A Research On The Energy Challenge: Problems and Prospects & Role of Green Energy

The Energy Challenge: Problems and Prospects & Role of Green Energy

Welingkar Institute of Mgmt Page 1

A Research

On

The Energy Challenge: Problems and Prospects

&

Role of Green Energy

For

The 3rd Annual Rotary Club of Bombay & Mega Ace Consultancy Rolling

Trophy Competition - 2010

From:

Mumbai University, Matunga Central, Mumbai

Compiled by

1) Dr.Vaidehi Aphale

[email protected]

Mobile No: 9960026571

2) Dipti Raka

[email protected]

Mobile No: 9820559740

3) Bhavesh Kothari

[email protected]

Mobile No: 9820009060

mailto:[email protected]





Table of Contents

Introduction ............................................................................ 3

India’s: Energy Challenge........................................................ 5

Prospect: Green energy........................................................... 10

Advantages and challenges..................................................... 11

Proposed CDM Model ............................................................. 16

References................................................................................ 23



Introduction

The objective of the research is to understand the challenges faced by growing economy,

India and also explore the prospects of ―Green‖ sources available in India to meets its energy

demand.

The energy sector plays an important role of economic development in every country. India’s

future too, lies in the availability of energy from sources that are economic, easily available

and environmentally acceptable.

India ranks 6th

in the world in total energy consumption but India’s energy consumption per

head is extremely low compared with those in developed countries and even with that in

many other emerging markets. Electricity consumption in India in 2009 was estimated at 531

kWh per head, compared with 2,711 kWh per head in China, 1,987 kWh per head in Thailand

and 784 kWh per head in Vietnam. Electricity consumption in 2009 in Pakistan was

estimated at 441 kWh per head.

India will be one of the world’s fastest-growing consumers of energy in 2010-14, trailing

only China among the larger emerging-market economies. The growing competitiveness of

the industrial sector will raise economic output and hence energy consumption, as will the

surge in car sales and rising penetration rates for computers, televisions and other electrical

and electronic goods. India is already the third-largest consumer of electricity in Asia after

China and Japan.

The current generation mix in India is dominated by coal (78.5 GW), large hydropower (36.9

GW) and gas (16.4 GW). Renewable sources rank fourth with an installed capacity of around

13.2 GW.

Total energy requirement in

India comes from

60 %

Commercial fuels

40 %

Non Commercial fuels



The pattern of Electricity Generation in India is:

Coal 51%

Hydro 25%

Gas 11%

Renewable Energy Sources 9%

Nuclear 3%

Diesel 1%

Coal

Hydro

Gas

Renewable Energy Sources

Nuclear

Diesel

The energy mix of India comprises following:

• Primary sources

• Coal, crude oil, natural gas, fuel wood

• Secondary sources

• Coal gas, coke, petroleum products, charcoal, electricity (thermal, hydro,

nuclear )

• Renewable sources

• Mini-hydro, wind energy, solar energy, biogas

• Non-renewable resources

• Fossil fuels

• Commercial resources

• Coal, oil, petroleum products, natural gas and electricity



• Non-commercial sources

• Fuel wood, dung cake, vegetable waste

India’s: Energy Challenge

What is India’s projected energy needs?

BMI(Business Monitor International), is now forecasting Indian real GDP growth averaging

8.02% per annum between 2010 and 2014, with the 2010 assumption being 7.80%. The

population is expected to expand from 1.19bn to 1.30bn over the period, with GDP per capita

and electricity consumption per capita forecast to increase by 82% and 26% respectively.

India ranks 6th

in the world in total energy consumption though we have very low

consumptions per head. India is rich in coal and has abundant renewable energy resources in

form of solar, wind, hydro and bio-energy, but like other developing countries, it is a net

importer of energy, where in 1/4th

energy needs are met through import of crude oil and

natural gas.

The government is aggressively seeking new sources of energy to fuel a fast-growing

economy, and is exploring opportunities in the Middle East, Russia, South-east Asia and

West Africa. Although much of India’s economic growth comes from services, the country’s

large industrial sector has contributed to a high level of oil intensity (defined as oil

consumption per US dollar of GDP).

According to the Indian government, massive energy investment is required to achieve

targeted economic expansion. To deliver sustained GDP growth of 8% until 2031-2032,

primary energy supply needs to grow to up to four times current consumption, installed

electricity generating capacity needs to increase six or seven-fold, and the current coal

requirement needs to triple.



Furthermore, India’s energy sector is plagued by sporadic nationalization efforts. During the

1990s, India began liberalizing its economy, allowing for privatization of some sectors

historically under state control. But, of India’s various industries, the energy sector remains

most firmly in the hands of the state

Does India have a coherent energy policy?

