India faces three major energy challenges i.e. security, access and environmental impact. With high oil price volatility, India’s vulnerability is further compounded by the fact that it imports about 70 per cent of the total oil consumed and oil imports ( $15 billion or 3 percent GDP in 2003 ) constitute the single largest item in the country's total annual import bill. About 40 per cent of the export earnings are funneled back into importing oil for domestic consumption. Studies have indicated that a $ 10 hike in the oil price would slash India's GDP growth rate by 0.2 per cent and raise the inflation rate by 0.7 per cent (Park, 2004). The only way India can mitigate the oil supply threat is to exploit its indigenous resources and Renewable Energy Technology (RET) offers tremendous opportunity.  

The major findings from various literatures reveal that the future energy mix by the end of century is going to witness a major shift – from a relatively homogeneous state to a more diverse one and an increasing use of new and renewable energies (Ministry of Non-Conventional Energy Source MNES, 2005). In terms of percentage, RET based capacities might not be reflecting the true magnitude, nonetheless in quantum terms there is going to be a tenfold increase by RETs in primary energy consumption by 2100 (see Annex 1 for Global growth of RETs). This provides tremendous opportunities as well as challenges for the policy makers while pushing the RETs towards large scale acceptability and commercialization.

While the technology-push approach has been able to create manufacturing base and support mechanism for design, development, testing of RETs, the handoff from this point onwards towards commercialization could never materialize except for wind energy.  Reasons are many and prominent among them are: i) non-internalizations of externalities affecting the competitiveness of RETs vis-à-vis conventional fossil fuel ii) lack of focus and abysmally low budget in R&D spending by the government (refer MNES Demands for Grants 2006-07, Thirteenth Report) and iii) intermittent generation characteristics leading to low reliability. The policy shift though happening, albeit slowly, must reorient itself towards market-based instruments and a gradual switchover from technology-push to demand-pull paradigm so as to convert the RETs as commercially viable alternatives.
 
However, commercial viability of RETs solely depends on its competitiveness vis-à-vis existing fuel options and this can come only through cost reduction. In order to achieve this, proponents of RETs have always recommended for greater allocation of funds in R&D. But, the story of under-utilization of the allocated funds has always got camouflaged in the entire debate and the severity of the issue can be anticipated from the below statistics (see Annex 2 for details):

                                          2004-05                      2005-06(up to 30th Jan’06)
 Revised Estimates             373.10 crore                          316.74 crore
 Expenditure                     218.00 crore                          160.58 crore

       The shortfall in utilization has been observed in almost all the major programmes of the MNES i.e. village electrification, solar energy, energy from urban and industrial wastes etc. Hence, mere scaling up of the funds is not going deliver the results unless there are monitoring mechanisms in place to check where and how the fund is getting allocated and expended. The above argument is not at all intended to counter the justification for ramping up of R&D budget. For RETs that are either in deployment or mature stage the subsidy regime should slowly be phased out giving way to more R&D spending. For example, there is no justification in continuing with the direct financial subsidy for wind energy producer, rather the focus should shift towards boosting up the equipment manufacturing activities to reduce import dependency especially for wind turbines above 500 kW. Besides, R&D spending in the near term is going to bring in innovation and cost reduction thereby easing off the apprehension that the existing system might get locked-in to the incumbent technologies. However, the prospect of mobilization of such huge investment requirements is highly unlikely unless some specific interventions take place. One of them is participation through Clean Development Mechanism (CDM) and as per literature CDM mechanism offers around 3 billion $ investment potential and a net earning potential of 150 million $ in the near term (Shukla et al, 2001). With power sector contributing almost 40 percent of the carbon emission, RETs offer an unique opportunity for the policy makers to extract the multiple dividends through CDM.

Finally, while looking at the RET market penetration it would be unjust to solely focus on market failure paradigm. Network failures and institutional failures also block the evolution of new technologies. Hence from the policy maker’s perspective it is just not enough to make a levelized cost comparison and recommend for financial and fiscal incentives. It is also important that he or she must explore in detail the preparedness of the economy against factors such as i) how agile the capital market is while responding to the new technology, ii) how biased are the existing legislation towards the incumbent technologies vis-à-vis RETs iii) how well connected the RET firms are in terms of sharing knowledge and avoiding overlaps and iv) how well are we building up capacity and integrating renewable in the mainstream energy debate.

Reference:
1. New and Renewable Energy Policy Statement, Ministry of Non Conventional Energy Source (MNES), 2005
2. Park, C., 2004, “Higher Oil Prices: Asian Perspectives and Implications for 2004-2005”, ERD POLICY BRIEF NO. 28, Asian Development Bank
3. Renewables 2005 Global Status Report, Washington, DC: Worldwatch Institute REN21 Renewable Energy Policy Network. 2005
4. Standing Committee on energy, 2006,MNES Demands for Grants, Lok Sabha Secretariat
5. Shukla, P., R.; Garg, A.; Ghosh, D.; Ramana, P., V, 2001, “Renewable Energy Technologies: Mitigation Potential and Operational Strategies”.

Annex 1:
Renewable Energy Contribution                                                                     Average Annual Growth Rates of

Global Primary Energy, 2004                                                                          Renewable to Energy Capacity, 2000–2004
Source: Renewables 2005 Global Status Report, Washington, DC: Worldwatch Institute

Annex 2: MNES Plan Outlay & Expenditure (Rs Crores) Source: Demands for Grants 2006-07, MNES
 

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Contributed by Diptiranjan Mahapatra. ( This email address is being protected from spam bots, you need Javascript enabled to view it ), IIM Ahmedabad.

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