Legislative and government initiatives, policies and laws have been the main engines driving new technology transitions since the beginning of the 20^th century. These are, all the more important in the development of new forms of energy and energy markets. There have been certain recent major, legislative and governmental initiatives in India, aimed at reforming the energy sector, viz:

?  ►    The Energy Conservation Act, 2001

?  ►    The Electricity Act, 2003

?  ►    The National Electricity Policy, 2005

      All these have been welcome steps in the right direction. They have also started showing results. However, they have not been successful in adequately addressing a quiet transition under way in the energy sector, which is going to phenomenally transform the way we produce and consume energy in the next few decades. You got it right I am talking of the transition to a clean and green energy economy.

BEYOND THE ELECTRICITY ACT, 2003

      Sections 61 (h) and 86 (1) (e) are the only real, clear developmental provisions relating to renewables in the Electricity Act (EA), 2003. They are enabling provisions and not mandatory. Hence, the enforcement has not been effective enough. The drafting of this Act started many years before its adoption. The geometrical progress in renewable technology development and its adoption worldwide is a recent phenomenon. The major crisis in the conventional energy sector, the volatile price increase of fossil fuels and the resultant energy insecurity is of recent origin (what the Economist of London called as the mighty cost of petro-addiction). Renewables are the future of the energy sector and through the new law, we are addressing this future necessity. Planning an energy transition requires decades and hence, the urgent need for a comprehensive law on renewables.

      Secondly, EA, 2003, speaks only of generation, transmission and distribution of electricity. The proposed new renewable energy law goes much beyond electricity, and holistically addresses energy production from renewables, even extending to transport fuels or biofuels. So we are not talking of another electricity law. We are talking of a comprehensive legislation for development of all types of renewable energy technologies. A great amount of detailing of the technological, developmental, legal, policy and institutional framework is required, and that is the aim of the new law. To accelerate the development of a large variety of renewable technologies, such detailing is absolutely necessary. EA, 2003, is totally inadequate in this respect and hence, the proposal for a new law.

But these are absolutely insufficient to drive a technology transition, a market transformation, a transition from input dependence to self sufficiency, a transition to an environmentally benign and sustainable way of producing and conserving energy. The emphasis of the Electricity Act, 2003, is reform of the power sector, and it is an absolutely necessary and welcome step. But we should, at the same time, carefully consider the impact of reforms on the future technologies that will provide energy to mankind, in a post-fossil fuel era.

POWER SECTOR REFORMS: A DOUBLE-EDGED SWORD

Reform of the power sector is a double-edged sword, as far as renewable power is concerned. On the one hand, it has the potential to stimulate increased deployment of renewable energy. On the other hand, when short-term economic and technical efficiency becomes the singular norm in a reform era, it could further entrench conventional energy technologies. Reform is a much misunderstood word. The dictionary meaning of the word generally reads as, ‘bringing about improvement of imperfections, faults or errors’. Reform, as is feared by many, need not only mean privatisation. It is also about responding to emerging new realities. The reality of the future is the climate change underway caused due to emissions from fossil fuel burning and the gradual depletion and extinction of fossil fuels. Hence, reformers should seriously address the impact of reforms on renewable power generation.

Some power sector reforms will improve market opportunities for renewable energy equipment suppliers and developers; others will not. In general, prospects for renewables penetrating distributed markets are improved when fuel and tariff subsidies are eliminated, when accounting for transmission and distribution costs is separated. The introduction of wholesale and retail competition is likely to hurt the prospects of renewables in the absence of countervailing policy interventions. Without an explicit greenhouse gas policy in developing countries such as carbon values imposed on fossil fuels, bulk renewable capacity may increase in absolute terms, but is unlikely to increase market share dramatically. Renewables are likely to play a larger role if power sector reforms encourage consideration of the distributed rather than a central station model. Government should evaluate the implications of specific reforms on technology choices. Wholesale power markets should be required to consider the environmental characteristics of competing generation technologies. To increase the competitiveness of off-grid options with grid extension, all current forms of public support and customer class cross-subsidies should be equally available. Power sector reforms should ensure that distributed resource options can compete fully to provide electricity services.  