Experts say lack of coordination among competing government ministries has slowed the

effort to institute effective energy policies. ―India has yet to develop a coherent policy,‖ says

industry expert., who adds that the four main energy ministries act like ―different countries at

work.‖ India did have a central energy ministry until 1992, which was then broken down into

the ministries of Coal, Petroleum and Natural Gas, Nonconventional Energy Sources, and of

Power. Several other government agencies, including the Planning Commission and

Department of Atomic Energy, play a role in energy policy. Hence there are common policy

goals, but the lack of integration causes problems with implementation.

What is the role of the state in India’s energy sector?

India’s tradition of state-dominated, centralized planning slows progress in the energy sector.

Privatization efforts have been ―entirely piecemeal‖ and ―investors are jittery,‖ Private firms



waver over investments when they see preferential treatment for state-owned companies. For

example, the production of coal, India’s most highly-consumed energy source, remains

largely in state control, with 90 percent of production accounted for by the mines of state-run

Coal India.

The national government also subsidizes energy prices, at times limiting profitability for both

private and state investors. Experts say the government would probably prefer to set energy

prices at market rates, but doing so results in risking a vote loss in elections.

What are challenges facing India’s energy sectors?

Limited

Liberalisatio

n

Rising

Oil Imports

Co2

Emissions

Continuously

Rising

Demand

Limited

Nuclear

Energy

Pollution

Energy

Related

Water

Shortages

Inefficient

Electric

Systems

Political

Pressures

Natural Gas

Demands

Coal

Depletion

Challenges



Coal depletion and pollution.- Coal accounts for more than half of the country’s energy

consumption. The poor quality of Indian coal, coupled with a lack of infrastructure to clean it,

poses a major environmental threat. Corruption and poor productivity dog the industry.

Although it is the world’s third biggest coal producer after the United States and China,

India’s coal reserves could run out in forty years, according to the Brookings report.

Rising oil imports. Oil consumption, which accounts for roughly a third of India’s energy use,

has increased six fold in the past twenty-five years. India now imports about 65 percent of its

petroleum. With energy demands rising, the figure could be as high as 90 percent by 2025,

according to a report by the Center for Strategic and International Studies. The oil demand has

pushed India to make deals with countries—such as Sudan, Syria, and Iran—that raise supply

concerns.

Natural gas demands. Natural gas consumption has risen faster than any other type of energy

source, but India’s limited domestic gas reserves spell a need for foreign dependency in this

sector as well. The government has slowly been switching from highly polluting coal-fired

power plants to plants using natural gas. India's natural gas needs have resulted in negotiations

with nations of concern in terms of reliability, including Iran, Bangladesh, and Burma.

http://www.iea.org/textbase/stats/pdf_graphs/INOIL.pdf

http://www.cfr.org/publication/11653/



Inefficient electric systems. Although 80 percent of the country has access to electricity,

unreliable power grids cause regular blackouts. Furthermore, inefficient electric systems result

in at least a 30 percent loss of power along the delivery chain (Forbes.com). State electricity

boards run the infrastructure behind the country’s power distribution and own a large portion

of electrical output. The boards are in poor financial shape, largely because they provide

power at highly subsidized rates, particularly to farmers. So also there is high level of power

theft, and cross subsidies that hit large and medium-scale industry. Although the government

has loosened limitations on foreign investment in the power sector, the notion of working with

the financially beleaguered electricity boards has scared off private investment.

Energy-related water shortages. Indian farmers have access to heavily subsidized power to

pump water for irrigation. The low costs lead them to wasteful water use, depleting the water

tables. As water tables lower, larger pumps require more power to access deeper water

supplies.

Limited nuclear energy. With fourteen nuclear power plants run by state-owned companies,

nuclear energy accounts for just 3 percent of India’s energy consumption. New Delhi hopes to

boost this sector through a deal allowing U.S. companies to sell equipment, nuclear fuel, and

reactors to India. However, even with a U.S.-India agreement, large scale expansion of the

nuclear energy sector will likely take decades because of slow implementation and the

relatively higher expense when compared to other forms of energy.

Co2 Emissions: CO2 emissions from energy are responsible for more than half of man-made

GHG emissions – are set to rise, even as concerns about climate change grow.

