ALTERNATIVE ENERGY - Powering The Future

ALTERNATIVE ENERGY - Powering The Future

The next growth wave is here. Wind, solar and other renewables are transforming India’s energy horizon.

VATSALA KAMAT WITH P. HARI IN SAN FRANCISCO for Business World

When we began working on this story, a usually helpful source at the Ministry for New and Renewable Energy (MNRE) in New Delhi did not reply to an e-mail. When we called to ask why, this was the reply: “So sorry! Problem is, we had no power yesterday.” It’s a telling Indian paradox that the ministry responsible for spearheading former President A.P.J. Abdul Kalam’s call for national energy independence itself remains powerless. But across the country, small islands of hope are using alternative energy technologies to create environmentally clean and affordable power, igniting talk of a coming revolution in the energy industry.

Once dismissed as kooky ideas spawned by impractical environmentalists, alternative energies are now part of the energy plans and policies of most nations. “Governments all over the world recognise the importance of renewable energy as fossil fuels are finite,” says Prakash Karnik, investment manager of IDFC Private Equity, a Mumbai-based institution that is now aggressively planning investments in renewable energy projects. “Worldwide, the renewable energy industry is growing at 20-30 per cent per annum. Demand exceeds supply in some sectors such as wind energy, and companies are generating returns in excess of their cost of capital.”



Fifteen European Union nations, including Spain and Germany, who are world leaders in renewables, have committed to generating 20 per cent of the energy using alternative technologies by 2020. India has also put in place several renewable initiatives and the country is now the world’s fourth-largest generator of wind energy with an installed capacity of 7,093 MW.

The lone wind turbine whirling gently in the breeze at the headquarters of the Centre for Wind Energy Technology set amidst the waters of the fragile Pallikaranai wetlands 22 km south-west of Chennai, is a testament to officialdom’s embrace of alternative energy. Now, these once-quixotic windmills are set to become ubiquitous national symbols because the private sector has also begun investing heavily in alternative technologies. For example, Citigroup Venture Capital International and UTI Ventures recently invested Rs 250 crore and Rs 40 crore, respectively, in a biomass venture run by Hyderabad’s Ind Bharat Power , and Barings Private Equity has committed $50 million (Rs 200 crore) to Auro Mira Energy, a biomass and mini-hydro player in Chennai. Higher up the food chain, Tulsi Tanti’s Suzlon Energy has become the world’s fifth-largest wind turbine maker, and Tata BP Solar, one of India’s first solar panel makers, has seen its revenues jump to Rs 450 crore a year.



New Delhi-based Ravi Khanna, CEO of Moser Baer Photo Voltaic, says entrepreneurs are venturing into solar power because of the phenomenal growth potential. “India struggled for 20 years with land lines but has beat China to become the fastest growing mobile telephony country in the world today,” says Khanna, who believes energy-starved India will leap-frog into alternative technologies. He, and Warburg Pincus which owns 35 per cent of his company, are betting big on this and Khanna expects the firm’s revenues to touch the billion-dollar mark by 2010.

Khanna’s optimism is rooted in global trends. The United Nations Environment Programme Report (2007) states that renewable energy projects received a record $100 billion (Rs 4,40,000 crore then) in investment in 2006, up from $80 billion (Rs 360,000 crore then) in 2005. Interestingly, venture capitalists are now some of the biggest investors in alternative energy, and their track record of almost single-handedly creating the computer and bio-technology industries is also boosting the industry’s prospects. Consider this. John Doerr of Kleiner Perkins Caulfield & Byers, who nurtured Google, Netscape and Amazon, has earmarked $100 million for the alternative energy sector, and Vinod Khosla, who co-founded Sun Microsystems, is funding two dozen renewable energy companies.

Triggers Of Change
Daniel Yergin, chairman of the US-based energy consulting group Cambridge Energy Research Associates, says this surge of interest in alternative energy is mainly driven by fears of global warming. “When compared to five years ago, the climate change issue has made a huge difference for the renewables market,” says Yergin, whose Pulitzer-prize winning book The Prize: The Epic Quest For Oil, Money and Power chronicled the birth of the ‘oil age’ (see ‘Wind Stands Out As Most Competitive’ on page 32). With glaciers melting, weather patterns changing and the hole in the ozone layer getting larger, western public opinion is increasingly pushing politicians to search for greener energy. In Asian countries such as India and China, there are also more mercantile reasons to follow suit.