ENERGY SECURITY AND NATIONAL SECURITY

Oil

      Energy security is conventionally understood in terms of the risks of fuel supply disruption and fuel price volatility. Crude oil prices breached the $70 per barrel mark in the recent past, causing alarm among policy makers, fear in the minds of consumers and uncertainty everywhere. In the past few years, oil prices virtually more than doubled, unnoticed by many. Some experts predict that by 2010, the price of crude could go up to $100 per barrel. Unlike the oil crises of the 1970s and 1980s which were politically created, the current price increases are fuelled by supply not matching demand. Despite new finds, the fact remains that 70% of the world's daily supply comes from oil fields that have been drilled for 30 years or more. A very significant study regarding oil supplies has been done by Colin J. Campbell and Jean H. Laherrere. These two authors have worked in the oil industry for more than 40 years, and hence, their detailed scientific assessments have absolute credibility. Their findings clearly indicate that by 2010, the supply of oil will be unable to keep up with demand, or oil production would peak by 2010; The ‘Hubbert’s Peak’ would be reached and the permanent decline in oil production will begin by 2010. By that time, the ‘BRIC countries’ (Brazil, Russia, India and China) will need large chunks of oil, especially because of the fast growth of the Indian and Chinese economies. It is predicted by experts that if only India and China continue to grow at current rates, the demand for oil will rise by 6% per year. To meet this demand, world output will have to increase by 43% by 2010, which may not be easy to achieve. Prices might then shoot to the $100 per barrel level. The impact on our import bill and balance of payment will be very serious.

India today imports 75% of oil requirements. In 2005–06, India had a petroleum import bill of US$44.64 billion, which is a 52% increase on the previous year’s bill. Going by the present trends, we can expect huge growth in the overall import bill in future. Already, India is dealing with some of its highest import bill ever. India’s trade deficit stood at $5.68 billion in December 2006, as export growth remained sluggish and imports of oil surged. Our domestic proven oil reserves at end 2006 is 5700 million barrels (0.5% of world reserves). The reserves / production ratio is of 19 years only! As per Government of India (GoI) projections, by 2031 India will have to import about 3 billion barrels. Because of the earlier mentioned peaking of oil production around 2010, of oil, this quantity of oil may not be available for import. Assuming availability at the price of $100 a barrel, the import bill will be $300 billion or Rs. 13,20,000 crore (@ Rs. 44 = $1)

Coal

      Coal has a similar story, but may be available for a longer period of time. India has an extractable reserves of 52.24 billion tonnes. Annual production now is 407 million tonnes and the rate of growth of production is going to be very big. The GoI predicts complete depletion in 40 years. The key fact or is not depletion, but peaking of production which is expected by 2015 in India. A recent study predicts global peaking of production of coal by 2025. As per GoI figures, we will have to import 609 million tonnes of coal by 2031. At $60 / tonne the import bill will work out to $36.54 billion or Rs. 1,60,776 crore.

Imagine this: By 2031 our import bill for only oil and coal together will be Rs. 1480,776 crore or $350 billion! Our current foreign exchange reserves is only $225 billion and were already have a trade deficit of $5.68 billion. Our current annual budget of the GoI (Plan & Non-Plan together) is only about Rs. 6,40,521 crore! In a post-oil future, the consumer goods manufacturing will shrink substantially and will erode government revenues (of which sales tax and excise form the major sources) significantly.  So, from where will we get $350 billion every year for import of only coal and oil?

Natural Gas

      The known reserves of natural gas in India is now around 1.08 trillion cubic metres only i.e. 0.6% of world reserves. Our annual production and consumption (including flaring) in 2002–2003 was 31 billion cubic metres. This will increase substantially in the next few years. The R/P ratio for our domestic natural gas is 33 years. Import of liquefied natural gas has become prohibitively costly (upto $12/mmbcu) and we are unable to get any long-term contracts. Even world natural gas production will peak in the next 10 to 15 years.