Political Pressures: The energy sector is also held back by security concerns about (and

political tensions with) Pakistan, which have impeded plans for regional gas and oil pipelines

through Central Asia. In addition, Bangladesh, which has proven gas reserves of 5trn cu ft,

according to the US Energy Information Administration (EIA), has been reluctant to approve

gas exports to India, for domestic political reasons.

http://www.forbes.com/business/2006/11/28/india-energy-environment-biz-cx_pm_1128indiaenergy.html



Prospect: Green energy

The deficit challenge in the existing sources and the requirement in near future has compelled

the Indian Government to keenly look into renewable energy resources to fuel our fast

growing economy. The government’s goal is to get 25% energy from renewable resources by

2030.This in itself is a challenge which has to be taken up by India, wherein countries like

China, Japan and South Korea will be competing for our resources. The role of Green Energy

in power generation thus has a major role.

But what is all this "green" stuff? Green energy is energy that is produced in a manner that

has less of a negative impact to the environment than energy sources like fossil fuels, which

are often produced with harmful side effects. ―Greener” types of energy that often come to

mind are solar, wind, geothermal and hydro energy. There are several more, even

including nuclear energy, that is sometimes considered a green energy source because of its

lower waste output relative to energy sources such as coal or oil.

India's theoretical solar potential is said to be about 5,000TWh per year, or some 600GW of

potential installed capacity. This far exceeds forecast demand, but solar generating costs are

currently too high for rapid expansion. However, solar is likely to form a key part of longer-

term energy policy. There is also wind power potential and some scope for biomass.

Currently wind capacity in India is 10.5GW. It is presently one of the largest sources of

renewable electricity in the country, accounting for 79% of installed capacity from renewable

sources. Currently, India is ranked fourth in the world in terms of installed capacity,

according to the Global Wind Energy Council, having 8% of the world total. However, the

country has the potential for 45GW of installed capacity.

Rajasthan, a state in North West India, may attract an investment of INR800mn (US$18.6mn)

into its renewable energy sector, with 14 firms planning wind and biomass power generation

projects. It is expected that there would be five wind energy projects – with an electricity

generation capacity of 1.6GW – and eight biomass schemes.



Renewable Energy Development Potential in India. Advantages and Challenges

India with its diverse geographies and climatic conditions offers whole bunch of

opportunities for Green energy. The table below clearly gives us the vw.

Source : International Trade Administration

Apart from the basic advantages of green energy like clean, abundance and renewable , there

are other imperatives for Green energy. They are:

Sustenance of energy demand can’t be achieved through fossil fuel

Limited reserves are fast depleting (v/s abundant supplies of sun shine, water and

garbage)



Global warming and Clean Development (CDM) drive forcing countries to reduce

polluting industries

Carbon Credits encouraging companies to go in for captive renewable energy

investments

The challenges facing green energy are:

Optimal pricing of power generated from the renewable energy sources

Quality and consistency issue of renewable power arising from the intermittent nature

of electricity from wind and small hydropower,

The costs of technology development and production need to be reduced significantly

from current levels

Availability of financing especially project finance for Renewable

Creditworthiness of counterparties has posed challenges

Slow pace of rural electrification and pace of reforms in the rural electricity sector

Can CDM show us the way to a Green India?

The Clean Development Mechanism (CDM) –

CER - Certified Emission Reduction:

These emissions reduction are generated by projects registered with UNFCCC.

VER - Voluntary Emission Reduction:

The emission reductions which could not be a part of CDM project activities due to technical

or some other constraints.

1 CER or 1 VER refers to reduction in 1 tonne of CO2, that would have been emitted in

normal scenario i.e. baseline for the project activity.



Factor affecting CERs-

Nature of project (renewable, energy efficiency , others)

Maturity of the credits

Stage of the project

International availability and demand of credits

Developed countries can implement CDM projects that reduce emissions or remove carbon

from the atmosphere in other developing countries in lieu of CERs (Certified Emission

Reductions). These CERs can be used to meet the emission targets.

Renewable energy projects have the potential to create a substantial revenue stream through

Clean Development Mechanism (CDM) credits issued under the Kyoto Protocol. India has

registered roughly 35 percent of all global CDM projects, a market that is very likely to grow.

If a post-2012 agreement on climate change can be reached, carbon credits will become an

even more financially rewarding venture.

India qualifies to be a host country for the CDM projects and is considered as one of the most

potential countries in the world for the same. This is due to its large power sector that

depends on fossil fuels, and to the proactive policies of the Indian government towards CDM.

The power sector alone is estimated to emit 433 million tonnes of CO2 per annum. The total

CO2 reduction potential through CDM projects in India is estimated to be around 300 million

tonnes. The largest potential is in the renewable energy sector with 90 million tonnes CO2

equivalents. The total expected average annual CER’s from registered projects by India are

about 22 million having a 15% world share.

India has 474 projects registered with the United Nations, second only to China’s 680.