India currently produces 130,000 MW of energy a year and this figure will need to double within the next decade. The cost of building the mostly coal-fired plants slated to produce this energy will be a staggering Rs 5,34,000 crore. The environmental and health costs will be even steeper. India is already the world’s fifth-largest polluter, and hospitals across the country are reporting sharp increases in lung and breathing problems, from asthma to cancer.

New Delhi’s oil bill has also shot up from $7.5 billion (Rs 26,250 crore then) in 1996 to a whopping $50 billion (Rs 2,20,000 crore). By 2010, when Indian consumers are estimated to own 15 million cars, the country’s oil consumption will be twice today’s 2.1 million barrels a day, the US Energy Information Administration says. With global oil production barely 1 million barrels over the global consumption rate of 81 million barrels a day, the surge in demand from India (and China) could eventually lead global demand to outstrip supply, causing fuel prices to shoot up to $100 a barrel, Stephen Roach, chief economist with Morgan Stanley has said. This could cause India’s oil bill to quadruple to $200 billion a year by 2025! More significantly, India will be the only major economy in the world other than Japan importing 90 per cent of its oil needs, a strategic lacuna.

Less Is More
Where Timbaktu? In the drought-prone Ananthpur district of Andhra Pradesh. Here, Timbaktu Collective is home to a 100-strong community that works with landless farmers from what was once 32 acres of wasteland. They use no modern irrigation, chemical fertilisers, or electricity from the state grid. Says co-founder Bablu Ganguly, “It’s not what we use but what we don’t use.”

At Yelahanka, 15 km north of Bangalore’s hypertensive traffic jams, 51 homes stand in 13 acres of quiet greenery in one of Biodiversity Conservation’s (BCIL) ‘zero emission development’ project. BCIL homes have sun-baked soil-stabilised bricks, refrigerators with a glycol-based centralised system, custom-made air-conditioners consuming 46 per cent less power, solar heaters and biodiesel gensets. BCIL expects to earn a revenue of Rs 60 crore in 2007-08.

At Gual Pahari on the outskirts of Delhi is TERI’s Retreat, a solar-powered ‘sustainable building’ with ‘passive’ designs such as skylighting, insulation, double-glazed windows, and underground tunnels into which air is sucked and distributed, not unlike ancient underground cellars that were cool in summer and warm in winter. The complex saves 40-50 per cent of energy costs incurred by conventional buildings. In Rajasthan’s blisteringly hot Ajmer district is tiny Tilonia, home to Bunker Roy’s Barefoot College, the only fully solar electrified campus in India. Training the rural poor in water engineering and solar electrification in 13 Indian states, the college has also enabled solar electrification of 136 remote Himalayan villages. Such efforts share many things in common with Christina Victoria Prabhu, a resident of Bangalore, who uses a solar heater and saves around 20 per cent on the electricity bill.

This is already leading to a race between India and China to acquire oil fields across the world. India has already invested an estimated $5 billion-6 billion (Rs 20,000 crore-24,000 crore) in global exploration ventures and has said it will continue to spend $1 billion a year on more acquisitions. China, which has already invested about $15 billion in foreign oil fields, is expected to spend 10 times more over the next decade. Experts have likened this face-off to the “Great Game” of the early 1900s, when European powers battled for supremacy in Central Asia. But this is a game India can neither afford nor risk, because the costs of mis-calculation could even be war. In fact, the Indian Navy and Air Force consistently defend their annual multi-billion dollar purchases by saying India increasingly needs to secure its oil supply lines.

The Governing Dynamic
So why hasn’t the alternative energy revolution already happened? Until, recently, the technology just wasn’t there and the cost of producing a MW of wind or solar power was up to five times that of fossil fuels. Now, the costs are evening out, but the challenge for the alternative energy industry is to achieve the scale necessary to become competitive. Standing in the way of this is the powerful oil and gas lobby, which has consistently tried to tie down the alternative energy industry like a bonsai tree. As Hermann Scheer, a member of Germany’s parliament and a renewable energy crusader, says, renewables need government subsidies to bloom, but these are often opposed by the fossil fuel industry. Yet, subsidising alternative energy makes sense, says Scheer, because there are only two ways of combating the environmental and human cost of using fossil fuels. “If the government levies an energy tax, like a tax on the pollution caused due to use of conventional energy, it can then try to cover the (environmental and human) cost,” says Scheer. “This is a rational option but not a social one, as the common man will suffer. The alternative is to provide renewable energy a privileged market: no taxes, zero interest rates, and a new tariff law.”