Nuclear Power

      Prof S P Sukhatme, former Chairman, Atomic Energy Regulatory Board has observed during a seminar that our uranium reserves (50,000 tones of proven recoverable reserves for power production) would be adequate only for meeting the requirements of 10,000 MW of nuclear power capacity for about 30 years. As of now, we have about 4120 MW installed capacity of nuclear power. The Nuclear Power Corporation of India plans to add 4660 MWe during the eleventh plan i.e. by 2012. The ‘Vision 2020’ for nuclear power envisages addition of 20,000 MWe by the year 2020. New uranium mining sites in the north-east are facing stiff resistance from local people. It is true that India has vast reserves of thorium, but thorium–based reactors are yet to be installed and not yet proven. Also, due to the problems of nuclear waste disposal, and with the threat of Chernobyl type accidents looming large, nuclear power is not a preferred option in the world. Countries like Germany plan to decommission all their nuclear plants by 2025 and replace them with wind turbines!

Hydro Power

      Theoretically speaking, India has a huge hydro power potential estimated at 1,50,000 MW, of which only about 33,000 MW has been channelised so far. But hydro projects are facing serious resistance from environmentalists and have displaced people all over the country. With environmental destruction, the run-off in rivers is decreasing year-by-year. It is true that our neighbouring countries like Bhutan and Nepal have enough surplus unharnessed hydro potential and they can sell this power to us, once harnessed. In a post fossil-fuel era, hydro power is extremely important for base-load management. It will compliment renewables in the grid system.

Renewables offer a direct means of dealing with these security concerns. First of all, they are foreign exchange neutral. They are dependent on our own natural resources. They will never become extinct. The issues relating to their integration, high initial costs and investments required can easily be tackled through innovative legislative, policy, and financial mechanisms, as discussed subsequently in this article.

THE INVESTMENT BOOM IN RENEWABLES

Investment transactions in the renewable energy sector in 2006 crossed $100 billion, according to a recent study by the UNEP. Direct investment in sustainable energy is rapidly increasing, with $70.9 billion of new investment in 2006, which was 43% more than in 2005, and a similar continued growth trajectory so far in 2007. This is in response to a number of global challenges and concerns, including climate change, increasing energy demand and energy security. The investment community recognises the importance of the sector and the opportunities for value creation it presents. Consumers and companies are supporting the roll-out of a new energy infrastructure and a change in individual and corporate behaviour. Most importantly, governments and policy makers across the world are introducing legislation and support mechanisms to accelerate the development of the sector. The following are the key findings of the study:

Sustainable energy investment was $70.9 billion in 2006 (Figure 1), an increase of 43% over 2005. The sectors with the highest levels of investment are wind, solar and biofuels, which reflects technology maturity, policy incentives, and investor appetite. Levels of investment are similar between the United States and the European Union (27 Member States), with US companies receiving more technology and private investment, and EU-27 capturing the majority of publicly quoted companies. Investment in developing countries is increasing quickly, mostly in China, India and Brazil.
 

During the first quarter of 2007, the overall upward trend continued. A total of $2.2 billion of sustainable energy sector, an increase of 58% over the same quarter in 2006. Listed stocks were up, with the NEX index (WilderHill New Energy Global Innovation Index) increasing 25% on the quarter, even though new public markets investment was down 18%.

Sustainable energy now accounts for a significantly larger share of generation investment than of installed capacity. Its share of generation will increase as technologies mature and as investment into expansion and technology feeds through into installed capacity.

Investment in sustainable energy is still very much driven by policy, which today includes a broadening array of tariff and fiscal support regimes in many countries that together create a stable environment globally for continued sector growth. Investor appetite suggests that existing technology is ready for scale-up and that renewable energy can become a larger part of the energy mix without waiting for further technology development. Onshore wind is now an established commodity (while offshore wind continues to be difficult to finance). Greening of industry and public awareness of climate change and other environmental issues are key drivers of renewable energy and energy efficiency. The market has reached a critical mass, so that if oil prices drop to below $40, it is likely to slow investment in some areas, but it will not stall it altogether.

Venture capital (VC) and private equity (PE) have increased significantly from $2.7 billion in 2005 to $7.1 billion in 2006, and look set to continue this growth in 2007. VC activity has moved up the maturity spectrum, with later funding rounds attracting most investment. There was noticeably higher investment in China during 2006, most of which was PE for solar manufacturing expansion. Biofuels, biomass and waste, solar and wind in roughly equal shares dominate private equity investment for expansion. In early 2007, all stages of venture capital and private equity investment saw increased activity, with later-stage leveraged private equity investments putting in a particularly strong showing.