However, in terms of CERs, India’s share is just 11.63%, while China’s is 58.75%. The

National CDM Authority (NCDMA) in India has accorded Host Country Approval to 1,455

projects. These projects have seen an investment of more than $33.7 billion(Rs 1.6 lakh

crore). If all these projects get registered at the CDM executive board, it will earn developers

over 600 million CERs by 2012.



Current annual market - $ 24 million

Estimated annual market by 2012 - $ 6 billion (Rs. 28,000 crores)

Second largest claimant of carbon credits

Projects registered by 2009 – 474

Total issued CERs ≈ 34 million, 140 million in pipeline

Value > 2250 mn Euros (225mn CERs)

Entire claim currently from private sector

Potential buyers ( Target Customers) – Corporate from Annex I countries, European

nations, Japan, Canada, New Zealand

Why Is India Lacking Behind China In CER Market?

India has cornered nearly 43% of the carbon credits (CERS) issued so far by the CDM

executive board, the highest international body under the Kyoto Protocol to register projects

and issue credits. In comparison, only 17% of the CERs has been issued to China. But the

expected average annual CERs from registered projects till 2012 has China (44%) far ahead

of India (15%), although India, with 259 projects, leads China (101) in the number of

registered projects.

Reasons:

1. Size of Industries:

The Chinese projects are few but huge, whereas in India there are many and scattered projects

2. Type of projects undertaken:

Chinese have several projects in high CER-yielding HFC23 projects, whereas Indian

companies have mainly concentrated on renewable energy (biomass, wind power, etc.) or

waste heat recovery projects that generate much less CERs.



A Note On HFC-23-

Certain chemical & refrigeration plants around the world emit just about the worst

greenhouse gas imaginable. The refrigerant HFC-23 is 11,700 times worse than carbon

dioxide. But a client can pay a chemical plant in India to stop emitting HFC-23. The plant

puts the gas through an incinerator to avoid emitting it into the atmosphere. Incineration is a

cheap process, and for every ton a plant burns it earns 11,700 tons of carbon credits, which

we sell to our client. Considering a rate of $25 per ton for carbon credits, incinerating a ton of

HFC-23 was worth close to $300,000, while incineration cost only about $5,000. This can be

a huge business gain.

Joint Implementation

Projects between industrialized nations to earn emission offsets

Emission reduction units (ERUs) created through joint implementation is treated in the

same way as those from emissions traditions



A PROPOSED MODEL –

The CDM projects can be effectively used by India produce green energy and act as a

scalable business model too.

Following is the pictorial diagram to show the working of the proposed model for a

company-

Let’s take a model company (Co. A) for explaining the model. The initial stage of this

business model would be to set up co operative societies in villages all over India. These

societies would be a cluster of social entrepreneurs who are ready to invest in the energy

business. These cooperative societies will build up green power plants in their respective

villages. The knowhow will be provided by Co. A. That is, co. A will provide windmills,

solar panels, and help them setup biogas plants, etc. in their villages, at minimal costs. These

plants will generate electricity, which the cooperative societies will use for self consumption,

and will sell the excess electricity to the villagers. Thus, the villages can have 24 hour

DEVELOPED COUNTIRES

CO—PERATIVE ENERGY

PRODUCERS, in villages of

India

OUR COMPANY

MONEY

SELL CARBON CREDITS

ALTERNATE SOURCE OF ENERGY

SELL CARBON CREDITS



electricity, and it saves the government from investing huge amounts into power plants.

Because these power plants are green, every unit of energy produced generates carbon credits

(One million tonnes of carbon emission stopped generates one carbon credit). These carbon

credits will be the property of Co. A, which will earn by selling these carbon credits to the

international companies the international markets (especially Annex 1 countries). Also, some

of the international companies which desperately need carbon credits can fund Co. A. This is

called Joint Implementstion under the Kyoto protocol, and is described through a diagram

below.

Joint Implementation (JI)-

Annex I

Industrialized

Country B

Annex I

Industrialized

Country A Fund

Technology

GHG Reduction

Joint Reduction

project

Credit



EmissionTrading.

Each carbon credit sells for $ 15-19 in the international market. These carbon credits are also

traded in various stock exchanges worldwide, including NASDAQ and Dow Jones (spot

contracts).

The technical know and operational strategy would be provided by Co. A. As these

cooperatives will be setup across India, the windmills, solar panels, etc will be bought in bulk

by the Co. A, which will give them cost benefits. Thus the project would relate to carbon

sequestration, carbon reduction and alternate sources.

It’s a win win model for cooperatives, Co. A, villages, as well as the government; as the

cooperatives get to sell the electricity

Customers

Developed and developing countries both are target markets.

