effectively utilized to meet this thermal energydemand.

TERI (The Energy and Resources Institute) hasinitiated a study for removal of financial andinstitutional barriers in mainstreaming biomass gasifiersystems for thermal applications in India andincreasing their adoption in SMiEs and theinstitutional sector. One of the objectives of theproject is to upscale the current financing mechanismthrough the creation of a revolving fund for existinggasifier manufacturers in India. The revolving fundwill finance manufacturers, users, and LSPs (localservice providers) through alternative financingoptions. The saved energy costs will be used to repaythe loan amount. A separate line of credit will beformed to overcome financial barriers and to facilitatelarge-scale penetration of gasifier technology in India.The fund will provide initial capital for acquiringgasifier systems on flexible terms and conditions. Itwill offset the risk involved in adopting the technology,especially during the initial stages of penetration.Besides, there will be specific training modules fordifferent target groups such as users, marketers,manufacturers, LSPs, financial institutions, amongothers.

Both small industries and conventional financinginstitutions hesitate to invest in new technologies suchas gasification. The problem of energy accessibility forsmall industry sector could be solved throughintroduction of locally available biomass resources.The project also holds scope for livelihood generation.It will address issues like credit mobilization, deliverymechanisms, quality control and working capitalrequirements.

Extensive and continued discussions will be heldwith all stakeholders to formulate schemes fordiffusion of products developed and their

design, develop, and pilot the new credit practice thatwill integrate lending modalities to finance subjectventures. The programme will work in three vectors.In the first vector, the strategy, threshold criteria,operational procedures, and a model financingstructure will be articulated. In the second vector, apipeline of attractive transactions will be identifiedand presented to the new operation. The team willthen screen potential ventures and allocate financingfor a bundle of commercially attractive transactions.The initiative will work to aggregate carbon emissionreduction units from the bundle to augment financing.Finally, the team will script the structuring documentsfor customized financial instruments to complementYes Bank’s lending practice, with a facility offeringtailored investments for subject transactions.

The project will open access to finance for small-scale RE ventures and demonstrate to other financialinstitutions how this can be done. Finally, theprogramme will illustrate how carbon financing can beassembled for bundles of small-scale RE ventures. Itwill work with institutions known to the team whichcan deliver bundles of commercially viable subjectventures that provide RE-based energy services to helperadicate poverty in rural India.

The project will promote environmentalsustainability through reductions in GHGs(greenhouse gases). In basing the project at a majorcommercial bank in India, the team is developing anopen financial system for subject ventures that doesnot rely on subsidies but encourages a rule-based,predictable and non-discriminatory financialframework. Finally, the project creates a globalpartnership between purchasers of emissions credits inthe OECD (Organization for Economic Co-operationand Development) and local RE ventures in India.

e3V, Yes Bank and GEI-A team members haveserved as advisers to commercial, foundation, andgovernment clients, on financing for subject transactionsin the agriculture sector. The team has the experiencebase, credit profile, fiscal discipline, sector knowledge andmanagement structures to successfully design, developand manage the lending practice and equity fund.

Removal of financial and institutionalbarriers in mainstreaming biomass gasifiersystems for thermal applications in IndiaREEEP Project 2007/08

A major portion of energy is consumed in the SMiE(small and micro enterprise) sector to meet low-gradethermal energy requirements such as water heating,


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demonstration in a near-commercial and sustainablemanner. For monitoring the development of theproject, a PSC (Project Steering Committee)comprising of energy experts, industry associationrepresentatives and senior officials from the Ministryof New and Renewable Energy will be constituted.The committee shall meet at least once in six months.A monitoring team comprising of TERI professionalswill conduct concurrent monitoring of the project atappropriate intervals. The team will be guided by thePSC. Project evaluation will be conducted by anindependent agency/consultants guided by the PSCafter completion of one year. ManagementInformation System will be developed by TERI totrack changes in the monitoring indicators, and will bea vehicle of communication, information andfeedback.

The creation of a chain of stakeholders involved infinancing, manufacturing, sales, upgradation oftechnology, and utilization of services, will createmarket and business opportunities in the biomassenergy sector. The project will contribute toaddressing poverty through income generation, andunsustainable growth through its focus on clean andrenewable energy.

Linking income generation to energyservices: solar lights for silk farmersREEEP Project 2006/07

With increase in the pace of economic growth andinfrastructure development all around the globe, thegap between the rich and poor is widening. Basicminimum amenities, like energy services and cleanwater, are still beyond the reach of the poor.