The logic of this has led New Delhi to offer the renewables industry broad concessions, such as 80 per cent depreciation on alternative energy equipment, a 10-year tax holiday for windmill companies and import concessions. Alternative energy companies also get concessional loans from the Indian Renewable Energy Development Agency and public sector banks. Industry players are also asking for feed-in tariffs, where power fed to the grid can be metered and the company can raise carbon credits for it, says Suzlon’s Tanti.

But all this pales in comparison to the direct and hidden subsidies most countries, including India, China and the US, give the fossil fuel industry, which is a huge contributor to political parties. According to US media reports, the Bush administration, after a series of meetings with a group of energy industry representatives and lobbyists, drew up a controversial National Energy Plan, which doled out $33 billion in public subsidies and tax cuts to the oil, coal, and nuclear power industries. In India, the privatisation of oil exploration has also created a huge anti-alternative energy lobby led by oil companies such as Reliance, Essar Oil and Videocon, in cahoots with auto companies. A sign of their power came when New Delhi recently withdrew a Rs 1 lakh per car subsidy it was about to give the Reva, India’s first electric car.

More importantly, supporters of alternative energy insist that the “full cost” of using fossil fuels is hidden — and could even be higher than the cost of many alternative technologies — because the health, environmental, and defence costs associated with using fossil fuels are not built into their purchase cost. For example, The US-based International Center for Technology Advancement says a gallon of gasoline in the US that costs consumers about $3 (Rs 120) would end up costing the nation about $15 (Rs 600), if the full cost of the medical costs associated with treating people suffering from pollution-related illness, the economic costs of the days lost at work because of people ill with pollution-related problems, the cost of cleaning up the environmental damages caused by fossil fuels and astronomical defence costs associated with oil security were added up. By not doing this and not pricing fossil fuels at their “full cost”, governments are reducing the incentive to shift to alternative fuels.

The IT Parallel
Given the oil and auto industries have more than a trillion dollars in revenues and have planned investments of nearly $50 billion by 2010, this is unlikely to change soon. Governments also worry that hurting these industries could dampen growth and damage other industries, such as shipping and ports, to paint, steel, petrochemicals, auto ancillaries, and rubber. But supporters of alternative energy, such as previous US Vice President Al Gore, say these losses would be balanced by the totally new industries renewables would create, in the same way that the IT revolution initially cost jobs and killed some industries, such as answering services, but went on to boost global growth.

But for now, the power of the fossil fuel industry and auto companies is keeping New Delhi, and indeed most capitals, from supporting alternative energy in any greater measure soon and this is angering many. “The barriers to accelerate renewable energy technologies need to be addressed,” says G. M. Pillai, director-general of World Institute for Sustainable Energy in Pune, which is urging the Indian government to put forth a Renewable Energy Law to ensure time-bound implementation of renewable energy efforts.

As things stand right now, says J. Gururaja, a former advisor to the MNRE and the UN, the official policy is just short of where it should be. “There is no platform for coordination and implementation,” he says. “The butter is spread too thin,” A host of ministries from agriculture to petroleum to rural development are all involved with no single point responsibility for this cause.”

Significantly, with renewable energy technology maturing and awareness rising, many consumers are sidestepping such policy conundrums and turning into early adopters of these technologies (See ‘Less Is More’). Still, no alternative energy technology is even close to fulfilling its full promise. The reasons, discussed in greater detail in the stories that follow, are not insurmountable, but very real. More than technological changes, consumers will have to change their attitudes and habits before alternative energy can become what it should — the only energy. Imagine mankind powered by infinite renewable energy. The benefits are driving governments, businesses and individuals all over the world to follow that dream. They know there is no real alternative.

With inputs from Nelson Vinod Moses
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