Research and Development (R&D) increased to $16.3 billion in 2006, from $13 billion in 2005. EU-27 lags in new technology investment, which may be due to the comparatively low level of private sector involvement. Business funds 55% of R&D in the EU, as compared with 64% in the US and 75% in Japan. The number of incubators rose globally during 2006, as did the number of incubated renewable energy companies and successful transitions to the next stage of financing.

Public market activity surged in 2006, with $10.3 billion raised, which is more than double the $4.3 billion in 2005. Solar IPOs (initial public offerings) boosted 2006 volumes, raising just over $4 billion. The NEX index rose 31% during the year, which was well ahead of the stock market as a whole. The biofuels sector was the star performer. In early 2007, new listings slowed somewhat, with $1.8 billion raised in the first quarter. However, listed stocks continued to perform with a further 33% in the first quarter of 2007.

New asset financing in renewable energy generating plants in 2006 was $27.9 billion, an incrase of 23% over 2005. Early indications in 2007 suggest that this pace is set to continue. Wind is the largest sector (followed by biofuels); however, shortages of key components (e.g. wind turbine gearboxes) have slowed down the rate of installation. New financing structures have emerged as an increasing number of traditional and innovative investors become attracted to RE, especially wind energy.

Mergers and Acquisition (M&A) activity was up 34% in 2006, with deals valued at $16.9 billion. Most activity was in the wind sector – more than 40% of deals by value. Leading players in the renewable energy sector are placing strategic stakes. Increasingly, manufacturing companies are looking to vertical integration to secure supplies of key components. There is a trend towards companies in developing countries acquiring assets in OECD countries, suggesting a buy rather than build approach. Widespread availability of cheap capital is enabling this strategy.

RENEWABLES IN INDIA: POTENTIAL & PROSPECTS

Table 1 below demonstrates the renewable energy potential in India upto 2032. This is a medium term projection and does not include quantification of the huge solar potential. The 45,000 MW potential of wind is a conservative estimate and with the growth in unit size of turbines, greater land availability, and expanded wind resource exploration, this potential should go up significantly up to 1,00,000 MW. The possibility of technology leapfrogging in the renewable sector is also considerably great. Even at the conservative total estimated potential of 1,72,000 MW (without considering the solar energy sector), the investment potential in the country is Rs.8600 billion! In fact, an  urgent assessment of the potential of electricity generation from solar energy in India is essential. This is more so because of the recent growth of Concentrating Solar Power (CSP). The Global Market Initiative for CSP plans to add 40,000 MW from this source by 2030. This technology will be highly competitive with conventional power. The other advantage is its capacity to produce power even in the night with the use of storage media like molten salt, etc… The desert areas in India have the solar radiation required for CSP production. A 60 km x 60 km area can produce 1,00,000 MW of power. We have a desert area of 2,08,110 sq kilometres in Rajasthan and Gujarat. Even if we use only 15,000 sq. kilometres of the desert, we can produce 3,00,000 MW of power.

The R.E. power production  potential in India can easily be scaled up to 6,00,000 MW in the future through multifarious sources and new energy technologies. India also has considerable potential for production of biofuels. The current estimates are over-optimistic. But if properly planned and executed, India's investment potential in biofuels can grow to the same levels as in renewable power generation technologies. Other potential investment destinations include a whole host of downstream production facilities, components development for renewable power technologies, manufacture of silicon cells and films for solar panels, co-gen applications in industries, solar thermal devices, etc. Two critical thrust areas to propel and leverage investments in the sector are:

•     Comprehensive policy frameworks for the whole cycle of development of each of these new and renewable technologies."
   

•     Innovative, affordable, and sustainable financing mechanisms to facilitate investments.

 Wind power is the only renewable technology which has a reasonably good policy framework in the country.  But much needs to be done in the area of solar energy. Similarly, there is an urgent need to evolve a comprehensive and realistic framework for biofuels development in the country.  