SELCO (Solar Electric Light Company) India’smission is to create affordable energy services for thepoor by providing innovative products andpiggybacking on creative financing. SELCO in its 13thyear of operation has debunked the myth that solarenergy is expensive for the poor. Partnering with localfinancial institutions, micro-finance institutions andnationalized banks, SELCO has created innovativefinancial products to make solar power affordable forthe poor.

In 2006/07, SELCO applied for financialassistance from REEEP (Renewable Energy andEnergy Efficiency Partnership) to create innovativelinkages between energy services, income generationand financing. The project has helped SELCO increating many innovative financial models forrenewable energy services over a period of twelve

months. It has implemented 10 different projects usingfive financial models and partnering with eightfinancial institutions including SEWA (Self EmployedWomen’s Association) in Gujarat. In all REEEPsupported projects, SELCO has linked energy services(like solar lighting and cooking) to income generation,leading to improvement in the quality of life for theclient while ensuring the payment of the loan.

One of the 10 projects provided reliable electricityto rural households which reared silk worms for aliving. Frequent power cuts and unsafe methods oflighting (candles and kerosene lamps) hampered theirwork thus leading to loss in income. The silk farmersneeded light inside the farm to feed and re-arrange thesilk worms but non-availability of electricity forcedthem to use either kerosene lamps or candles resultingin reduction in quality of the end product. Many atimes, wax drops from candles would kill numeroussilk worms leading to substantial financial losses. Onsurveying, SELCO found that solar lights would be anideal solution for these farmers but the initial high costwas a barrier. SELCO, using the REEEP funding,created guarantee funds in a local financial institutioncalled VSS (Vana Samrakshana Samithi) — anagricultural cooperative society bank. Against theseguaranteed funds, the cooperative society financed 33farmers for solar lights. As the farmers conduct alltheir trade (in silk and milk) through the VSS, loaninstalments are deducted from the payments.

This initiative has proven that if appropriatelinkages are created, flexible financing is provided, andvalue-added energy services are designed according tothe consumers’ needs, wonders can be done. Theestablishment of these linkages also proves that solarpower is a viable option.

A silk farmer checks silk worms with a SELCO solar light


Published by The Energy and Resources Institute, Darbari Seth Block, IHC Complex, Lodhi Road, New Delhi – 110 003, on behalf ofthe Asian Energy Institute, and printed in India by I G Printers, New Delhi. Visit us at our website <www.teriin.org>.

For further information, contactMitali Das Gupta

Asian Energy Institute

Darbari Seth Block, IHC Complex, Lodhi Road

New Delhi – 110 003

Tel. 2468 2100 or 4150 4900

Fax 2468 2144 or 2468 2145

India +91 • Delhi (0) 11

E-mail [email protected]

Website www.aeinetwork.org

The AEI network

Member country

IndiaThe Energy and Resources Institute

BangladeshBangladesh University of Engineering and Technology

PakistanPetroleum Institute of Pakistan

Sri LankaInstitute of Fundamental Studies

KoreaCouncil on Energy and Environment Korea

KoreaKorea Energy Economics Institute

ThailandEnergy Research Institute

IndonesiaInstitut Teknologi Bandung

MalaysiaPusat Tenaga Malaysia

ChinaGlobal Climate Change InstituteTsinghua University

JapanThe Institute of Energy Economics

KuwaitKuwait Institute for Scientific Research

IranInstitute for Political and International Studies

JordanNational Energy Research Center

The PhilippinesEnergy Development & Utilization Foundation Inc.

JapanGlobal Industrial and Social Progress ResearchInstituteInstitute of Global Environmental Strategies

Associate members

Member country

The NetherlandsEnergy research Centre of the Netherlands

JapanAsia Pacific Energy Research Centre

SwedenStockholm Environment Institute

SwitzerlandAlliance for Global Sustainability

USAWorld Resources Institute

ItalyFondazione Eni Enrico Mattei

BrazilNational Center of Biomass

TanzaniaCentre for Energy, Environment, Science andTechnology

AustriaInternational Institute for Applied Systems Analysis

ThailandThailand Environment Institute

NorwayCenter for International Climate and EnvironmentalResearch

CanadaInternational Institute for Sustainable Development

Sierra LeoneUniversity of Sierra Leone

South AfricaEnergy Research Centre, University of Cape Town


Documents

AEI October 2007 Finalbookstore.teri.res.in/docs/newsletters/AEI_ November 2007... · 2012-08-10 · AEI newsletter Issue 4: November 2007 2 * President, AEI; Director-General, TERI,