Developed countries for carbon credits, Developing countries to generate alternate

sources of energy like biofuel, wind and solar.

The carbon credits received in lieu of Green house reduction will be sold to Annex 1

countries. The annex 1 countries are developed countries wherein they require credits

to be within the framework of laws. These countries GHG emissions are too much to

Industrialized

Country B

Industrialized

Country A

Payment

GHG Reduction;

more than target

amount

Credit



be levelled off by alternate energy resources. So they fund developing countries in

lieu of credits.

Carbon credits create a market for reducing greenhouse emissions by giving a

monetary value to the cost of polluting the air. Emissions become an internal cost of

doing business and are visible on the balance sheet alongside raw materials and other

liabilities or assets.

Thus any country looking out for reducing carbon on their balance sheet will be our

customer.

Organization Type Examples

Governmental purchase Organization Japan Carbon Fund, UK DEFRA’s

CCPO, Italy Spain, Netherlands,

Canada, Austria, Portugal, Germany,

France, Belgium, Sweden.

Multinational Organizations World bank

Brokers/Traders Ecosecurities, Natsource, CO2.com,

Morgan & Stanley, Akzo Nobel,

Barclays, HSBC, Pointcarbon,

Robobank.

End Users Kepco, Depco, Shell.

http://en.wikipedia.org/wiki/Balance_sheet

http://en.wikipedia.org/wiki/Raw_materials

http://en.wikipedia.org/wiki/Liabilities

http://en.wikipedia.org/wiki/Assets



Potential industries

– Agriculture

– Energy ( renewable & non-renewable sources)

– Manufacturing

– Fugitive emissions from fuels (solid, oil and gas)

– Metal production

– Mining and mineral production

– Chemicals

– Afforestation & reforestation

Recent Developments

According to the UN draft passed at the Copenhagen summit, Nations around the world must

reduce greenhouse-gas emissions at least 50 per cent by mid-century under a draft proposal

being debated by 192 countries in Copenhagen.

The plan says nations should collectively reduce the heat-trapping pollution that many

scientists say could lead to catastrophic climate change between 50 per cent and 95 per cent

from 1990 levels. The draft leaves long-term financing, or how much rich nations should pay

poor ones to deal with global warming, to be dealt with later.

Some other outcomes from Copenhagen Summit 2009:

During the Copenhagen Summit 2009, New Zealand got an overwhelming support to

accept the proposal of reducing carbon emissions to an ambitious figure of 40%

reduction.



Even Australian Prime minister Kevin Rudd, has promised a 5 – 25 % of reductions in

emissions. It instigated a lot of opposition leaders, but still fact remains that Australia

needs to reduce its emissions.

As of now, it has 3 ways to do it –

1. Geosequestration – But that needs a lot of Investment

2. Voluntary Carbon offsets given by Australian Government- But these are not Kyoto-

compliant hence cannot be counted as carbon credits

3. Carbon Offsets by using CDM – Thus, Australia can be customer i.e. buyer of Carbon

Credits.

The Advantages of the Proposed Model:

1. Benefits for India:

• Gaining annual CER revenues for the country

2. Locally achieving:

• Reduction in poverty by creating jobs for urban poor.

• Safe and better working conditions for the informal sector.

• Better environmental quality(Less odour, leachate, and disease vectors)

• Enhanced public awareness on Solid Waste Management and recycling.

• Improvement in the quality of life of the city.



• Efficient resource utilization

• Contribution to reduction of foreign expenditures (Macro-economic Indicators)

• The increase in life of the dump sites.

• Considerable amount of power to the city.

• Reduction in cost on Solid Waste Management by municipalities.

• Reduction of ground and surface water pollution and thus reducing health hazards.

3. Globally achieving:

• Foreign Direct Investment (FDI)

• Reduction in emissions of GHG’s from dumping grounds which are responsible for

Global Warming.

• Project is complying with the Millennium Development Goals (MDG).



References:

1. ―Carbon Trading- Some Insights and Perspectives‖ by Radha Purswani

2. ―The Political Economy of Carbon Trading‖ by Donald MacKenzie

3. E&Y and PWC reports.

4. www.cseindia.org

5. www.financial express

6. www.Bloomberg.com

7. www.Mckinsey.com

8. ―Imagining India- Nandan Nilekani‖

9. ―The Blue Ocean Strategy‖ by W. Chan Kim & Renee Mauborgne

10. www.ibef.org

11. Various articles from The Times of India, Time, The Economist, The Asian Express

http://www.cseindia.org/

http://www.ibef.org/

Education

A Research On The Energy Challenge: Problems and Prospects & Role of Green Energy