InvestorQ : We are hearing a lot about renewable energy in India for the last 10 years, but nothing has taken off in a big way. What is stopping India’s renewable energy focus?
Aashna Tripathi made post

We are hearing a lot about renewable energy in India for the last 10 years, but nothing has taken off in a big way. What is stopping India’s renewable energy focus?

Tisha Malhotra answered.
2 years ago

India has set aggressive targets of 500 GW of capacity by 2030 for its renewable push. It is wrong to say that India is not making progress because India is already the fifth largest in terms of renewable capacity after the US, China, UK and Germany. However, there are some practical reasons why renewable push in India lags behind the developed world. Here I am trying to capture some of the key reasons for the same!

· Firstly, you must remember that most of the renewable power sources are not entirely reliable. The world over, it is often used as a complementary source of power than as the principal source of power. Due to the erratic nature of power generation from solar and wind, an equivalent fossil-based backup capacity has to be created. This becomes too cumbersome and expensive too.

· The result of this fossil fuel back up is that it price of supply substantially since dual costs have to be absorbed. Let us compare with Germany. For example, Germany saw an 80% increase in the price of power which would be impossible to justify in a country like India since power is a very sensitive political and social issue. The government would have to think ten times before allowing such a price hike.

· There is something called efficiency of land utilization, which is very low for renewable energy companies. Power generated per square metre is a key issue. Let us compare solar and coal-based thermal power here. For example, for generating 1MW of coal-based power approximately 1 acre of land is required while 1MW of solar power requires 5 times that land. This is a problem in India where land acquisition is a big challenge and environmental reasons abound.

· You need to run the power plants at high capacity utilization levels to be able to cover fixed costs and make profits. The plant load factor (PLF), which is the equivalent of capacity utilization in power is less than 25% in case of renewable power while it is more than 70% in coal based thermal power. So renewable will require large capacities to be meaningful. That also means more costs which cannot be easily passed to a sensitive Indian market.

· The real big challenge in renewable energy is the transmission and storage of renewable energy. Indian grids are not equipped to handle renewable power and need a massive overhaul. That entails huge capital cost. In India, the South and Western parts account for 90% of the capacity but just 40% of the demand. As a result, the cost of transmission has not fallen in tune with the cost of equipment and will continue this way in the future too.

· In India the industrial sector accounts for 40% of power consumption. However, they depend on captive plants and they cannot afford renewable energy investments considering the erratic nature of supply. Thus industrial consumers prefer coal over renewable power due to steady and stable supply. Since the industrial sector already subsidizes household consumption of power, they will not be in a position to take the renewable risk.

It is due to a combination of these factors that renewable energy will take some more time to take off.