THE FUTURE IS IN DISTRIBUTED AND RENEWABLE GENERATION

In the not too distant future, power plants will shift from large, remote centralised stations to rooftops, basements, backyards, driveways or your nearby hill ranges. This transition will be accelerated by incentives like risk reduction through increased system resilience, avoided transmission and distribution grid investment, highly reduced gestation periods, economies of scale in production of smaller, modular generation units such as combined-cycle gas turbines, wind turbines, photovoltaic panels and fuel cells. The internationally acclaimed energy expert Amory Lovins makes the following prediction: “The central power plant, like much bulk electric transmission, will soon become a white elephant, uneconomic to run, and difficult to sell. Such plants are unlikely to survive in significant numbers by 2030 in any market economy. Unpleasant vulnerabilities built into the architecture of brittle, highly centralised systems could accelerate this trend towards smaller and more localised electricity generation.” Distributed generation has the following features, viz. located near the consumers or on-site, connected at the distribution end of the grid or no grid and size of individual units would be small, ranging from few kilowatts to few megawatts. It also has the following advantages, viz. easy access to power for tail-end users like rural people, avoids high transmission and distribution costs, provides reliable and quality power, is energy efficient and climate friendly. Distributed or decentralised power generation is the perfect complement to decentralised development, decentralised governance and local economy. It is predicted that by 2010, 25% to 30% of the new generation will be distributed. The petroleum major Royal Dutch/Shell Group, which has made a big foray into renewables, have come up with a report predicting that half of the world’s energy supply by 2050 will be from renewables. Amory Lovins feels that this is not only highly likely, but could be surpassed.

The benefit of a renewable-based distributed and decentralised generation system are many:

•      Environmentally benign methods of energy products. It will help in climate change mitigation.

•      Sustainable energy is the pre-requisite for sustainable development. Such a transition is imperative to sustain the process of development.

•      Freedom from import dependence and benefit from energy autonomy or independence.

•      Decentralised production and consumption of energy, thereby increasing access of rural and deprived sections to energy, generates large scale employment in rural areas.

•      Facilitates infrastructure development in rural areas.

•      Results in greater social equity through better access to energy, increase in rural incomes, etc...

THE MODEL LAW AND THE WAY FORWARD

      It is the conviction that renewables are the future of the energy sector, and their accelerated development is imperative for our energy security and the institutional philosophy of striving for concrete action that spurred WISE to undertake the task of preparing a model legislation. The Model Law was first presented in a seminar held in New Delhi on 25^th August, 2005. Thereafter, a Working Group chaired by Dr. Pramod Deo, Chairman of MERC was constituted to pursue its advocacy. The Working Group has so far taken many initiatives to promote this idea. Another one day seminar was held in New Delhi on 16 March, 2007, which was especially organised for the purpose of promoting advocacy of the law, and to pursue it to its logical conclusion viz: adoption by the Indian Parliament. This seminar being held at Chennai on 24 August 2007, is a continuation of our advocacy effort.

The Process

WISE has done extensive documentation on the subject and has been studying legislation relevant to renewable energy as enacted by a number of countries like UK, Germany, Austria, The Czech Republic, Denmark, Australia, Peoples Republic of China and the United States of America.  Besides, all 15 European Commission countries have legal and policy frameworks for promotion of renewables in the form of ordinances, decrees, etc. Many countries have sector-wise laws and ordinances for compulsory purchase of renewable power, promotion of specific technologies like biomass, wind power, geothermal energy, etc. All these countries have general Electricity Acts/Energy Acts and yet they have decided to enact separate legislation for promotion of renewables. It is time India also does the same thing. The Electricity Act, 2003, does not adequately address issues relating to renewable energy development.

      To complement its in-house expertise in renewables with that in jurisprudence, WISE has sought the help of the National Law School of India University in Bangalore, particularly of CEERA, the law school’s Centre for Environmental Law, Education, Research and Advocacy, to prepare a model legislation for India. WISE has also constituted a committee of eminent specialists to review successive drafts of the model legislation and to give final touches to the document to be tabled at the conference. We have received support of international legal experts through The Renewable Energy & International Law Project (REIL) of REEEP (Renewable Energy and Energy Efficiency Partnership) Vienna. A write-up on REEEP/REIL is also included in this compilation. 

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